Most people get into real estate investing not because they like real estate. Most people get into real estate investing because they want to make money. It’s that simple.
Real estate has been the number one investment that most people turn to when they are looking to diversifying their portfolio.
The problem with real estate investing is that it’s hard. To get started and to do it right, you need to know a lot. Some examples of questions to ask are: How do you evaluate an investment? How do you make the right offer? What’s the right mortgage to get? Where do you find tenants? How do you manage the property? Lots to know! Lots to learn!
But most people don’t have the time or interest to learn all these things. People have jobs, families, and lots of other things going on in their lives. So how can these “busy” people get started in real estate investing? Simple …
Joint Venture With an Expert
The most effective way to get started in real estate investing is to partner with someone who knows what he or she is doing. A lot of experienced investors would love to enter into a joint venture with someone new looking to invest.
To find an experienced investor to partner with, check out local real estate investing groups. Often you will see people advertising for investors in the classifieds under the financial or real estate services sections.
The most popular joint venture is one in which the “new” or “busy” investor puts up all or part of the down payment and the closing costs, and purchases the property. Meanwhile, the “experienced” investor does all or most of the work, including finding the property and the tenants, negotiating the purchase, arranging for the financing, managing the property, and taking care of all maintenance and repairs.
The result should be an investment that provides a profit for both parties. The profit is split based on the terms of the joint venture agreement, but it’s typically split 50/50.
Joint Venture Agreement
A joint venture agreement should be put in place to make sure the responsibilities of each party as well as the allocation of profit and income from the investment are clearly defined. The agreement should also specify the exit strategies for each party.
I have seen a lot of partnerships fail because of misunderstandings between the partners. A properly completed and executed joint venture agreement will help avoid any disagreements in the future.
If you have an opportunity to invest in multiple properties with a single partner, you should consider a separate joint venture agreement for each property, with different terms and, specifically, different start and end dates.
The big advantage of new investors partnering with experienced investors is that it helps to reduce the new investors’ risk significantly. Investors typically don’t make money in their first couple of deals if they do it themselves. Some even lose money, which is obviously not what you want to do.
Real Estate Investment Trusts (REIT)
Another popular investment alternative for busy people looking to invest in real estate is real estate investment trusts (REIT). A REIT is basically a vehicle that invests in properties and/or mortgages.
You invest in a REIT by buying shares in it, just like you would invest in stocks in the stock market. But that’s the problem with investing in REITs: It is like investing in any other stock. You are at the mercy of the company running the REIT.
Yes, the REIT may seem to provide diversification by investing in multiple properties, but a down market will affect the majority of properties, as seen during the market crash of 2008.
However, if you invest in your own properties, i.e. those that are 100 percent owned by you, there are many things you can do to protect yourself from losses. First, in a down market where some people are no longer able to afford living in their homes, the number of renters increases. So if you own a rental property, it would become easier to rent. And because there are so many renters, your rents could actually increase.
From an income (rent) perspective, you have more control by owning your property as opposed to investing in a REIT.
Investment Pools and Syndicated Mortgages
Another investment strategy for busy people, although not as popular as REITs, is private investment pools and syndicated mortgages. Here, a group of investors pool their resources together to invest in one or more projects, which are usually multi-family dwellings or commercial buildings.
Theses types of investments have the same problem as REITs in the sense that you have little or no control over the investment. I have seen a lot of people lose money in syndicated mortgages due to inexperience and changing markets.
So, if you are seriously considering investing in real estate, and you don’t have the time and interest to learn about real estate, you should strongly consider partnering with an experienced investor. You could choose to partner for one deal or the first couple of deals until you learn more, or you could partner for all of your deals.
Busy people just want to invest in real estate to make money without being responsible for a lot of the work involved. So if they can partner with an experienced investor they trust and are comfortable with, they have a good chance of making healthy returns on their investment.
Most of my joint ventures with my investors have brought in a return of 14 percent per year or more for the other investor. Returns are made from the monthly cash flow, price appreciation, and principal pay down. For more information on profits, check out the column “How to Make Money Investing in Real Estate.”