With inflation and interest rates continually rearing their ugly heads, the image of your toes in the sand and favorite cocktail by your side may seem a tad out of place in the current economic environment.
But what if your portfolio were balanced out enough to weather the various storms and still give you some peace of mind, without having to constantly manipulate your personal portfolio to adjust for market volatility?
Many investors fear that with the recent rise in mortgage rates that the best days of real estate investing are long gone. The easy money has been made, the markets are too crowded, and “flippers” fed endless piles of fairy tale opportunities—courtesy of reality TV—watch as reality comes crashing down.
But what if you could add some diversification to your portfolio by tactically adding real estate? And what if it meant you were not required to be another Mr. Furley or Mr. Roper (your landlord of choice depending on if/when you ever watched Three’s Company.)
Taking those initial steps are not easy if you don’t know where to start. Investing in real estate has long been considered a powerful force to create multi-generational wealth. Land is one commodity that is incapable of being manufactured beyond what already exists.
Real estate can offer the advantages of risk-adjusted leverage, massive tax breaks, and serves as a powerful hedging tool against inflation. When done correctly, it can provide consistent, above market returns especially when it comes to property appreciation. It can often come with a fraction of the risk that the overly inflated and volatile stock market and other “traditional” investment vehicles offer.
Most savvy investors understand this and recognize how the benefits of real estate check every box for creating a diversified, risk-adjusted portfolio. Yet many still hesitate out of fear of the perceived “time commitment” or exuberant amount of upfront capital required when it comes to managing a real estate portfolio.
No Toilets or Tenants
Passive investing in real estate does not make you a landlord.
Fixing toilets and answering angry complaints is not a valid use of your time. When it comes down to it, time is THE most precious of all commodities. So why not harness the power of that commodity and make it work for you?
An experienced real estate syndicate will allow you to invest your money alongside them in their deals as a Limited Partner. You get to leverage their time, expertise, deal flow, and infrastructure. This allows you to participate in the cash flow and appreciation of the investment without sacrificing any time or other resources.
It’s almost like crowdfunding for a real estate investment (just with more sophisticated investors).
You, along with the rest of the syndicate members, purchase a portion of interest in a property or real estate project, almost like owning shares in a publicly listed company. The capital that is raised by the syndicate goes to the real estate developer to invest in building, renovating, or recapitalizing a property (or properties) which creates a return on investment (“ROI”) for each investor. That doesn’t mean there isn’t a certain level of homework and investment savvy that is required to be successful.
Do Your Due Diligence
The first step—just like in any investment—is conducting research.
Who are the experienced real estate syndicators or fund operators in a location that is of interest for you? Interview them no differently than if you were interviewing a new money manager.
Ask about previous investments and their investment thesis to ensure their business model aligns with your investment goals.
The interview is often a two-way street, as the operator will want to make sure that you are someone they can work with should there be an opportunity to participate in their next syndicated deal or fund opening.
Like any other investment literature, thoroughly research the Private Placement Memorandum (PPM). Before you sign anything, make sure you have thoroughly vetted everything to your satisfaction.
Once signed, you are in the club!
This is obviously a bit of an oversimplification of the process. As in any successful investment, significant research, due diligence, and a clear sense of investment thesis is the key. Understanding the process and finding a reputable operator with quality deal flow is a relatively straightforward process.
As in any successful investment, significant research, due diligence, and a clear sense of investment thesis is the key
However, if managed properly, passive real estate investing can be a great alternative to secure above market returns with reduced risk.
You can’t necessarily save time in a bottle, like Jim Croce lamented, but you can make it work for you.
Lee Arnold is an Internationally recognized speaker and a 30-year veteran in the real estate industry. He’s been featured in articles in Forbes, the Boston Globe, Market Watch, Reuters, and Business Week. As CEO of Secured Investment Corp, Lee has guided the company from a one-man operation to a multi million dollar company that connects investors with private lending opportunities and alternative investments in real estate. Click the following link and hit subscribe for Lee’s latest videos on YouTube.
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