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 diversify 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. For example: 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 for someone to get started in real estate investing is to partner with someone who knows what they are doing. There are a lot of experienced investors who would love to enter into a joint venture with someone new who is looking to invest.
To find an experienced investor to partner with, check out the local real estate investing groups. A lot of times, 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 where the “new” or “busy” investor puts up all or part of the down payment and the closing costs, and purchases the property. The “experienced” investor, in turn, does all or most of the work. They find the property, the tenants, negotiate the purchase, arrange for the financing, manage the property, and take 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 is clearly defined and to ensure that the allocation of profit and income from the investment are also clearly defined. The agreement should also specify the exit strategies for each party.
A properly completed and executed joint venture agreement will help avoid any disagreements in the future. I have seen a lot of partnerships fail because of misunderstandings between the partners.
If you have an opportunity to invest in multiple properties with a specific 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 reduce their risk significantly. A lot of 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 (REITs)
Other popular investment alternatives for busy people looking to invest in real estate are REITs. 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 diversity 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, that are 100 percent owned by you, there are lots of things you can do to protect yourself from losses. First of all, in a down market where some people are no longer able to afford living in their homes, the amount 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, 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 chose to partner for one deal or the first couple of deals until you learn more or you could partner on all your deals.
Busy people just want to invest in real estate to make money. So if they can make good returns on their investment, they should partner with an experienced investor.
Most of the joint ventures that I have done 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.