5 Steps To Take If You Want To Passively Invest In Real Estate

Have you ever met anyone that seems to have a life that you’ve always wanted?

You know the person. When you ask “What do you do for a living?” in a polite social interaction, the answer you get back is something like “I spend my days enjoying my family and travelling”.

Your first reaction is to assume that this person is retired, but they appear to be around your age. So out of curiosity, and a bit of jealousy you ask, “Are you retired?”. The person inevitably responds “No, I invest in Real Estate”

There have been many times when I have encountered this situation and I used to chalk it up to the person being being well connected with all the right people.

However, after having one too many of these conversations, it began to drive me insane. These people didn’t seem to possess any special talents or insights. They all seemed like regular people, but somehow, figured out a deeply guarded secret that allowed them to take control of their time and financial future.

After this realization I began searching the internet to figure out the magical solution. How could these people merely invest in real estate and somehow have control of their time and finances? They must have to spend countless hours managing properties and fixing maintenance issues, right?

After spending too much time searching through countless websites and suffering through many pitches promising to teach the “Secret” it finally came to me. What these people had figured out was how to invest in assets that allow their money to work for them while they do other things!

This realization made it sound so simple that there had to be a catch. Right?

Turns out there is a catch after all. Not all passive real estate deals are created equal and not everyone’s investment strategies and risk tolerances match.

There are a lot of deals out there and many companies offering ways to passively invest. The vitally important “Secret” that these people figured out was to understand their financial goals and find investment vehicles that matched.

This realization compelled me to compile a list of ways that YOU can begin investing YOUR money in places that meet YOUR investment goals while building a Real Estate portfolio that will offer you the opportunity to take control of your financial future on your terms!

Step 1: Identify your financial goals

This one seems simple enough but there are many factors to take into consideration:

· Are you investing to contribute to your overall retirement plan?

· Is investing in Real Estate something that you are doing because it feels like you should diversify your investment portfolio?

· Will passive investing eventually become your main business or a side hustle to supplement your day job?

These are really important questions to ask yourself prior to spending any money on any Real Estate deal. Not all deals are created equal and all have different end goals. Identifying what your “Why” is for investing in Real Estate will be a good guide post of whether a particular investment will be worth pursuing.

Step 2: Identify your risk tolerance

Not all risks are created equal and there are many risks involved in investing in Real Estate. So here are a few questions to ask yourself to determine what your tolerance for risk is:

· What percentage of your overall available investment funds are you willing to put into a deal?

· How long are you willing to have your investment tied up?

· If the project fails, how will this affect your overall financial health and investment goals?

· What are your expectations on the overall return of an investment?

There are many deals that fit all types of risks and the higher the risk the higher the return should be. Just remember that if a deal is offering returns that are MUCH higher than the average for that specific asset class. If this is the case then there is usually something driving the higher return assumption that and the risks are generally higher.

Risk tolerance is a personal thing determined by your overall goals. Our recommendation:

make sure that you understand how any deal or investment fits into your investment goals. You need to also be sure you understand how the anticipated returns will be generated as well as the probability the management team will deliver the forecasted returns.

Step 3: Determine how involved you want to be in the project

There are many different types and structures of Real Estate deals. It is important to identify which type(s) match the amount of time and effort you’re willing and able to put into a project. When choosing a type of investment you must ask yourself the following questions:

· How much time are you willing to spend on this investment?

· How quickly do you want to have your investment returned?

· Do you want to find and vet the deal?

· Do you want to have access to many deals that you can choose to invest in?

Passive investment is a bit of a misnomer. No matter what type of asset class that you invest in there will always be a time requirement. Some investments require more time than others.

Answering these questions will help you determine what type of investment will fit your goals the best.

For example: If you want to have a lot of activity in the project and want your money back quickly then finding and funding flips might work for you. OR if you want very little responsibility but want to see what type of deals are available than a Real Estate Syndication Website might be a better option for you.

The most important thing is to ask yourself how much control you are willing to relinquish and time you are willing to put into the project.

Step 4: Identify your investment type

There are many different investment types. You can invest in anything from Single Family Fix and Flips all the way to Class A 200+ unit multifamily assets. Determining which projects you are willing to invest in will save you time and help you identify which types of projects work best for your goals. Here are a few questions to ask yourself:

· What are your return expectations?

· What are your time expectations?

· Do you want equity?

· Do you want to fund debt?

· Do you know any experts that specialize in any of these types?

· How much money do you want to invest?

These questions relate back to the goals and risks that you identified earlier. Each type of investment fits different goals and it is important that the type of deal matches what your expectations for returns, time and risk.

Step 5: Identify who you want to partner with

Just as there is a seemingly endless supply of projects and real estate investment types, there are just as many companies and operators that are looking for people like you to invest with. Before you go putting your hard earned money on the line with the first operator that comes your way, here are a few questions you need to answer:

· What type of experience are you expecting the operator to have?

· Are they an expert in the type of project that they are offering?

· Do they have a team in place that you are confident can execute the business plan?

· Have they met their forecasted returns on previous deals?

· Do you want to meet them in person or are you willing to invest over the internet?

· How did you meet them and do you trust your contact?

There are many more questions that need to be answered prior to partnering with an operator and investing your hard earned money. These questions are meant to get you thinking about the type of operator that you expect when thinking of investing with them.

Conclusion

There are many factors involved when it comes to deciding whether or not to begin passively investing in Real Estate. These are a few of the questions that you should have answered prior to dipping your toe into this amazing industry. It seems complicated and there are many things to consider when investing in anything and Real Estate is no exception.

The most unique thing about Real Estate though is that it is the only asset class who’s has the motto “Real Estate is a team sport”. It truly is and there are an innumerable amount of individuals that are passionate and want to help you make money. But just like everything else out there, you need to make sure that the project matches your investment goals and criteria.