Important Things for Busy Real Estate Investors

If you’re like a lot of working professionals and business owners, you’re likely to be aware of the advantages to investing in real estate but lack the time or the desire to actively participate in the day-to-day activities of your investment. If this sounds like you then you might be thinking what?Investment Opportunities in Real Estate ?are accessible to investors who are not actively investing? Don’t waste time because this article will discuss the most sought-after investments for real estate investors who are passive as well as the advantages and cons of each.

Partnerships

Partnerships are an extremely common way to get exposure to real estate investment opportunities, even as an investor who is passive. A partnership could be composed of all general partners, or a mixture of limited and general partners. General partners manage the day-to-day activities of the company and are subject to unlimited liability. However, limited members’ (aka financially or silent partners) responsibility can be limited by the value of their investment, they typically do not take part in day-to-day activities.

Partnerships are flexible and allow investors to pick among a wide range of investment options, however fixing and flipping are among the most commonly used. They usually form partnerships among family, friends or close friends in situations where one or more people are looking to buy property to rent or sell and do not have the money required to make an initial down payment or carry out the renovation. In these situations, the person who is looking to purchase the property, also known as the general partner, will look for the financial or limited partner, who will help with the capital needed to complete the transaction. Because the partnership is an equity investment, both limited and general partners have the opportunity to enjoy positive side effects and the tax advantages associated with the investment. Furthermore, the close-knit nature of partnerships may help investors who want absolute transparency and security when investing. Partnerships have their downsides, including limitations in opportunities and lack of an experienced management team because they typically originate from the members of your personal circle.

Syndications

The syndications are usually designed as partnerships, which differ in the fact that instead of getting capital from close family members and friends the capital is pooled from various investors who are called general partners (sometimes called management team) might do not have a relationship with.

This allows syndicates to raise more capital, and also purchase larger properties which includes:

● Multifamily Apartments

● Mobile Home Parks

● Self-Storage

● Office Buildings

The properties can be purchased and then held to generate cash flow, then implement the Value-added strategy to boost the property’s value or both. Due to the sheer size and legal conditions for the model of syndication the opportunities are typically designed by a professional management team with a proven successful track record, and focus more on offering investors solid returns than the typical partnership. The drawback is that syndication programs require minimum investment that range from $25k to $50k or higher, and a majority are limited exclusively to qualified investors.

Funds

Funds are like syndicates, however instead of general partners raising capital, they raise it one deal at one time. They establish a fund and pool capital from investors to buy various properties to fund the fund. The advantage of investing in a fund is that you’ll still reap the same advantages as?Investing in a Syndication . However, the risk is spread across several properties, not just one. The disadvantage is that in contrast to a syndicate or partnership in which you are able to select the property you want to purchase, you’re entirely relying upon the experience and know-how from the principal members (aka managers) to select winning properties for you, and generally without your permission.

REITs

Real Estate Investment Trusts (REITs) are businesses that operate, own or finance properties that generate income. REITs may be privately owned or traded publicly however, we will concentrate on the latter since that’s what people have the ability to access.

REITs may fall under some of these classifications:

● Equity

● Mortgage

● Hybrid

Equity REITs have property that earns income. It can be focused on a specific geographical area and asset class, or plan of investment, or be diversifying. Mortgage REITs manage mortgages either directly or through mortgage-backed securities. They are the same as they sound — they are a mix of properties and mortgages. The advantages of REITs include their liquidity, the low barriers to entry, and diversification and generally pay high dividends, as they are required to pay at the minimum of 90 percent of the tax-deductible profits to shareholders. Since REITs are traded on the public market and have a strong connection to the general financial markets, like stock markets, the liquidity can be an unintended benefit and could cause extreme fluctuations during times of turmoil. As opposed to the other equity investments mentioned above, REITs do not carry the same tax benefits as their investors.

Debt Investments (Notes)

Note investment or private lending, occurs when an investor (lets refer to this investor as the lender at present) lends another investor capital to buy or improve real property. In essence, the lender becomes the bank. The investor will then issue the lender a promissory note that could or might not be secured by real property. The lender will receive interest to pay for loans. The rate of interest can be whatever the two parties decide to, but it will typically be between 6% to 15%, depending on whether the loan is considered to be a hard or personal money loan. The term “hard-money” is usually an asset-based, short-term loan (as in contrast to your creditworthiness) that ranges from six months to one year. It cannot be secured with collateral. Hard money loans are often utilized by fix and flippers and due to the higher risk involved with this kind of loan and the rates of interest can be extremely high, and range between 8% and 15%, and can also contain points. Private loans can be generally longer-term loans (i.e. 5–30 years) and are determined by the person’s creditworthiness and are backed by real estate similar to an unsecured mortgage from a bank. Since they are less risky with those loans, their rate of interest is usually lower than hard money.

The Bottom Line

Every one of them has their own advantages and must be considered prior to deciding your overall?Investment Strategy .

Which of these cars will work best for you?

It is contingent on a variety of aspects, such as the amount of capital you are willing to invest, your time period, the desired rate of return, and your risk tolerance. Equity investments, including syndicates, partnerships and funds offer an excellent upside potential and could be the perfect option for investors looking to expand their capital base. However, they are a little more risky as compared to debt-based investments. Debt-financed investments can give investors an income stream that is steady and are less risky, however, they do not have the upside potential from equity-based investments.

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