What Are The Advantages
Let’s take a look at the advantages first. A real estate partnership gives you:
- Offers a range of talent: The old adage “two heads are better than one” certainly applies to real estate investing partnerships. Partners can bring various characteristics to add to the flavor of the business partnership. Maybe one partner brings considerable business savvy and an in-depth real estate background and another brings creative marketing experience and ideas to the table. The more people in the mix, the more flavorful the talent and a variety of ideas can sprout as well.
- Divides up the workload: Maintaining all day-to-day operations might be difficult for one person, so dividing up the workload can ease the stress on one person.
- Can combine resources: Having a partner can add considerable cash flow to a real estate partnership opportunity. It allows real estate investors to take on projects they wouldn’t normally be able to access on an individual basis.
Be Open About Potential Investment Opportunities
When you’re looking for a partner, you need to be open about any potential investment opportunities that come your way. You can’t keep them to yourself for fear someone will scoop the deal from you. After all, investors are drawn to opportunities. If you put a deal out there, it will probably pique someone’s interest and they’ll want to work with you.
If you find a great opportunity in your local market, make it known. While you don’t necessarily have to post about it on one of your social media groups for everyone to see, share this information with a few connections you trust. You never know what kinds of relationships you’ll end up forming from a single hot tip.
Where To Find An Investor
Because investor friendly real estate agents are in big demand, finding a good one can be challenging. Oftentimes, theyve reached the point in their careers where they have so much referral business they can pick and choose the investor clients they work with.
Fortunately, there are several ways that you can find an investor real estate agent:
As mentioned above, you can see Roofstocks Certified Agent Network listed on the details pages of Roofstock Select properties here. These agents work with Roofstock investors and can be a great resource as you look for an investment property.
NAR designations and certifications
The National Association of REALTORS offers a variety of designations and certifications to real estate agents to improve their skills working with investors:
- Real Estate Investing / REI is a certification program for agents who want to master the ins and outs of working with real estate investors, as well as those who are establishing themselves as investors
- Short Sales & Foreclosure Resource / SFR trains agents to work with distressed sellers with pre-foreclosure and foreclosure properties that could be turned into good rental property investments and
- Certified Commercial Investment Member / CCIM is commercial real estates global standard for achievement. Although originally created for CRE professionals, the single-family rental asset class is attracting more interest from commercial real estate practitioners.
Property management companies
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What Are The Risks
Consider these risks before you choose to dive into a real estate partnership:
- Work styles or opinions may differ: Inviting another person into the fold can create personality or management style conflict.
- Partners may not contribute evenly to the workload: When partners don’t contribute to their share of the workload, it can cause complications. One may feel as if he or she deserves more capital for the amount of work put in, which could lead to a partner’s early exit from the partnership. You can mitigate this risk by making sure the partnership agreement is clear at the very beginning.
- Split earnings: Splitting earnings could completely undermine cash flow earnings between partners, particularly in a bad real estate environment or lackluster investment.
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What Is Real Estate Crowdfunding
Crowdfunding is a way to fund a project or venture by pooling small investments from a large group of investors. The idea is that when enough people make small investments, itâs possible to raise substantial amounts of money quickly. One of the most well-known crowdfunding sites is GoFundMe, a platform used to raise money for everything from creative projects to medical bills.
Real estate crowdfunding raises capital for real estate investments. When developers or real estate professionals find investment opportunities, they may not want to fund the entire investment themselves . Thus, they turn to crowdfunding to let individual investors help finance the project. The process enables investors to invest in real estate without owning, financing, or managing properties.
Real estate exposure without having to own, finance, or manage properties
Low minimum investment, so you can access assets that would be unaffordable otherwise
High profit potential through distributions and a lump-sum return at the end of the investment
Automatic investing on most platforms
Illiquid, so your money may be tied up for at least three to five years
Higher risk than other types of equity investments
High fees, depending on the platform and investment you choose
Some opportunities only for accredited investors
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Uncover The True Strategy
The reason the return on cost is so useful is that it gives you a baseline for asking questions. If the planned ROC for properties to be acquired in a fund is 7.0%, but the fund manager is promising a 12.0% return to investors, then obviously there is a disconnect. And the question that may be asked is what that difference isis the plan to finance the properties at a lower rate? Is it to sell the properties at a premium? Is it that the manager expects the market rents to grow over time? A combination of those things? something else?
The answer to that question will usually tell you what the real strategy of the manager is, and what the inherent risk they are asking you to take is. Knowing the strategy, in turn, will help you make a more informed decision about the investmentfor example, if the disconnect is future growth in rents, do you believe that thesis? If its a sale of the property at a premium in a few years, is there evidence that it can be sold at the proposed price? And so forth.
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Putting It All Together
While the sections thus far lay out the main issues to consider in making an investment in a private real estate offering, no investment will check all of the boxes. In some ways, this is by design. There is a market for these types of investments, and the price that an investor can charge for their capital is often inversely related to the demand for the investment in the marketplace. For example, a very experienced sponsor investing in an in-demand sector will often demand sponsor friendly fees, carried interest, and terms, and may limit the degree to which investors are able to exert control after committing to invest. Alternately, a new manager may provide a better set of terms and investor rights and lots of direct access but may not have the same type of track record or may operate in a less well-known sector.
Because of this balance, having the full picture of an investment opportunity and a complete evaluation prior to a decision to invest is important. One tool that can be useful to investors is a scorecard document that allows the evaluation of each element of an opportunity in isolation, and then the chance to view and think about the investment as a whole rather than focusing on its component parts.
Stay Active On Social Media
Lastly, you may be able to find social media groups targeted at real estate investors. Similar to real estate investing clubs, these groups help you network and facilitate connections so you can find a real estate partner. Your goal: Be active in the conversation. Ask questions of more experienced investors and comment on other people’s posts.
If you’re unsure of where to start, and LinkedIn are probably the two social networks most helpful in facilitating partnerships. In particular, LinkedIn is a good bet because those interested in forming a real estate partnership can see your experience on your profile.
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Pros: Paying upfront significantly improves your opportunity to purchase real estate since it removes any financing question doubts in the seller’s mind. Paying cash enables you to acquire properties at significant discounts in exchange for the convenience cash offers. In addition, paying cash saves buyers a lot of money in interest expenses that come with private, hard-money or conventional loans.
Cons: This one is all about risk versus reward. Paying in cash is a safer, more conservative approach, but it caps your potential gains. Think about it this way: If you invest $250,000 in cash and then rent the property for $2,000 per month, youll see $24,000 in gross revenue per year, or a 9.6% gross return on investment. Alternatively, if you make a $50,000 down payment, then take out a 30-year mortgage at 5%, youll pay $977 per month in principal and interest. Rent that property for $2,000 and subtract the mortgage payments, and you have an annual gross revenue of $12,276 nearly 25% gross return on the initial $50,000 investment in just the first year. Although this explanation is oversimplified, it illustrates the leverage that your money can give if you choose other financing options.
Paying with cash certainly provides security and stability, but removing the risk dramatically reduces the potential reward.
Option 2: Finance your property with a private individual lender.
Option 3: Finance your property with hard-money loans.
Which option is right for me?
How Does Crowdfunding Work In Real Estate
Real estate investment platforms connect investment opportunities with funding. Most real estate crowdfunding deals have a sponsor, a crowdfunding platform, and investors. Hereâs a quick rundown of how it works:
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Forming Partnerships To Invest In Real Estate With Little Money
Real estate partnerships are common for investing in real estate with little or no money. If you want to invest in a property, but the price tag is out of range, then an equity partnership may be what you need. An equity partner is an individual whom you bring into a transaction, to help finance a property. There are different ways that partnerships may be structured, and thus it is up to the buyer and the partner to agree on a more viable structure.
Look For Seller Financing
Another way to acquire property with no money down is with help from the seller.
The borrower repays the loan as specified in its repayment terms that are detailed in the formal agreement.
This works especially well with sellers who have no mortgage.
For example, this can happen when someone inherits a property and does not want to keep it.
For sellers that are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.
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Home Equity Line Of Credit
A home equity line of credit, popularly known as a HELOC, is what people can use if they have already purchased a home and have some equity tied up in it. For example, lets say youve lived in your primary residence for 10 years, all the while paying down the mortgage and benefiting from appreciation. The appraised value is now $500,000 and your mortgage payoff is $250,000. You can take out a HELOC to tap into the $250,000 of equity you have in the property . You can then use this $250,000 to purchase on an investment property.
You can also use a service like , which is an alternative to getting a loan. Hometap doesn’t provide loans but invests in the property’s equity. You get the cash to spend as you want, for example, on buying a second home or rental property. Then you settle Hometap’s investment in your home or sell the property before the end of the 10-year term.
Benefits Of Hiring An Investor
There are several reasons why hiring an agent with a strong understanding of real estate investing can make good business sense:
1. Identify Market Trends
A good investor-friendly agent knows the local market and which micro markets or neighborhoods may be ripe for the best investing deals.
Once your agent knows the type of property youre looking for such as a single-family rental, small multifamily building, or value-add rehab he or she can help you zero in on the deals that are the best match for your business plan.
For example, a certain neighborhood or even specific street may be an up and coming area that is still under the radar screen of the general public. An experienced agent with a finger on the pulse of the local marketplace can help you find properties with the greatest profit potential.
2. Locate On and Off Market Listings
While its possible to find attractive investment opportunities on the MLS, the best deals are oftentimes the ones that are not yet listed for sale. Because investor-friendly agents work with other local investors, youll have access to pocket listings or off-market property owned by fellow real estate investors.
There are a number of reasons property owners sell off market, such as not having to deal with the general public or disrupting the tenant with showings. Instead, they may list their rental property on sites like the Roofstock Marketplace.
3. Calculate Potential Returns in the Local Market
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Don’t Give Up But Don’t Settle Either
Part of finding a real estate partner is knowing when to persevere. Odds are you probably won’t nail your very first real estate investment pitch. However, don’t give up after your first try. Instead, try to keep making connections. It may take a few attempts, but eventually, you’ll find someone interested in what you have to offer.
You don’t want to settle for just any real estate partnership, either. Ideally, you’ll find someone with experience and skills to complement your own, as well as someone with whom you’re on the same page about your investing strategy. Don’t be afraid to keep looking for a partner until you find the right fit.
Be A Resident And The Landlord: Buy A Multiunit Home
Your primary residence doesnt have to be a singlefamily home. Multifamily homes can be a great way for novice real estate investors and aspiring property managers to get started buying properties that generate income.
First, with the help of a professional, find a good real estate deal on a 24 unit property. These homes are typically known as multiunit properties.
While living in one unit, youll rent out the others. You can then use the rent payments to help offset your mortgage payment.
The key here is that you can buy a multiunit property using an affordable financing option like an FHA loan or VA loan as long as you live in it, too.
Mortgage programs like FHA loans dont just have good rates and terms. They also give you options for covering the down payment.
If not, thanks to Federal Housing Administrations low down payment loan requirements, borrowers with good credit only need 3.5% of the purchase price for the down payment with either a traditional FHA mortgage or the FHA 203K loan, which is wellsuited for fixer uppers.
You may be outofpocket with some upfront costs, but it will be less money than 20% down.
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Fees And Carried Interest
With the advent of low cost ETFs and the broad success of modern investment management ideas, its hard to have a discussion about any investment these days without a discussion of fees and carried interest. This is a difficult topic when it comes to real estate investments, as the industry remains somewhat of a Wild West with respect to how sponsors are paid. Most other investment classes have, if not perfect adherence to a standard, at least a basic established orthodoxy about what should be charged and how things should be structured. Not so in real estate funds.
The driving factor behind this is that, first, a real estate investment fund requires varying levels of management time and effort, and, second, are highly structured and capital intensiveand therefore have a wide variety of potential capital options and alternatives that are considered when an investment is made by a sponsor .
Based on the above, for example, a fairly large fee may be entirely appropriate for a development project that requires a sponsor to hire full-time staff to manage and focus on the project, or for a specialized debt investment that requires a large amount of business development time to identify and negotiate new opportunities. Those same fees may be wholly inappropriate for a long-term buy-and-hold fund that is doing nothing more than acquiring properties and sitting on them.