Why Invest In Real Estate
Real estate can enhance the risk-and-return profile of an investors portfolio, offering competitive risk-adjusted returns. In general, the real estate market is one of low volatility, especially compared to equities and bonds.
Real estate is also attractive when compared with more-traditional sources of income return. This asset class typically trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.
Make Sure You’re Insured
A homeowner insurance for rental properties is sometimes called landlord insurance and is also known as a dwelling fire policy or fire and special perils policy. Homeowner insurance covers your house if it burns down or there’s a break-in. And it pays medical and legal bills if someone gets hurt on your property. When you rent out a home, there’s a higher risk of loss to you and your insurer.
This insurance covers the house itself, other structures on the property , the owner’s possessions, lost rental income if the house is damaged and uninhabitable, and some liability protection for the owner in case of an injury or lawsuit. Read the fine print and all the exclusions.
Landlord insurance is a more expensive must-have that helps protect you, your property, and your tenant. If you have a mortgage, your lender will demand you carry it.
What Is Real Estate Crowdfunding
Crowdfunding is a method for raising money for businesses and an easier way to access such ventures for investors. It utilizes the Internet and social media outlets, such as Facebook, Twitter, and LinkedIn, to reach an audience of potential investors.
The idea behind crowdfunding is that many people are willing to invest a small amount, and when they do, large sums of money can be raised quite quickly.
Crowdfunding offers companies access to capital that they might never be able to raise. Crowdfunding offers investors the ability to become shareholders in a company or in a real estate property.
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How Reigs Work And If They’re Right For You
If you’re new to real estate investing, don’t have a lot of time or money to invest, or would like to invest in larger projects but aren’t an accredited investor, a real estate investment group, or REIG, may be the ideal solution for you. A REIG can be an easy way to invest in physical real estate, receiving competitive returns without many of the demands traditional investing requires. But a REIG is not for everyone, and you must carefully consider your goals and resources before committing to joining a group. Learn how REIGs work and whether they’re right for you.
What About Real Estate Stocks
Easy there, partner. Yup: some investors may prefer to invest in real estate via the stock market, buying shares in companies which own properties and act as landlords, generating income in the form of rent. Because theyre listed companies, of course, the values of their stocks are subject to daily swings
But these companies are also asset-backed i.e. they own real estate which investors can see and touch, which has a relatively stable value and which the company can sell if it needs additional cash. That means their investors should be less likely to take flight in times of market turbulence than if they were backing, say, some tech companies whose assets arent as tangible .
In an economic downturn, however, its worth remembering that property prices may fall as well as stocks potentially hitting you with a double whammy.
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Real Estate Investment Trusts
A real estate investment trust is best for investors who want portfolio exposure to real estate without a traditional real estate transaction.
A REIT is created when a corporation uses investors money to purchase and operate income properties. REITs are bought and sold on the major exchanges, like any other stock.
A corporation must payout 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.
Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the aforementioned types of real estate investment, REITs afford investors entry into nonresidential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly.
More important, REITs are highly liquid because they are exchange-traded. In other words, you wont need a realtor and a title transfer to help you cash out your investment. In practice, REITs are a more formalized version of a real estate investment group.
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Tends to be illliquid with lockup periods
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Management fees
Why Should You Invest In Real Estate
Here are a few pros and cons of investing in real estate:
| Pros | Cons |
|---|---|
| If you invest in physical property, you can control your investment. You could also have a totally passive investment that you dont need to manage. | In a Great Recession type of event, prices can collapse and take down your entire portfolio. |
| Can be a source of steady monthly income payments. | With the amount of leverage required, even small price drops can wipe out your whole investment. |
| Can reduce your overall volatility through diversification and lower price movements in general. | If you choose to flip houses or personally own rental properties, it can turn into a career in itself and use up significant free time. |
| Can lead to long-term wealth through the use of leverage. | Up-front costs can make initial investments difficult. You need to save enough for the down payment and to cover cash flow shortages when there are vacancies. |
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Do You Have A Better Idea Of How To Buy Property With Multiple Investors
We realize that this can be a new topic for some, so we hope our article has helped you learn the basics of buying property with multiple investors. From selecting the right partners to creating a solid real estate operating agreement, you will be on your way to building your portfolio and greatly increasing your wealth! If you have any questions, or would like to speak to a Morris Invest team member, schedule a call. We would love to speak with you, and learn all about you and your partners investing goals.
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Step : Utilize Your Investment Partners For The Best Rehab Strategy
This is where the contacts, knowledge, and skills of multiple investors can really come in handy. For example, you may have a partner who has a large list of established and reliable contractors. Or a partner who has years of experience pertaining to which renovations make sense for the class of neighborhood the property is in. The correct rehab strategy can save you an incredible amount of money, and increase your overall ROI.
When it comes to rental real estate rehabs, its best to focus on the main mechanics of the property. This might include items such as the roof, plumbing, water heater, furnace, electric, and the like. Additionally, painting and replacing the carpet can increase a rental propertys appeal. This will get a paying tenant in place pretty fast. For more tips on what to upgrade, read through our post titled 10 Rental Property Upgrades That Make a Landlords Life Easier.
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Invest In Home Construction
If you look at real estate market growth over the last decade or longer, its easy to see that much of it is the result of limited housing inventory. For this reason, many predict that construction of new homes will continue to boom over the next few decades or more.
In that sense, its easy to see why investing in the construction side of the industry could also be smart. An entire industry of homebuilders will need to develop new neighborhoods and rehabilitate old ones, after all, so now may be a good time to buy in.
Large homebuilders to watch include LGI Homes , Lennar , D.R. Horton , and Pulte Homes , but there are plenty of others to discover on your own.
Advantages Of Buying Rental Properties With Multiple Partners
When looking into how to buy property with multiple investors, its also a good idea to take into account the advantages of doing so. With that said, here is a summary of reasons that make pooling your resources with others a great idea:
Ability to Raise Funds for Rental Real Estate Purchases
Its Easier to Get Approved for Financing with Multiple Investors
Even when you invest with partners who have money to contribute, you may also need a loan to make up for any differences. Its common for the partners who have money to invest, to also have good credit, along with assets these elements seem to go hand in hand. They are the type of checklist items that lenders look for and can significantly increase your chances of getting approved for financing.
Gives You the Ability to Focus on Your Strengths
Allows You to Grow Your Real Estate Business Knowledge Base Quicker
It goes without saying that when you know more and have more experience, you have the ability to increase your wealth. For those who are just starting out who invest alone, you learn from your mistakes, keep improving, and will eventually become a seasoned professional who has created a financial situation reflects that title. The other scenario is to invest with multiple partners, a few of which have extensive real estate investing experience. Any mistakes you are about to make, they can fill you in on the correct way to do things based on their past experiences you just saved yourself time and money.
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Step : Have An Attorney Draft Up A Solid Agreement
You may feel you trust your partners, and some may even be your good friends so what could go wrong? There are many partnerships gone wrong stories that we can tell you about. However, we thought it would be best to just inform you that based on our experience, and the experience of fellow investors, no matter how good you feel about the people you are partnering with, its wise to draw up a rock-solid agreement.
Life changes, and things happen. So, to avoid any potential problems, misunderstandings, miscommunications, partners disappearing, lazy partner syndrome, and the like, it cant hurt to cover all your basis with a legal agreement.
A good real estate operating agreement will detail the percentages of ownership that each partner is entitled to, define roles, responsibilities, and so on. This is a good time to negotiate, if, lets say, you want to have a larger percentage of the profit. You can make your case as to why. For instance, maybe you will be doing more work than the passive partners who will be contributing money. This is also where you place stipulations for a way out, such as buying partners out in certain circumstances.
House Hack Your First Rental Property
As a beginner, a great way to start investing is to house hack. This is a slang term for buying a rental property that you’ll live in at the same time you rent out part of it.
Often this takes the form of buying a duplex. You live in one side and rent out the other side to tenants. Or if you’re single, buy a three- or four-bedroom single-family home and live in one room and rent out the extra bedrooms to friends or peers.
Ideally, house hacking allows you to live rent-free because the rental income from your roommates is sufficient to cover all property costs.
One benefit of house hacking is that you’re onsite to manage the property, so you don’t have to pay for property management when the tenant clogs the toilet. Of course, a downside is that you might not like living in the same duplex as your tenants or sharing the kitchen of your home with roommates in a single-family residence.
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Invest With Friends Or Family
You could invest in property with family or friends. Picture: Getty
Yardley says many potential investors who cant afford a deposit on their own choose to buy the property with a family member or friend.
But that tactic does have some risks.
The benefit is that, combined, youve got two income sources to prove serviceability and give you a bigger deposit. The problem is you are jointly liable for the loan, which means if your friend loses their job or cant keep committing, you are responsible for the whole lot, not for half.
How Do The Banks Assess Joint Mortgages
If you buy an investment property with another person then the banks will assess your slightly differently:
- One person having a high income will make up for the other not being able to afford their share of the repayments.
- One person having a good credit history will not compensate for the other having , unless their income is not required to prove that you can afford the debt.
- will normally be slightly more favourable than for a single applicant.
- The asset position of each borrower is assessed differently depending on the lender you apply with.
Aside from the points listed above, youll be need to provide the standard documentation as if you were applying for a mortgage to buy an investment property on your own.
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Join A Club With People Like You
Make sure the other members have goals that are similar to yours. You dont want to be part of a club with young people who might have a more aggressive investment strategy if you’re close to retirement age. Likewise, you might clash in a club whose members prefer to hold property for a long time if you have a high risk tolerance and like to buy and sell frequently.
Its best to find a real estate investment club comprised of people who think like you do and who can help you reach your financial goals.
Should I Invest In A Multi
In some areas, there could be advantages to investing in multi-unit properties like duplexes and triplexes over single-family homes. In other cases, the opposite is true. Lets go over a few examples.
Scenario 1: In one particular town, you may have found a great duplex with two one-bedroom, one-bath apartments for $125,000. In the same town, theres a two-bedroom, two-bath, single-family home with similar square footage selling for the same price. Both were built in the same year, and while the duplex will make $700 for each unit so a total of $1,400 the single-family will rent for $1,500. The single-family makes sense, right?
Not exactly. In this particular town, the vacancy rate is fairly high. If one unit of your duplex is vacant for 2 months out of the year, youd still collect 92% out of your maximum possible rent. But if your single-family home is vacant for 2 months, youd be losing more money. There are ways to keep your vacancy rates low, and the demand for single-family homes may be higher in certain areas, but sometimes, its simply the luck of the draw. Other times, you get lucky with great long-term tenants!
Scenario 2: In another instance in the same town, a different duplex has connected utilities. In the county, theres an ordinance stating that utilities arent allowed to be estimated and charged to tenants if two units share a meter. The total for the connected meters for water and heat per month is $350 which comes straight out of your profits.
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What Is A Real Estate Investment Group
People spend their lives learning how to analyze and negotiate real estate deals. Real estate investment is no different than stock investing or any other opportunity with huge returns. Chasing these deals is a whole industry of analysts and real estate companies.
So how are regular people like you or me supposed to compete? How do we find the best deals and put together a real estate portfolio with a chance to succeed?
The answer is by forming a real estate investment group with other investors. Theres different forms your investment club can take from actually pooling your money to buy properties to just talking about how to find rental investments. The common bond in all real estate investing groups is that you help each other compete against the big money players to get the best returns.
Real estate investment groups benefit by bringing together different people that can all bring their expertise including investment analysts, accountants, lawyers, negotiating and closing specialists, and contractors.
Real estate investment clubs used to be exclusively in-person, a group of five or ten investors getting together each month. With social media and the internet, there are just as many groups formed online as live groups.
While there are options to join existing real estate investor groups, there are a few important reasons you may want to start your own.
Buying Investment Property With Partners: How To Invest In Property
When learning how to invest in real estate or how to invest in property, you have certainly heard of different real estate tools to help you and guide you through the process. Well, the situation is the same when buying investment property with partners. Mashvisor offers two amazing tools you can use when starting a real estate investment partnership and looking for a property. These are, namely, Mashvisors heatmap and Mashvisors investment property calculator. If you are interested in learning more about these tools, make sure to read How to Find the Best Investment Properties Using a Heatmap as well as Investment Property Calculator for Analyzing Real Estate Investments.
To learn more about all aspects of real estate investing, continue reading our blog.
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