Investing in Real Estate – Active Or Passive?

Many investors are turned off by real estate because they do not have the time or inclination to become landlords and property managers, both of which are in fact, a career in themselves. If the investor is a rehabber or wholesaler, real estate becomes more of a business rather than an investment. Many successful property “investors” are actually real estate “operators” in the real property business. Fortunately, there are other ways for passive investors to enjoy many of the secure and inflation proof benefits of real estate investing without the hassle.Active participation in property investing has many advantages. Middlemen fees, charged by syndicators, brokers, property managers and asset managers can be eliminated, possibly resulting in a higher rate of return. Further, you as the investor make all decisions; for better or worse the bottom line responsibility is yours. Also, the active, direct investor can make the decision to sell whenever he wants out (assuming that a market exists for his property at a price sufficient to pay off all liens and encumbrances).Passive investment in real estate is the flip side of the coin, offering many advantages of its own. Property or mortgage assets are selected by professional real estate investment managers, who spent full time investing, analyzing and managing real property. Often, these professionals can negotiate lower prices than you would be able to on your own. Additionally, when a number of individual investor’s money is pooled, the passive investor is able to own a share of property much larger, safer, more profitable, and of a better investment class than the active investor operating with much less capital.Most real estate is purchased with a mortgage note for a large part of the purchase price. While the use of leverage has many advantages, the individual investor would most likely have to personally guarantee the note, putting his other assets at risk. As a passive investor, the limited partner or owner of shares in a Real Estate Investment Trust would have no liability exposure over the amount of original investment. The direct, active investor would likely be unable to diversify his portfolio of properties. With ownership only 2, 3 or 4 properties the investor’s capital can be easily damaged or wiped out by an isolated problem at only one of his properties. The passive investor would likely own a small share of a large diversified portfolio of properties, thereby lowering risk significantly through diversification. With portfolios of 20, 30 or more properties, the problems of any one or two will not significantly hurt the performance of the portfolio as a whole.Types of Passive Real Estate InvestmentsREITsReal Estate Investment Trusts are companies that own, manage and operate income producing real estate. They are organized so that the income produced is taxed only once, at the investor level. By law, REITs must pay at least 90% of their net income as dividends to their shareholders. Hence REITs are high yield vehicles that also offer a chance for capital appreciation. There are currently about 180 publicly traded REITs whose shares are listed on the NYSE, ASE or NASDAQ. REITS specialize by property type (apartments, office buildings, malls, warehouses, hotels, etc.) and by region. Investors can expect dividend yields in the 5-9 % range, ownership in high quality real property, professional management, and a decent chance for long term capital appreciation.Real Estate Mutual FundsThere are over 100 Real Estate Mutual Funds. Most invest in a select portfolio of REITs. Others invest in both REITs and other publicly traded companies involved in real estate ownership and real estate development. Real estate mutual funds offer diversification, professional management and high dividend yields. Unfortunately, the investor ends up paying two levels of management fees and expenses; one set of fees to the REIT management and an additional management fee of 1-2% to the manager of the mutual fund.Real Estate Limited PartnershipsLimited Partnerships are a way to invest in real estate, without incurring a liability beyond the amount of your investment. However, an investor is still able to enjoy the benefits of appreciation and tax deductions for the total value of the property. LPs can be used by landlords and developers to buy, build or rehabilitate rental housing projects using other people’s money. Because of the high degree of risk involved, investors in Limited Partnerships expect to earn 15% + annually on their invested capital.Limited Partnerships allow centralization of management, through the general partner. They allow sponsors/developers to maintain control of their projects while raising new equity. The terms of the partnership agreement, governing the on-going relationship, are set jointly by the general and limited partner(s). Once the partnership is established, the general partner makes all day to day operating decisions. Limited partner(s) may only take drastic action if the general partner defaults on the terms of the partnership agreement or is grossly negligent, events that can lead to removal of the general partner. The LPs come in all shapes and sizes, some are public funds with thousands of limited partners, others are private funds with as few as 3 or 4 friends investing $25,000 each.

6 Tips to Take Your Real Estate Investing to the Next Level

Taking your real estate investment business to the next level means going into territory you haven’t gone before to reap rewards you haven’t yet obtained. I know a lot of people who do the same types of deals they did when they first started in real estate investing. Now there’s nothing wrong with doing that if you’re content with what you’ve got. But if you’re looking for something more, you’ve got to take on greater investment opportunities. Here’s how to do just that.Tip #1: Go After Bigger FishI got into real estate investing because I wanted to make some serious cash. I was sick and tired of struggling financially and I hated coming home tired every night. Well, I found real estate. I started doing some single family deals but after awhile, I found that I was still as broke as I was when I first started. I needed cash flow and I needed it fast. Go after bigger fish. Commercial property investment deals offer some of the greatest cash flow and returns for an investment dollar. The number of units and the size of the properties brought the largest returns for the amount of time and money I had invested in any deal.Tip #2: Continually Educate YourselfTo get to the next level in your real estate career, you must continually educate yourself. Education enables you to find solutions to any challenges that may come up when you’re doing deals. Education also helps to eliminate unnecessary risk. Unfortunately, many investors believe that their lack of knowledge prevents them from doing the tougher types of deals like commercial properties. That couldn’t be farther from the truth. You must continually educate yourself. Read books. Attend seminars and don’t hesitate to ask questions.Tip #3: Get a MentorA good mentor helps you gain practical experience much quicker and more easily compared to books and courses. Mentors help you navigate deals and overcome any show stopping challenges that may arise. Mentors are your safety net in areas where you don’t know where you’re headed. If you’re serious about taking your real estate investments to the next level, a mentor will help you get there quicker and with much less risk than if you were to do it alone.Tip #4: Utilize a Team of ExpertsThere are many people who shun the idea of new investors taking on the risk of large, complicated projects like commercial real estate investments. They’re right. Commercial property investing is not for inexperienced investors or for do-it-yourselfers, but here’s the idea – let the experts be experts. Your team of experts works to eliminate the risk of your inexperience and lack of knowledge. You can get to the next level in your real estate investment career when you have the expertise of people who already know how to navigate their way through a deal.Tip #5: Develop Marketing SkillsAny business will fail unless it’s marketed. Taking your real estate business to the next level means you must develop your marketing skills by putting them into action. For example, I started marketing my business using direct mail. At the time, I believed that it was the only thing I could do. As I started to get responses, I started networking myself at places like local real estate investment clubs and with bankers. Basically, I took one marketing strategy, learned it, and honed it until it produced a reward for me. Then I started working other forms of marketing. Your business is going to go to the next level when you start learning about and working more marketing strategies.Tip #6: Have a Can-Do AttitudeAttitude makes all the difference. A person who thinks that they can’t do a deal that will take their business to the next level has already shot himself in the foot. Without even trying, he’s already doomed to failure. Conversely, a person who is hungry enough for success will attain it simply because he hasn’t given up.No matter where you are in your real estate career, these tips will help you get to the next level. Commercial real estate is the right vehicle that provides some of the greatest cash flows in the industry. When you combine education, expertise, marketing, and the right attitude, you’ve got the makings for attaining greater investments and receiving better cash flow deals. The next step is to take action.Discover how you can start investing in real estate from someone who started investing in real estate while renting a one-bedroom apartment to being the owner of more than 7,500 units spread out across the beautiful US.I bet you would like to know how I manage all my properties? Want to know how to start investing in real estate with little money? Like I said I started at the bottom and I am very thankful to be where I am today. If I did not have the knowledge and the help I am not sure where I might be now. Let me show you how I manage all my 7,500+ units so that you can do what you want, with whom you want…however you want!