Passive Real Estate Investing, Realty Mogul


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Passive real estate investing, crowdfunding for real estate, Realty Mogul, impact of passive investing on returns, how to be a passive real estate investor, real estate crowdfunding, how to generate passive income with real estate

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Passive Real Estate Investing, Realty Mogul

  1. 1. PASSIVE REAL ESTATE INVESTING Real estate investing, the simple way. © 2013 Realty Mogul. All rights reserved.
  2. 2. Passive Real Estate Investing Congratulations on taking action and making the first step in your decision to invest in real estate – getting educated on real estate investing! Why Real Estate? Real estate is a giant industry and accounts for a substantial part of wealth creation in the world. The US commercial market is an $11 trillion dollar market and real estate encompasses almost every property you can think of including apartment buildings, office buildings, the strip mall that houses your favorite restaurant and the hotel you frequent on the California coast. Fortunes have been made and lost in real estate and real estate has propelled some individuals to stardom including Donald Trump and Shark Tank’s Barbara Corcoran. Real estate is all about transactions, generating cash flow and building value for the future and for the first time ever, real estate investing can be simple. Why Should I Invest? Inflation and Appreciation Cash is considered by many to be the safest asset because there is no way for you to lose your investment if that cash is in the safety deposit box down at your local bank or stuffed under your 10-year old mattress. However, your cash actually loses money each year if you don’t spend it. It’s the result of this nagging issue called inflation. The average inflation from 2002-2011 was 2.54%. In 2011, it was 3.16%. If you are sitting in
  3. 3. cash, you are simply throwing that money away. This is one reason why people invest in the first place – rather than working for your money, let your money work for you. Real estate is a special asset class that can make your money work for you because it’s a hedge AGAINST inflation. While many people dislike inflation because it makes things like the price of gas go up, and causes us to spend more money on things like food, rent and entertainment, real estate investors LOVE inflation. Not only does inflation tend to cause property values to increase, but investors can also charge more rent for the buildings they own – making inflation the double whammy for real estate investors! Diversification Many investors allocate their money across a number of different asset classes like cash, money market accounts, stocks, bonds or even startup investments. Some of those monies could be very liquid, like cash and stocks, while other monies are less liquid, invested in CDs, 401ks and Roth or Traditional IRA accounts. Adding real estate to any portfolio further diversifies your investment portfolio. The benefit of diversification being if one asset class is not performing well, you don’t have all your eggs in one basket. What Kind of Real Estate Investor do I want to be? There are many different ways to invest in real estate and they can be divided into two categories: active or passive. Examples of an active real estate investor include buying properties, fixing them up and selling them or acquiring apartment buildings and managing the tenants. While both of these strategies can be lucrative, an active real estate investment can also be time intensive and require you to deal with the hassles of tenants, toilets and trash. That is where passive real estate investing comes in.
  4. 4. There are two kinds of passive real estate investing we are going to focus on. Shorter Term Passive Investing In the first kind of investment, rather than getting your hands dirty by buying a property that needs a lot of rehab, you wait for real estate investors to find properties they want to fix and lend them the money to do it. Given the difficult lending environment for many investment properties, traditional bank lenders are unwilling to lend on vacant properties that are being rehabilitated and it provides an opportunity for the private investor to step in and benefit. These loans are typically called first trust deed investments because your interest is secured by the property in first position. The real estate investor doing the rehab typically brings the down payment and closing costs to purchase the property, usually 20% or more. The condition of the property can vary greatly. On the one extreme, the property might require a deep cleaning, new paint and new carpet while at the other extreme it may need to be completely gutted, with everything replaced. In exchange for making these loans, you can expect monthly interest payments and a final payment at the end of the loan term. Loan terms can range from 6 months to over 1 year and your money is secured by the actual property. Longer Term Passive Investing If you are interested in making more long term investments, rather than investing in a fix and flip, you might prefer to invest in a buy-and-hold property. In this kind of investment, rather than searching the internet and spending a ton of time trying to find a great property to invest in, you work with a professional real estate company, also called a syndicator, who finds a great property. The syndicator allows you to buy equity in the property side-by-side with the syndicator. That property is acquired and managed
  5. 5. by the syndicator and, as an investor, you are entitled to a share of the cash-flow from rents as well as a share of the proceeds when the property is eventually sold. These investments tend to be longer in length, at 3-5 years. Which Investment is Right for Me? In order to determine which type of investment is right for you, you want to decide how long you want to be invested and how much risk you feel comfortable taking. Timing Before you decide to invest in real estate or any other asset class (stocks, bonds, etc.) you need to be comfortable with the investment time horizon. While stocks can be very liquid, real estate is a more illiquid investment. While some real estate investments could be as short as a few months, like a first trust deed investments where you are loaning money for a real property, other investments, like purchasing equity with a syndicator, could last 5 years or longer. The shortest investments are typically called flips while a longer term investment strategy is buy-and-hold. Risk Similar to being comfortable with the investment time horizon for an investment, you need to understand and be comfortable with the risks of the investment. First and foremost, no investment is ever guaranteed – be it in the real estate markets, the bond markets, the stock market, or any other market. Most often, the riskier an investment, the higher the annual return, as the investor should be compensated for taking on increased risk. So, as always, do your due diligence, proceed with caution, and Buyer beware. Some risks that can and do occur in real estate are vacancies – not enough tenants to fill all the space in the property - unexpected maintenance - such as the need for a new
  6. 6. roof or new plumbing, - or a decline in property values – similar to what happened in the Great Recession. How Can I Reduce Risk? Loan to Value Ratio: One of the most important metrics in real estate investing is the loan to value ratio. When you think about a bank, they typically will not loan more than 80% of the value on a residential home. In the event the economy changes and home prices drop, this gives them a cushion if they need to foreclose on the property. The same is true for real estate investors. Leaving a cushion in the investment allows you to account for unforeseen changes in the economy or unforeseen changes in the property, such as a higher vacancy rate with a buy-and-hold investment. Title: One of the risks in real estate investing is a “clouded” title. When you invest, you want to be sure that the title is free of any outstanding litigation or liens. If you are investing in loans, such as first trust deed investing, it is important that you are in first position and there are no other lenders who have claim to the property before you. Working with a reputable title company and a partner who can help with all the administrative work can be beneficial if you do not have experience doing this yourself. Know the players: Like any type of investing, you want to be comfortable with who you are investing with. Ask questions and request information about their background. You may even be able to look them up on LinkedIN and see if you share connections in common. The Benefits of Passive Investing Unlike active investing where you have to find great investment properties, monitor the property and deal with tenants, toilets and trash, the passive investor works with a
  7. 7. partner and allows them to do the dirty work. While there is a fee for this service, there is also a promise that you will never get a broken toilet call at 3am and nearly all of the administrative functions, including title searches, escrow, applying for loans, dealing with banks, inspectors, appraisers and pest control will be 100% eliminated. When Is The Right Time To Invest in Real Estate? The short answer is now and never. Now, if you understand the complexities of the market and never, if you do not. Real estate can produce great returns, but the investments must meet your individual risk profile and be suitable for your financial situation. I’m Ready To Invest in Real Estate. Now what? If you’re interested in passive real estate investing, the first step is to find a great partner. Realty Mogul is one such partner and we’d be delighted to share with you insider access to pre-vetted real estate investments. Rather than spending time trying to do due diligence on hundreds of properties, why not spend time to do that diligence on one or two that have already been pre-vetted for you? Even better, you can get access with as little as $5,000 and sign all of your legal paperwork securely online. We also give you access to an investor dashboard to watch how your money is working for you. Never has passive real estate investing been so easy. With Realty Mogul, you have the resources, guidance and opportunity to really get invested in the real estate market. Now it is your chance to take control and become the next real estate mogul. Thanks for reading, and we can’t wait to see you in the marketplace.
  8. 8. Disclosure All investment information contained in this docuemnt has been secured from sources Realty Mogul, Co. believes are reliable, but we make no representations or warranties, expressed or implied, as to the accuracy of the information. The views, opinions, conclusions, and other information expressed in this document are not given or endorsed by Realty Mogul, Co. unless otherwise indicated by an authorized representative independent of this document. Realty Mogul, Co. accepts no liability for the content of this document, or for the consequences of any actions taken on the basis of the information provided, unless that information is subsequently confirmed in writing. Realty Mogul, Co. recommends that you consult with a Financial Advisor, Attorney, Accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.