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Passive Real Estate InvestingCongratulations on taking action and making the ﬁrststep in your decision to invest in real estate – gettingeducated on real estate investing!WHY REAL ESTATE?Real estate is a dynamic, exciting industry. Whilemany ﬁrst time home-buyers think of real estate astheir dream home on the corner with the white picketfence, real estate is, oh, so much more. The UScommercial market is a multi-trillion dollar market andreal estate encompasses almost every property youcan think of including apartment buildings, the EmpireState Building, the mall that houses your favoriterestaurant and the resort you frequent on the California coast.Fortunes have been made and lost in real estate and real estate has propelledsome individuals to stardom including Donald Trump and Shark Tank’s BarbaraCorcoran.Real estate is about people, properties, deal making and value creation and forthe 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 assetbecause there is no way for you to lose your investment if that cash is in the safetydeposit 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 theresult of this nagging issue called inﬂation. The average inﬂation from 2002-2011was 2.54%. In 2011, it was 3.16%. If you are sitting in cash, you are simplythrowing 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. www.realtymogul.com
Real estate is a special asset class that can make your money work for youbecause it’s a hedge AGAINST inﬂation. While many people dislike inﬂationbecause it makes things like the price of gas goup, and causes us to spend more money onthings like food, rent and entertainment, realestate investors LOVE inﬂation. Not only doesinﬂation tend to cause property values toincrease, but investors can also charge morerent for the buildings they own – makinginﬂation the double whammy for real estateinvestors!Diversiﬁcation: Many investors allocate theirmoney across a number of diﬀerent asset classes like cash, money marketaccounts, stocks, bonds or even startup investments. Some of those moniescould 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, youdon’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 intotwo categories: active or passive. Examples of an active real estate investorinclude buying properties, ﬁxing them up and selling them or acquiring apartmentbuildings and managing the tenants. While both of these strategies can belucrative, an active real estate investment can also be time intensive and requireyou to deal with the hassles of tenants, toilets and trash. That is where passivereal estate investing comes in.There are two kinds of passive real estate investing we are going to focus on. www.realtymogul.com
Shorter Term Passive Investing: In the ﬁrst kind of investment, rather thangetting your hands dirty by buying a property that needs a lot of rehab, you waitfor real estate investors to ﬁnd properties they want to ﬁx and lend them themoney to do it. Given the diﬃcult lending environment for many investmentproperties, traditional bank lenders are unwilling to lend on vacant properties thatare being rehabilitated and it provides an opportunity for the private investor tostep in and beneﬁt. These loans are typically called ﬁrst trust deed investmentsbecause your interest is secured by the property in ﬁrst position. Being in ﬁrstposition means that there are no other lenders who have claim to the propertybefore you. The real estate investor doing therehab typically brings the down payment andclosing costs to purchase the property, usually20% or more.The condition of the property can vary greatly.On the one extreme, the property might require adeep cleaning, new paint and new carpet while atthe other extreme it may need to be completelygutted, with everything replaced.In exchange for making these loans, you canexpect 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 bythe actual property.Longer Term Passive Investing: If you are interested in making more long terminvestments, rather than investing in a ﬁx and ﬂip, you might prefer to invest in abuy-and-hold property. In this kind of investment, rather than searching theinternet and spending a ton of time trying to ﬁnd a great property to invest in, youwork with a professional real estate company, also called a syndicator, who ﬁndsa great property. The syndicator allows you to buy equity in the property side-by-side with the syndicator. That property is acquired and managed by the syndicatorand, as an investor, you are entitled to a share of the cash-ﬂow from rents as well www.realtymogul.com
as a share of the proceeds when the property is eventually sold. Theseinvestments 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 decidehow 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. Whilestocks can be very liquid, real estate is a more illiquid investment. While somereal estate investments could be as short as a few months, like a ﬁrst trust deedinvestments where you are loaning money for a real property, other investments,like purchasing equity with a syndicator, could last 5 years or longer. The shortestinvestments are typically called ﬂips while a longer terminvestment strategy is buy-and-hold.Risk: Similar to being comfortable with the investmenttime horizon for an investment, you need to understandand 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, thestock market, or any other market. Most often, theriskier an investment, the higher the annual return, asthe investor should be compensated for taking onincreased 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 enoughtenants to ﬁll all the space in the property - unexpected maintenance - such as theneed for a new roof or new plumbing, - or a decline in property values – similar towhat happened in the Great Recession. www.realtymogul.com
HOW CAN I REDUCE RISK?Loan to Value Ratio: One of the most important metrics in real estate investing isthe loan to value ratio. When you think about a bank, they typically will not loanmore than 80% of the value on a residential home. In the event the economychanges and home prices drop, this gives them a cushion if they need toforeclose on the property. The same is true for real estate investors. Leaving acushion in the investment allows you to account for unforeseen changes in theeconomy or unforeseen changes in the property, such as a higher vacancy ratewith a buy-and-hold investment.Title: One of the risks in real estate investing is a “clouded” title. When youinvest, you want to be sure that the title is free of any outstanding litigation orliens. If you are investing in loans, such as ﬁrst trust deed investing, it is importantthat you are in ﬁrst position and there are no other lenders who have claim to theproperty before you. Working with a reputable title company and a partner whocan help with all the administrative work can be beneﬁcial if you do not haveexperience doing this yourself.Know the players: Like any type of investing, you want to be comfortable withwho you are investing with. Ask questions and request information about theirbackground. You may even be able to look them up on LinkedIN and see if youshare connections in common.THE BENEFITS OF PASSIVE INVESTINGUnlike active investing where you have to ﬁnd greatinvestment properties, monitor the property and dealwith tenants, toilets and trash, the passive investorworks with a partner and allows them to do the dirtywork. While there is a fee for this service, there isalso a promise that you will never get a broken toiletcall at 3am and nearly all of the administrativefunctions, including title searches, escrow, applying www.realtymogul.com
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 ofthe market and never, if you do not. Real estate can produce great returns, butthe investments must meet your individual risk proﬁle and be suitable for yourﬁnancial 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 greatpartner. Realty Mogul is one such partner and we’dbe delighted to share with you insider access to pre-vetted real estate investments. Rather than spendingtime trying to do due diligence on hundreds ofproperties, why not spend time to do that diligence onone 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 securelyonline. We also give you access to an investordashboard to watch how your money is working foryou. Never has passive real estate investing been soeasy.With Realty Mogul, you have the resources, guidance and opportunity to reallyget invested in the real estate market. Now it is your chance to take control andbecome the next real estate mogul.Thanks for reading, and we can’t wait to see you in the marketplace.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 byRealty Mogul, Co. unless otherwise indicated by an authorized representative independent of this document. Realty Mogul, Co. accepts no liability for the content of thisdocument, 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 anyinvestment opportunity. www.realtymogul.com