Real estate is known to be one of the greatest wealth creators known to mankind, with a majority of the wealthy having a great share of their portfolio in real estate. It is no wonder we have seen large numbers of people flocking into the space trying to strike it rich! But what are the different ways someone can diversify into real estate? Well, if you are like, me you know that having your portfolio diversified into multiple asset classes helps mitigate your risk, but then there are also ways to diversify further once in a particular asset class.
We have all seen the shows on HGTV and heard of the riches scored by people taking ugly run-down homes and remodeling them to sell at a profit. This is probably the most time intensive approach of real estate. If you are smart about it, you will hire out a majority of the work and manage the project and different contractors. If you are like most people ripping out kitchen cabinets and installing new ones is not possible due to either time constraints or lack of skill and knowledge. So, I recommend hiring contractors to do most of if not all the work for you. Trust me when I say the project will get done faster and better. I personally flip houses and there is a lot more work and more of an emotional roller coaster than HGTV leads on, but when done properly the reward is great!
Passive Turn Key Rental Income
One way to get into real estate in a relative passive way is by owning rental properties. By owning rental properties, you create a decent return while creating less hassle and headaches for yourself. The key to this is to find a market that allows you to purchase a home by putting down twenty percent and cash flowing positively after all expenses and debt pay down. Essentially this will leave you to manage the property manager and leaving it to them to fix leaks and deal with troublesome tenants. The next big goal is playing the numbers game and attempting to get discounts on what the at market value of the house is. If you were to buy a house worth $100,000 for $80,000 you can in essence refinance the house in 6 months after purchase and pull out your initial down payment and buy another house. This is difficult to do, but I have seen it done before.
Private Money Lending
This is one of my personal favorites! Private money lending is by far the most passive form of real estate investing there is and offers wonderful returns. I personally lend my money out to an individual that I met through various real estate networking platforms and began developing a relationship with him through various conversations via text, email, and phone calls. He lives in Oregon and invest in Indiana by building a portfolio of single family rentals. I lend him my money at various interests rates, but currently have it in a deal with him that covers the purchase and rehab costs on a 1 year loan at 20% annual interest paid at either the sale of the home or when it is refinanced. In this space I see investors getting return anywhere from 10-20% annually. Currently I offer my investors 20% annual interest.
This is a broader way of investing in real estate since you can form partnerships in any aspect. You can partner with either sweat equity (you do all the work) and be the partner that manages the deal, or cash by either being the money partner. This holds more risk than private money lending as it is typically a 50/50 split on either the profits or the losses. You can partnership on a flip, single family rental, small multi-family rental, or invest with a syndicator into a large multi-family. People do this for multiple reasons, to learn more about real estate with hands on experience with someone more experienced, capture more bang for their buck, or get the tax advantages with the passive income.
So how are you going to diversify your portfolio with real estate and become a part of one of the most popular and stable asset classes to invest in? Leave a comment below letting me know!