What to Be When You Grow up in Real Estate
There are a lot of options out there and the world is changing so much more than it seems like the more options come to the metaphorical table each day. The real estate industry is super interesting and there are so many different ways to slice the real estate apple, which ultimately creates this draw back and forth in what to do; also known as “shiny object syndrome” as some people call it. Here is the evolution of what can be a fun or daunting real estate career.
When there is money on the line people tend to drop what they are doing and go all in to make sure they either keep that money or make all that money back and more. Real estate stories can sound like gambling bets with so many people telling a story of one time they got into real estate, it lasted for 1-2 years then exited with a bad taste in their mouth about the whole experience. We will not be going over the bad taste, this will be an array of examples of what to get into within real estate and how to use this information to help you grow up into a great position as “a successful real estate investor.”
Active and Passive Investing
A couple examples of both will give you a great prospective on what would be best for you as you grow up in real estate. The active side means you are doing active work in it every day, and the passive side means that you are doing only a little bit of work each week or month.
Active investing is going out and working every day on the task to get more income. This is as we say building an active business by going out, hunting for that new property to flip getting it under contract and then starting the rehab process with the contractor at the property till it’s complete. After all of that then it’s putting it back on the market for resale for the profit of the home.
Another active investing method would be a syndication group that is ran by you to get a large property into contract for the group of investors. The main part of this as the person running the syndication is the components that you are putting together for the deal, which contain a lot of pillars. The pillars are finding the deal, getting the syndication lawyer involved, performing the due diligence, inspecting the property, negotiating with the broker, and getting the investors buy in to only name a few. As this investment is secured the person running the fund gets paid at close and could get paid an annual return too which would be more of a passive position after all the active work.
Note investing, this is both active and passive depending on what position you take on the investment side. One investor I just talked to is building a fund for the notes he invests in, and that is the exact challenge that people with the passive mindset do not want to work with as an investor. The activity of building the fund is the same concept as we talked about above with syndication; it’s forming a group to buy the notes. For the passive note investment, it is about getting some notes, investing in them and then sitting back while you collect your passive income.
Passive income in rental properties, which there are some differing opinions on this front of investing on which is it, passive or active income. I would agree that this is a type of passive income, and the active side of it is managing the tenants which can be mitigated really quickly by putting property management into place. This also can be achieved by putting systems into place that have deep levels which will not put you into an active role as the property manager. This is having a platform online for the management then having an assistant handle to calls and day-to-day issues.
A great way to have some passive income is investing in a larger group, which would be syndication or a REIT (Real Estate Investment Trust). These two are really hands off and allowing the people running the fund to do all the work, and you collect the money as it comes into your account without any headaches. On this type of investing the risk is a lot lower and ultimately brings a small return due to the less riskiness.
Many choices in Investing
There are a lot of choices and above really just names a few of the investment channels. As much as real estate investing captures a lot of people’s attention, it really is a hard choice to pick just one. The reason is that all the options have allure to them “shiny object syndrome.” Above gives the examples of active or passive, and now that they are laid out for the most part let’s get into how to weed through the choices.
At some point you as the new investor will need to confirm if you want to be involved on a daily basis or just a small monthly basis. Once that is figured out, now you will need to see how you will get the money to invest in real estate. Are the funds that you invest with going to be coming from your own pocket, and if that is the case, you’ll need some way to get those funds.
Some options to get funds to invest are to keep a day job, or W-2 as most people know of it as. That is a source of income to invest in those real estate properties, and the other option would be to do some type of active real estate, wholesaling, real estate agent, or flipping homes to get the capital to put into the deals. Another way for active income would be to do not use any of your own money and then invest that money with your hard work “sweat equity” to get deals done. The perfect example of sweat equity is syndications where the person putting it together will do all the work full time to put the deal together and not put their own money in; however, will get a return since they did all the work to get the property as an investment.
Where to Go with The Cash
Once you have the source of income figured out to where you will get the means to invest, now it’s time to figure out what is the right investment vehicle for you. This maybe single-family residents (SFRs), multifamily, industrial, mobile home parks, notes, or anything else you feel incline to pursue. There are many more to choose from and it’s hard to give you one to say you need to go all in on that one single thing. Let’s dig in on one vehicle, which is all that you want to do as you invest in real estate; passively that is. To reference the book from Gary Keller The One Thing, this book is good to read because it talks about the one thing you should focus on to become the best at it. This will help you work on the why picking one investment would be great to be successful quicker, and it will help clear the air on how people get wealthy in their line of work focusing on one thing.
When many people start out, they start with SFRs because it is easy to them since it’s right in front of you as an everyday asset to look at with all the resources online now to view properties at the click of a button. Everyone from a first-time home buyer to a downsizing baby boomer have options throughout the internet to view single-family residence. This product is so readily available that people see it as a path of least resistance.
These SFRs are easy since they are right in front of everyone to run the mortgage amount, the rents and match the expenses up to the numbers to see if it works. It’s a 1+1=2 example, since you are looking at the black and white of expenses including the current rent areas you have a fast option to evaluate the deal. Bigger deals are the same process, just on a grander scale.
A good quote here is from the entrepreneur Gary Vaynerchuk, “You need to taste a little bit of everything when you are starting out.” This is true for real estate investors, taste a little bit of it all prior to going all in. That does not mean invest in all the vehicles, it means when you first start get involved with someone that is already doing a form of investing by a mentorship, internship, or working for them and while you are doing that go take courses, online classes, go to conferences on all other types of investing. This gives you the advantage of front loading the work to make the connection on what you want to do as an investor.
Pick the path that gives you the most passion, aspiration, and drive. There are many different paths, and the front loading of the search is going to put you as a bigger investor down the stream quicker and more efficiently. That passion once you get it, ride that wave, and use that to your advantage. These are the tools (passion, aspiration, drive) as you are growing up in real estate, they are here to show you the way to where you will be in 15 or 20 years of investing.