How Do You Get Started in Private Real Estate Investing?
As young adults start to accumulate wealth, very few consider investing in real estate. But why?
As stated in my previous blog, Private Real Estate Investing: A Game of Risk, real estate presents a unique set of challenges, including illiquidity, higher risk and the amount of required capital. In addition, most people enter the investing world through a friend who is an investment advisor (i.e. stock broker), and he or she sells stocks, bonds, mutual funds and other similar investment vehicles.
When I started thinking about a career in real estate investments, a very successful private real estate promoter gave me a piece of advice: Start early with a small stake, and grow it. So, how do you start?
Even if you do not have much cash, a smart way to get started is to organize a group of friends who are each willing and able to make a small investment, with the intent of purchasing a small property or a share in a private investment fund. Your investment depends on the amount of money you can raise, but $25,000 or $50,000 can get you started.
Another relatively safe way to get started is to buy shares of real estate investment trust stocks (REITs). This alternative allows you to go it alone in a small and safe way. Study the prospectus and follow the performance of the stock to effectively learn about properties, markets and real estate financial performance.
Find a Friend in the Business
To a great extent, successful private real estate investing is dependent on finding the right sponsor. A real estate professional, a sponsor works in the business and has access to investment opportunities and market data. I advise connecting with a contemporary, who might not be that experienced, but works with someone or a company with a proven track record.
Think long term. And don’t leverage your investment—at least not at first. Real estate can provide a nice cash flow and long-term growth in value. Debt, while often useful, can put pressure on a deal which might necessitate an additional cash infusion or force a sale at an inopportune time.
Learn from My Experience
Like any investment, the more you do it, the more you learn from it. Don’t just invest your money and cash the checks. Read the progress reports, try to understand the markets and go visit the property occasionally. (I advise to invest locally.)
Stan’s Final Takeaway
- Take the leap with support from others
- Find the right sponsor
- Think long term
- Keep your eye on the deal
What advice can you offer young people in getting started in private real estate investment?