Welcome to the world of wealth building through real estate investing! This is an exciting world to be a part of where making smart real estate investments can be the difference between a life of abundance and financial independence, or a life of paying the bills and “never getting ahead”.
What does real estate investing entail? There are a number of ways to be invested in real estate, the most obvious of which is through owning property. Other investment options, including private lending and land development, offer investors some diversity and may be suitable options for investors who have different requirements and risk tolerance levels. Let’s examine each of the investment options.
There are multiple types of properties that an individual could consider investing in, whether residential or commercial:
Turnkey properties come “ready to go”. Generally, there is a current positive cash flow as tenants and property management are already in place. Buying a turnkey investment property is like buying an income stream – put in the capital investment and start collecting cheques. It is the easiest form of property investment.
Underperforming properties are homes or commercial space not operating at full potential. Rents may be low or non-existent because the property is vacant. Property management may not be in place and some minor fix-ups may be required to bring the property to a marketable condition to maximize the revenue potential.
Rehabilitation properties require work, likely a significant renovation, to bring the property to an acceptable condition for maximizing revenue potential on the rental market or for flipping the property to a retail buyer. Compared to a turnkey property, a property rehabilitation requires much more attention on the part of the investor, making it an active real estate investment strategy.
Investment properties have the highest return-on-investment (ROI) of all the real estate investment options. An annual ROI of above of 20% for a typical turnkey property can be expected, with ROIs much higher for both underperforming and rehabilitation properties.
A more passive real estate investment approach, private lending is when an individual or group of individuals lend money to another individual, corporation, or developer in order for the borrower to invest in the development or improvement of a property. The lender is paid an interest rate by the borrower for a specified term. Interest rates are typically in the 8-16% range depending on the mortgage position of the lender. Terms are generally short, anywhere from 6 months to 2 years, allowing investors better liquidity. This option is great for investors looking for cash flow and fixed returns on their money, the peace of mind that comes with having their investment secured on real estate, and the passive approach it provides.
For investors who may not be in need of cash flow and don’t want to own investment properties, but prefer to invest in long term and bigger real estate deals, land development is another option. Investors can join together with other investors, pooling money to become equity partners with land developers, who then construct buildings such as high-rise condo apartments. Investors are then paid out at the end of the project at an annual interest rate based on the sale price of the units sold in the building. Land development deals can have exceptional returns north of 18% ROI annually. However, they don’t come with the flexibility and liquidity of private lending and will not provide cash flow for the investor.
Investment Properties, Private Lending, Land Development…How do these options help build wealth?
A quick glance into history as well as an evaluation of today’s wealthiest families and individuals paints a clear picture of how to accumulate wealth – create/own a successful business, and own real estate. Before Arnold Schwarzenegger became a famous movie star he became a millionaire by trading up properties in California. Grant Cardone built the world’s eminent sales training educational program while simultaneously building a real estate empire. Jim Pattison has combined a variety of retail businesses and real estate ventures to become one of the wealthiest men in Canada. It’s no secret that owning real estate is a key component to building wealth. Whether it’s just enough passive income from a few cash flowing properties to support a lifestyle, a portfolio of private lending investments, or partnering with developers to create new properties, real estate can get us the wealth that we desire – if we are willing to stay in the game for the long haul.
Before we go any further it is critical to take note of that last point. If we are willing to stay in the game for the long haul. I want to make it very clear that investing in real estate is not a get rich quick scheme. Sure, anyone can flip a few properties and build up a decent amount of capital in a short period of time, but then what? The properties are sold and there are no assets left to show for it, just a pile of cash sitting in a bank account waiting to be invested so that it can go to work for us. (It’s a good start though!) Take notice of the title of this post because it doesn’t say “An Introduction to the Quick Easy Money Making World of Real Estate”. In order to be successful in real estate and to truly build wealth we must be willing to stay invested for the long term. With that approach we have the opportunity build wealth over time and can shape our financial destiny with our own hands.
We’ve Just Scratched the Surface…
Over the coming months we’re going to dive further into the world of real estate investing. I am very excited to share with you my passion for this subject, success stories from myself and from other investors, and how being involved in this community can bring us all the financial freedom we desire. We’ve touched briefly on the variety of investing options available and for some this may be the first time you’ve been introduced to things such as private lending. Others may be well on their way as successful real estate investors and are looking for more like-minded people to connect with. Wherever you are on this journey, I want to let you know that we are in this together, and with each step we inch closer to obtaining financial freedom, living life on our own terms, and sharing our passions with others to help them live the life they want too.
Before we explore the ins-and-outs of the different real estate investing options I will be sharing with you my reason for using real estate to create the life I want. Without understanding our “why”, we will never truly burn with the fire that will inspire us to take the action we have to in order to turn our dreams into realities.
In this post we talked about the what – real estate investing. In my next post, we’ll begin to expand and talk about the why, beginning the process of creating our reasons. Our reasons will propel us forward and ensure that we do everything in our power to succeed at the what. After that we’ll talk about how, and I assure you, my friends, that is where things become exciting and immensely rewarding.
Get Better Every Day,