Learn How to Invest Passively in Real Estate
Maybe you have a few questions about passively investing in real estate. That’s okay; most people do. Below is a library of content to teach our partners & other real estate investors the ins & outs of passive real estate investment. If you still have a question, don’t hesitate to contact us (or give us a call) and we’ll be happy to answer it for you. Or, to schedule a 1 on 1 call with Carter to talk further fill out the form below…
Q: What is the risk of investing in real estate?
A: The risk in any investment type is losing capital you put into the deal. However, in real estate we are able to hedge this risk by purchasing cash flowing real estate investments. The cash flow will produce monthly income for our investors and ourselves even at 80-85% occupancy (worst case scenario). Underwriting a deal on a worst-case scenario basis allows us to account & mitigate most of the risks in the investment.
Q: What is the average return on my money?
A: Although we can never guarantee a return from the investment, our preferred return we offer on most properties we purchase is a minimum of 10%. Depending upon your equity contribution you can also receive an equity position in the upside potential of the deal as well.
Q: How long will my money be tied up?
A: On most single-family flips or rentals the hold period is 6-12 months (Average falling around 4 months). This is because the projects are far less extensive & it is only 1-4 units that are needing renovation. On the larger apartment repositions the hold period is 5-7 years, with an option to extend to 10. These are illiquid investments & our money is tied up until the asset is sold or refinanced at a later date. The reason behind the longer hold period is for the safety of our investors. We do not want to have to sell the asset if the economy has compressed & values aren’t as high. We want to mitigate as much risk as we can & grant our investors the best return possible.
Q: Have you bought a multifamily property before?
A: We have purchased several smaller multifamily properties over the past 2+ years of buying rental property. As a company, our main focus has been on acquiring properties to flip for quick profits. As our business progresses & we mature in the real estate sector, we have decided to partner with mentors and experienced multifamily investors who have owned over 2000+ homes and apartments.
Q: What’s more important, the deal or the operator?
A: Both are equally important as I would personally never invest my money if I knew the deal was going to lose money. And I would not invest if I knew the operator wasn’t trustworthy. So, through careful vetting of both the deal & the operator you can learn what is more important to you. It is possible to find someone great at both! Be patient 🙂
Q: What’s the minimum investment?
A: On most of our flip properties the minimum investment is to cover both the purchase & rehab cost. (Average $82,000) We acquire assets at an all-in cost of 65-70% of the repaired value, leaving a 30% margin for profit/oops budget. Again, this is project-specific & we have smaller projects with less overall expense & vice versa. For apartment purchase the minimum investment is $50,000. This allows us to provide our investors a great return while not overcrowding the deal on the equity side.
Q: How do I know this isn’t a Ponzi Scheme?
A: We have an attorney draft up all legal documents that are then reviewed by each party, the mortgage lender, & anyone involved in the transaction. Also, your capital is placed into an escrow account until it is disbursed for capital expenses or down payment funds.
Q: What funds can I use to invest?
A: There are a number of different strategies you can use to invest. You can use your IRA money (Needs to be Self Directed), Savings Account, Home Equity, or Rental Property Equity.
Q: How do I invest with my IRA?
A: The only way to invest with an IRA is if you roll it into a self-directed IRA. This process does require a minimal fee in comparison to the amount of value you will get from controlling your IRA funds. You will also have to place your IRA funds with an IRA custodian so they can disburse checks & collect payment as necessary. This can take a few weeks to set up, but if you would like assistance or want to learn more please reach out to us!
Q: How is the interest paid?
A: Depending upon the property type interest will either be paid on a monthly or quarterly basis, or at the sale of the project. On flip properties, we are willing to pay a monthly interest payment or a lump sum interest payment upon the sale of the property. With larger apartment syndications we typically pay on a quarterly basis. Depending upon the size of the project & amount of investors we can also pay on a monthly basis. This is project-specific and can be discussed on any current offering.
Q: Why don’t I just buy my own property & do it myself?
A: I would highly encourage you to do that! When you buy property it is not always as easy as it sounds. You will want to make sure you have the proper team in place to do the unit turnovers, manage the property, locate the deal, underwrite the deal, finance the project & so on. This can become overwhelming if you are working another full-time job, & that is why our sole focus is investing in real estate.
Q: How is the operator paid?
A: Most general partners or “operators” of a deal are paid in several different ways. Depending upon the deal structure, you will want to verify all fees or misc. charges. When we are raising capital for a deal we charge a 1.5% acquisition fee. This fee covers all of our upfront costs for finding, negotiating, and closing on the deal. The next way we are paid is out of the cash flow. Our investors in a deal get a preferred return of 10-12% depending upon the asset class. After the debt is serviced, operating expenses accounted for, and investors paid out, the operator gets the rest. So their incentive here is to make the property cash flow more to further protect your investment, & put more money in their pocket. The last way the operator will get paid is upon exiting from the property. In most real estate syndications the hold time is 5-10 years. If in year 5 the NOI has doubled & the general partners sell they overall investment would have doubled. This “profit” is then split 70% to the investors and 30% to the general partners. Throughout the life of the property it is in the operators best interest to maintain & watch the property flourish so they can earn the greatest return possible.
Q: How is financing established? How are passive investors included in the deal?
A: Financing is established with local banks, mortgage brokers, or institutional lenders. Depending upon the asset & size of the deal will depend on what route is taken. The deal is structured in a way where the General Partners (operators) are securing & signing on a loan and the Limited Partners (money partners) are protected via the corporate structure of the LLC. All documentation is recorded & has to be approved by all partners in a deal. This secures the investors capital & allows them to have a say in what takes place if they so wish.
Q: Do our goals line up?
A: What are your investment goals? Do you want a safe place to invest your money, earn double-digit returns, or receive the tax benefits of owning real estate? Each investor has different criteria that they are looking for & this needs to be discussed prior to doing business together. That is why Carter offers a 30-minute investor introduction call to get to know what your goals are. If you are looking for a short term hold & want to earn great returns then private mortgages for house flipping might be your go-to.