Are Private Real Estate Investments Right For You?

By: Prevail Strategies

Maybe you have been researching the power of passive commercial real estate investments. Income, tax benefits, and not playing the role of landlord can all be a pretty nice deal. Plus, by partnering with others and relying on their expertise, you can diversify into other geographies beyond your neighborhood.

While that all sounds good, whether to invest and how much to invest in real estate is different for everyone. We each are at a different life stage, have different levels of risk tolerance, and have different goals. 

Check out the 5 criteria below; if you fit into one or more, investing in real estate might make sense for you.

#1. You Have More Than $50K Ready To Invest

One of the key things about real estate investing is what experts call being “illiquid” which means that unlike buying stocks, it likely will be difficult to get your money back quickly. Because of that, most investors want to make sure that they have plenty of access to cash to cover other needs like your emergency fund, college education savings, a new car, vacations and more.

Minimums for real estate investments vary, but most start at $50,000. If you aren’t in a position to lock up that much cash for a longer period and still be able to handle your other cash needs, it might make some sense to save a bit more cash and revisit real estate investing in a year or two. On the other hand, if you have your potential cash needs covered, invest with confidence! 

#2. You’re Okay Having Someone Else Lead The Effort

If you’re short on time, heavy on cash, and want a professional team to manage the property while you share in the profits, this could be the right investment. 

Passive investing in real estate is much less hands-on than a typical rental property. In fact, you may never physically see the property and definitely won’t be involved in any day-to-day decisions. Plus, you don’t have to deal with the broker, supervise the property manager, or decipher contractors’ bids. Instead, you get a few emails, sign a legal doc or two, and carry on with your life while the checks show up. As a passive investor, you’re a passenger on a plane ride. So, sit back and have a cocktail.

#3. You’re Looking for a Long-Term Investment

Maybe you’ve done your research and know get-rich-quick schemes rarely work and are interested in a steady, long-term approach to building wealth. Unlike stocks or something you can flip in say two years, real estate typically has a hold period for five or more years. 

If you’re more of a “set it and forget it” type of investor and can plan for your cash to be unavailable for long periods of time, passively investing in real estate may be your new obsession.

#4. Sharing Returns In Exchange for Less Work Makes Sense to You

Owning rental properties directly delivers 100% of profits to you, but generally are smaller deals, require buckets of sweat equity, and usually mean it’s just you financing and managing the deal.

Working with a lead professional (often called the sponsor) to arrange the deal on behalf of dozens and maybe hundreds of passive investors is completely different.

The investors and sponsor team up where the sponsors actively manage the property, renovations, marketing, and financial reporting. To reward them for their efforts, the investors split their profits with the sponsor, and generally take a larger percent – say 70/30 or 80/20 with each investor taking their fair share.

If the concept of “a rising tide lifts all boats” makes sense to you, you’re in the right place.

#5. You Don’t Need the Money for a While

Maybe you’re in the season of life where your kids don’t need a car, your home doesn’t need a massive kitchen renovation, or you’ve worked hard, done a good job watching expenses, and saved a pretty nice nest egg.

If so, you probably also met criteria #1 above and will be okay “locking up” your money for a bit. You’re just looking for somewhere to park it for a few years with the possibility of earning some income. 

Not needing that cash for the foreseeable future feels fantastic. If this describes you, passive real estate investing might be even more interesting once you realize how well-positioned you are to take advantage of it. 

Recap

You’ll love being able to invest your money in real estate without the landlord hassles, all while having the chance to invest with different sponsors in different markets and different types of commercial property. Plus, the tax benefits (and sometimes even the returns) from passive investing can surpass those from personal rental properties.

Becoming a passive investor might be the best fit if you…….

• Have more than $50k cash to invest
• Are okay NOT having an active role
• Are looking for a longer-term investment
• Find collaboration and sharing returns attractive
• Want to park your cash for 5+ years

Perhaps some of the above doesn’t’ describe you and you want to roll up your sleeves and do the work yourself first to learn the ropes. Or perhaps you’re looking for a more liquid or a shorter-term investment. Either could be a good starting point for you.

There are many opportunities in your city to invest in great projects and impact local communities; commercial real estate transactions are just one avenue. If you meet a few of the five criteria above, passive real estate investing might be a great match.

To learn more about diversifying your portfolio by investing in real estate join our list to receive monthly communication from Prevail Innovative Real Estate Opportunities here.