Real Estate Made Simple

Tag: Darrow Fiedler

3 Tips for Buying an Investment Property

Often, when we discuss being a real estate professional, it’s within the framework of working as a licensed Salesperson or Broker who brings in a primary income by renting and selling properties for clients. What you may not realize, though, is that you can be involved in real estate outside of your primary source of income by investing in properties with the express intention of accruing a passive stream of income from them, in addition to the active income you bring home in the form of paychecks. As a consultant, I often work with clients who could benefit greatly from investing in real estate, but do not know how to make sure they’re investing in properties that will bring in revenue. The following are a few pieces of advice for first-time or inexperienced investors who are looking for some guidance about what makes a property a wise investment.

  1. Figure out what your money will get you where: When beginning a search for a property to invest in, the first step is to determine how much money you can invest in the project and what that money will get you based on the location of your potential investment. Look into properties in your price range in different neighborhoods, and see what competing, similar properties are already on the market. Sometimes, it’s wiser to purchase a smaller property in a more upscale neighborhood, as clients are more likely to rent properties in areas that are on the up and up than in areas that cost less for a reason.
  2. Find out how long the property has been on the market for: Generally speaking, the longer a property stays on the market, the less appealing it becomes to investors and clients alike. The common assumption is that a property that sits on the market tends to have something wrong with it – either the pricing is wrong, the property itself is flawed, or the person who is selling it is not managing the process well and may prove to be difficult to work with. You should always research the length of time that the property you’re considering buying has been on the market for, as well as the amount of time that similar properties in that neighborhood are staying vacant. Invest in neighborhoods where the turnaround time between listing and rental or sale is decreasing across the board, as this is generally a sign that if you buy a property in that neighborhood, you’ll be entering a hot market.
  3. Understand the neighborhood’s amenities: There are some universal signs that indicate that a given neighborhood is improving. Take note of the retail options in the neighborhood, which food purveyors have chosen to set up shop there, and how happy residents are with the local schools and business opportunities. If you can buy a property in a promising market that is currently undergoing some form of gentrification but is still in your price range, you’ll be increasing your chances of bigger returns over time as the neighborhood becomes more established and you can charge more to rent or sell your investment property.

If you do your due diligence and research, you’ll be able to make more informed, strategic decisions about how and where to invest your money. After all, as Sir Francis Bacon famously said, knowledge is power.

 

How Crowdsourcing is Changing the Face of Real Estate Investing

The process of crowdsourcing, or collecting information or funds from a variety of people to complete a project, has gained increased popularity in the past few years with the creation of a number of online crowdsourcing platforms, like Kickstarter and GoFundMe. Originally used to solicit donations to cover the cost of creative endeavors, like recording an album or shooting a movie, crowdsourcing’s applications seem to be multiplying by the day. Now, sites exist to help patients defray the cost of their rising medical bills, to help pet owners get assistance to pay off their animal’s healthcare costs, and even to help students pay for their tuitions.

As a real estate professional, I am particularly interested by a new trend in crowdsourcing that may very well change the face of real estate investing as we know it. Since Congress passed the JOBS, or Jumpstart Our Business Startups, Act in 2012, 80 companies have now thrown their hats into the world of real estate crowdsourcing in the hope of lowering the barrier of entry to real estate investing by opening the industry up to investors who have not have the credentials or financing to have gotten involved before.

W Darrow Fiedler

When it comes to crowdsourcing for real estate investments, a little bit of cash goes a long way.

Real estate investment crowdsourcing works like this: instead of one investor ponying up the high amount of money traditionally required to claim an investment, many people contribute smaller amounts of funding, thereby distributing the ownership and control of the investments across every person who contributes. Then, crowdsourcing real estate investment firms, like a company called Fundrise, work with these investors to counsel them on best and wisest investment practices, brokering the deals as a company and divvying up the profit amongst the investors. In the case of Fundrise, specifically, a layman can become a real estate investor simply by paying a thousand dollar minimum investment. Other firms are stricter about who can participate in these deals; some limit participants to investors who are what the SEC defines as “accredited investors,” or people who make an annual income of $200,000 or more or have assets worth more than $1 million in addition to their primary home.

Of course, there are some pitfalls to this new method of real estate investing. The companies behind real estate investment crowdfunding do charge their investors fees, both on total investments and again if the property in question sells. And traditional real estate investment firms have expressed concern about allowing inexperienced investors to participate in such large-scale deals, largely because they feel such arrangements open the door to unwise investing and the potential for tremendous financial loss if the investors aren’t given good advice.

Regardless, the invention of real estate crowdsourcing is ushering in a new era of investing and may very well turn out to be a major disruptor to an industry that has been virtually impossible to break into without the right connections in the past. And, as always, as long as you make a point of educating yourself about your financial health and options for investing, the better the likelihood will be that you’ll make informed investment decisions and end up turning a profit as a result of your hard work and efforts.

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