Do I Need to Be Rich to Invest in Real Estate?
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Do You Need To Be Rich To Invest in Real Estate?
It’s a common misconception that investing in real estate is something that only the rich can do. It stems from the traditional view that property investment requires substantial capital upfront, including down payments, closing costs, and renovation expenses.
This perception is reinforced by the visibility of high-profile real estate moguls and the luxurious properties often highlighted in the media.
However, this overlooks various investment options that make real estate investing more accessible. Contrary to popular belief, it is definitely possible for everyday people to invest with smaller amounts of money.
While BAM Capital only deals with accredited investors through our multifamily syndication fund, we understand that many people are in the process of building wealth. We have had many successful real estate investors, that decided to sell their portfolio, in favor of “letting the pros do it”.
At BAM Capital, we offer a fully managed, “Done For You” solution when it comes to multifamily syndication. So if you’re not at the accredited investor status yet, don’t worry. You can get there and then when you’re ready for the passive income returns, get ahold of our team! Here we will discuss real estate investing and address the misconception that you have to be rich in order to participate in it.
Understanding Real Estate Investment
Real estate investing involves purchasing, managing, and selling properties for profit. Investment real estate refers to a property that generates income or is otherwise intended for investment purposes rather than as a primary residence. [1]
This investment can take various forms, including residential properties, commercial properties, and land. Examples of residential properties include single-family homes, condominiums, and apartment communities. Meanwhile, commercial properties include office buildings, retail spaces, and industrial facilities.
Investors can profit through rental income, property appreciation, or a combination of both. They can either purchase the property directly or purchase it indirectly through real estate investment trusts (REITs) or syndication deals.
The benefits of real estate investing are numerous. One of the primary benefits is its ability to produce steady income and provide a reliable cash flow through rental properties. Real estate also offers the potential for significant appreciation over time, especially in growing markets. [1]
Additionally, real estate investments can diversify an investment portfolio, reducing overall risk. Tax benefits, such as deductions for mortgage interest, property depreciation, and maintenance expenses, can also enhance returns. [1]
On top of all these advantages, real estate is also a tangible asset. This means investors can use it themselves even if they cannot rent it out or sell the property. This can provide a sense of security and stability compared to more volatile investments like stocks.
Dispelling the Wealth Myth
Investing in real estate is not an exclusive privilege reserved for the wealthy, despite what many people believe. Today, various accessible options allow investors from diverse financial backgrounds to venture into the real estate market. Here are some reasons why you do not need to be a high-net-worth individual (HNWI) to get into real estate investing.
Various Entry Points
One of the biggest reasons why regular people can invest in real estate is because there are several accessible entry points into this type of investment. Regardless of your financial background, you may be able to find several options that fit your needs, preferences, and risk tolerance.
One such avenue is rental properties. By purchasing a property and renting it out, investors can generate a steady income stream. This approach doesn’t necessarily require vast sums of money upfront; with careful financial planning, securing a mortgage for a rental property can be within reach for many.
Owning rental properties is ideal for those who have some do-it-yourself (DIY) skills, along with the patience to manage tenants. With that said, investors still need to be prepared with substantial cash on hand to finance some of the upfront costs. It is also important to be prepared for periods when the property is empty or tenants are unable to pay their rent. [2]
Other investors use a strategy that is known as “house hacking”, where one lives in a property while renting out part of it. This may be done with a multifamily home or a single-family property with an accessory dwelling unit. This approach can help offset mortgage payments and reduce living expenses, making real estate investment more feasible for those with limited capital.
Another accessible option is investing in REITs. Real estate investment trusts allow individuals to invest in real estate without directly owning property.
These investment vehicles pool money from multiple investors to purchase and manage income-generating properties like commercial buildings, apartments, and shopping centers. This way, investors can buy shares in a REIT, similar to purchasing stocks, with relatively low minimum investment requirements. [2]
In recent years, real estate crowdfunding platforms have also emerged as a popular method for smaller investors to participate in real estate projects. These platforms pool funds from numerous investors to finance real estate ventures, often providing opportunities to invest in large-scale projects with a minimal investment.
Through these diverse options, real estate investing is made accessible to a broader audience.
Leveraging Financing
Unlike other investments that might require substantial upfront cash, real estate offers the unique advantage of leverage. This means that you can use borrowed capital to finance a larger portion of your investment, often requiring as little as 3-5% down for certain types of loans. [3]
Various financing options, such as FHA loans, VA loans, and other mortgage programs, are designed to make real estate investment accessible to a broader audience. These programs often come with favorable terms, like lower down payments and interest rates, making it possible for investors with moderate incomes to enter the real estate market. [3]
Steady Cash Flow
We mentioned earlier that one of the primary benefits of real estate investing is the potential for steady cash flow. Cash flow refers to the net income from a real estate investment after mortgage and operating expenses have been paid off. [4]
Cash flow tends to strengthen over time as you pay down your mortgage. This actually makes it possible for investors to use the consistent income stream to cover the property’s mortgage and maintenance costs while generating additional profit.
With all of these factors in mind, we can say that real estate is a viable investment option for people at various income levels, offering opportunities for steady cash flow and long-term financial growth.
The Best Real Estate Investment for Accredited Investors: Multifamily Syndication
While it’s true that real estate is not exclusive to the wealthy, there are certain investment opportunities that are only accessible to accredited investors.
Accredited investors have the net worth and income to protect themselves from significant risk. Their financial status serves as a safety net for when deals do not work out. They also have the investing knowledge and experience necessary to assess these investments without taking on unnecessary risks.
This is why the US Securities and Exchange Commission (SEC) allows accredited investors to invest in unregistered securities. For example, one of the best real estate investment strategies is real estate syndication—and most of these deals are exclusive to accredited investors.
If you are an accredited investor looking to add real estate to your investment portfolio, you should consider real estate syndication, specifically multifamily syndication.
In a syndication deal, multiple investors pool their funds together in order to acquire a single real estate property. This can be done with any type of real estate, but multifamily syndication is the most popular among investors due to the strong, predictable cash flow generated by these properties. [5]
Not only are multifamily properties more consistent in terms of cash flow, but they are also larger, more expensive, and more difficult to purchase for a lone investor. Real estate syndication solves that problem, eliminating the high barrier to entry.
Syndication deals are arranged by a syndicator or sponsor who creates and executes the business plan. They take on most of the responsibilities in the syndication deal, playing the role of general partner (GP). This involves locating the investment property, conducting due diligence, securing the loan, and finding accredited investors who will provide most of the capital needed. [5]
Investors are limited partners (LPs) in this deal. They only need to provide a portion of the capital and pay certain fees to get the syndication deal going. Beyond that, they have no further responsibilities. They do not even have to worry about property management because the GP will also cover that. [5]
What makes multifamily syndication so appealing to accredited investors is the fact that it solves some of the biggest issues in real estate investing, including property management and the high cost of entry. Multifamily properties like apartment communities and condominiums can easily cost millions. But that is not a problem here.
Investors can just sit back, relax, and enjoy their share of the cash flow, which may be distributed on a monthly or quarterly basis. This makes it a true passive investment in real estate.
Depending on the deal structure, investors may earn a share of the equity upon resale. Since every deal is different, accredited investors still need to perform their due diligence before joining a multifamily syndication deal. [5]
Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals
Accredited investors are adept at choosing the best syndicator to work with. This is important since the syndicator will be making most of the decisions for the investment property. It is essential to work with a syndicator you trust.
Choose BAM Capital if you want a trustworthy syndicator with a reliable track record for excellence. This Indianapolis-based syndicator has created a name for itself as an industry leader thanks to its award-winning investment strategy that mitigates investor risk while creating forced appreciation. [6]
BAM Capital prioritizes high quality multifamily real estate properties that have in-place cash flow and proven upside potential, specifically those that are Class A, A-, and B++. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [6]
BAM Capital is also a vertically-integrated company. This means they can guide their clients through the entire syndication process. They can handle everything from acquiring the properties to renovating and managing them.
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.
Sources:
[1]: https://www.investopedia.com/terms/i/investmentrealestate.asp
[2]: https://www.investopedia.com/investing/simple-ways-invest-real-estate/
[3]: https://pce.sandiego.edu/14-real-estate-financing-options-guide-faqs/
[4]: https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp
[5]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important
