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What Should Everyone Know About Real Estate Investing?

by | Feb 15, 2024 | Accredited Investor, BAM Blog, Blog, Real Estate Investing | 3 comments

Here’s What Potential Real Estate Investors Need To Know Before Jumping Into The Industry

Real estate has long been considered one of the most lucrative and stable investment options out there. There are several reasons why investors should consider adding real estate to their portfolio. From cash flow to diversification to tax benefits, real estate investing gives you a tangible asset that comes with plenty of advantages.

Real estate investing is a good source of passive income thanks to its ability to generate cash flow. This is the net income from a real estate investment after mortgage payments and operating expenses have been made. As you build up your equity and pay down your mortgage, cash flow tends to strengthen. [1]

This investment strategy also offers portfolio diversification due to its low—and sometimes negative—correlation with major asset classes like stocks and bonds. Having a real estate investment can lower portfolio volatility, therefore giving you a higher return per unit of risk. [1]

Real estate is also a tangible asset that typically appreciates over time, especially in growing markets or desirable locations. This potential for long-term capital appreciation makes real estate an attractive investment for those seeking to build wealth steadily over time.

The combination of potential appreciation, rental income, and diversification makes real estate investing a lucrative venture. However, there are still certain things you need to understand about this investment strategy before you dive right in. Here are some key things everyone should know about real estate investing.

The Importance of Research and Education

Before diving into real estate investing, investors need to educate themselves about market dynamics, the different investment strategies, the various financing options, and the local regulations.

Thorough research allows investors to make informed decisions when choosing an investment property. It helps them assess potential risks based on market trends, demand, and other factors. It also helps them identify the most lucrative opportunities available.

Research helps investors understand the ins and outs of any prospective purchase, regardless of their budget. Investors who are interested in a real estate investment property should find out every detail they can about it to make sure it is exactly what they need. [2]

By expanding their knowledge base, real estate investors can navigate the complexities of real estate investing with confidence.

Remember that the success of your investment depends on your ability to make crucial business decisions. Without adequate research, you may miss out on great deals that you could benefit more from, especially if you jump at the first appealing option. Fortunately, there are many books, online courses, and seminars available to help you learn. [2]

Tenant Relations and Leasing

It may be cliché, but the old adage “location, location, location” remains a fundamental principle in real estate investing. The significance of location cannot be overstated, as it impacts the value and desirability of a property—therefore affecting your potential returns.

Several factors influence the value and potential of a property’s location. For example, proximity to schools, transportation hubs, malls, employment centers, restaurants, and other amenities can make a location more appealing to renters.

Additionally, the neighborhood’s overall safety, infrastructure, and prospects for future development can significantly influence its viability for investment. Savvy investors assess these qualities carefully to identify the best investment properties.

People don’t just decide to buy a property based on how much they like the house or apartment—they also consider the community and neighborhood it is in. While a house can be remodeled or renovated, you cannot change where it is located. [3]

Purchasing a well-located single family or multifamily rental property can give you more favorable returns. Therefore location is often the single most important driving force behind the value of a property.

Learn About Risk Management

Like any investment, real estate comes with risks. Real estate properties face the risk of vacancies, property damage, economic downturns, market volatility, and changes in interest rates. There’s also the fact that real estate investments are generally illiquid.

Because real estate investments typically involve significant capital, understanding potential risks and learning about how to manage them is crucial. By identifying and mitigating risks, investors can protect their financial resources. [4]

There are no risk-proof investments. However, diversifying your investments across different properties and markets can help mitigate some of these risks. Another way to mitigate risk is to participate in real estate syndication deals, which we will discuss later on.

In an ever-changing economic landscape, being proficient in risk management enables investors to adapt to market fluctuations and capitalize on emerging opportunities. Ultimately, this increases the long-term viability and success of their real estate ventures.

Cash Flow vs. Appreciation

There are two main ways for real estate investors to earn money through real estate: cash flow and appreciation.

Real estate investments can generate income through rental payments (cash flow) and appreciate in value over time. Depending on your investment strategy, you may prioritize one over the other. [1]

Positive cash flow occurs when the income exceeds the expenses, providing investors with regular income streams.  On the other hand, appreciation refers to the increase in the value of the property over time. This can happen naturally due to market demand and other economic conditions, but there’s also forced appreciation that can be achieved through property improvements. [1]

While cash flow provides immediate income, appreciation offers the potential for long-term wealth accumulation by increasing the property’s value. Cash flow-focused investors typically look for properties with high rental yields, while those focused on appreciation may target properties in rapidly-growing markets.

Successful investors often seek a balance between cash flow and appreciation strategies, depending on their investment goals, risk tolerance, and market conditions.

Decide if You Want to Handle Property Management

Another thing investors should know about real estate, especially if you plan on renting out a property, is that you will have to take on the responsibilities of a landlord. This means property management is something to consider.

Property management refers to the overseeing and management of residential and commercial real estate properties. This means taking care of the property’s daily operations including collecting rent, handling maintenance, dealing with emergencies, and maintaining positive relationships with tenants. [5]

A lot of investors do not have time to manage a real estate property. This can be especially challenging if you have no experience being a landlord or if you are trying to run a large multifamily investment property by yourself.

Some investors opt to hire a property management company to help with this task. If you acquired a multifamily property such as an apartment community, then the strong cash flow may be able to cover this additional expense.

If you decide to manage the property yourself, it can save some money but it will require a lot of time, effort, and energy. Not to mention you also have to learn about local regulations and how to handle all business operations for the property.

Effective property management involves not only addressing day-to-day operations of the investment property, but also implementing strategic plans to maintain occupancy rates, preserve the property’s condition, optimize rental income, enhance property appreciation, and mitigate risks.

Proficient property management is essential for investors to achieve their financial goals and safeguard their investments in the real estate market.

The work of a real estate investor does not end once they have acquired an investment property. Savvy investors keep an eye on market trends, supply and demand dynamics, and other important economic indicators. These things can affect the real estate market, and therefore your investment property.

Understanding market cycles can help you make informed investment decisions and identify opportunities. This gives you valuable insights into the ever-changing landscape of the industry.

Keep an eye out for changes in housing prices, shifts in demand for certain types of properties, as well as changes in interest rates. This way, you can change your strategy accordingly and maximize your profits while minimizing risks.

If you are looking for new investment opportunities, staying on top of market trends will also help you make better investment decisions. Monitoring the market will ultimately help you maintain a competitive edge, ensuring the long-term success of your real estate investments.

Consider Multifamily Syndication

If you are an accredited investor, there is one real estate investing strategy that you should definitely consider as it solves some of the most common concerns people have with real estate.

Multifamily properties are generally associated with strong and consistent cash flow. However, purchasing a large multifamily property is also very expensive and difficult for a lone investor. But a real estate syndication deal involves pooling resources together with multiple investors. This approach makes larger properties more accessible. [6]

By pooling your financial resources together with other real estate investors, you mitigate the risk of acquiring a property by yourself. You only have to worry about your share of the capital, rather than the entire property itself.

Real estate syndication can be done with any type of real estate. But because multifamily properties provide strong and predictable cash flow, multifamily syndication is the most popular type.

Multifamily syndication also solves the problem of property management. This deal is arranged by a syndicator or sponsor who serves as the general partner (GP) in the syndication. They take on most of the responsibilities in the syndication deal, and that includes property management. [6]

Investors who participate in multifamily syndication do not have to worry about property management or being a landlord.

As limited partners (LPs), investors only have to provide a share of the capital needed to acquire the property. They also need to pay certain fees to get the syndication deal going, but they have no liabilities or responsibilities beyond that. [6]

In exchange for their investment, they receive a share of the property’s monthly cash flow. This may be distributed on a monthly or quarterly basis depending on the deal structure. Also depending on the deal structure, investors may earn a share of the equity upon resale. Every deal is different.

It is important to do your due diligence and examine the syndication agreement or private placement memorandum (PPM) carefully before agreeing to join a syndication deal.

Multifamily syndication allows investors to participate in large multifamily deals that are normally out of reach. The syndicator handles everything for them: from putting the deal together, to locating the investment property, to handling its day-to-day operations. [6]

The syndicator’s job is to create and execute the business plan. They will also be the one to look for accredited investors who will join in the syndication. Keep in mind that most of these syndication deals are exclusive to accredited investors. These are investors who fit the criteria set by the US Securities and Exchange Commission (SEC), allowing them to participate in unregistered securities.

Through multifamily syndication, you can enjoy the benefits of owning a multifamily real estate property without the headaches of property management.

Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals

For accredited investors who wish to add multifamily syndication to their investment portfolio, it is important to find a trustworthy syndicator. The syndicator will be making all the decisions in the investment, so you need to work with a syndicator with a good track record.

Accredited investors love working with BAM Capital because of their award-winning investment strategy that mitigates investor risk while creating forced appreciation. This Indianapolis-based syndicator has a track record for excellence and is now considered a leader in its industry. [7]

BAM Capital is a vertically-integrated company, meaning they can guide you through every step of the syndication process. They can handle everything from acquiring high quality multifamily properties to renovating and managing them.

This syndicator focuses on properties that are Class A, A-, and B++, particularly those with proven upside potential and in-place cash flow. In fact, BAM Capital now has over $700 million AUM and 5,000+ units. [7]

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 passive income and all the other benefits of investing with the multifamily syndication leader, schedule a call with BAM Capital and invest today.

Sources:

[1]: https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp

[2]: https://kmcmaggroup.com/research-insights/2013/the-importance-of-research-in-real-estate-decisions/

[3]: https://www.investopedia.com/financial-edge/0410/the-5-factors-of-a-good-location.aspx

[4]: https://www.officefinder.com/officeblog/risk-management-real-estate-protecting-investments/

[5]: https://www.indeed.com/career-advice/finding-a-job/what-is-property-management

[6]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[7]: https://capital.thebamcompanies.com/