The following is a guest post from fellow blogger Joseph Hogue. He’s a Chartered Financial Analyst (CFA) who writes for numerous websites and blogs, including his own Peer Finance 101 and Crowd 101. He’s got some advice to help improve your real estate investing strategy.
I’ve followed RBD and his real estate journey for just under a year. One article earlier this year talking through his condo investment was almost identical to a conversation I’ve had with my wife about our own real estate investments.
The post, talking through a condo investment bought in 2006 and whether it should be sold, is just one of the many struggles individual real estate investors work through all the time. The investment has done well and the $100,000 in equity has been paid for, in part, by renters. But RBD wonders if it’s really the best use of the money.
I started buying single-family homes in 2001 after getting out of the U.S. Marine Corps. I was fortunate to get in at the beginning of the real estate boom and did well rehabbing and renting properties in my small local market.
But I quickly found out that the real estate game is far from the passive income myth sold to investors and there’s constantly new questions to tackle. As an individual investor, you’ll have to be your own contractor, negotiator, and investment analyst along with every other role in the process.
I recently came across the solution to all the questions and uncertainty in building a real estate investing strategy and it may be the best way to level the playing field for people like you and me.
Create a Group to Improve Your Real Estate Investing Strategy
Few assets have created as much legacy wealth as real estate. It’s one of the most widely-held investments, has created empires and now…even a U.S. president.
But the real estate game seems stacked against the individual investor. Unless you’ve got a few million dollars in properties and can hire professional management, it’s tough to manage your own assets.
Cash flow can be tight in those first few years. You might be able to manage tenants but can you also be your own contractor and repair person?
Do you know enough about real estate law to answer your own legal questions?
A few problems a year and the costs of hiring out all the different real estate service providers can eat into any cash flow and put you in the red. Many investors find their savings running low trying to keep a budding real estate empire growing.
There is a solution that can help spread the burden for your properties and save you money.
They say there’s power in numbers and it’s certainly true in real estate. When I was looking to invest in a new market, I started a real estate investment group and the experience has been far different than my previous struggle.
A real estate investment group or a club is three or more people that get together to help each other manage their property investments. I’ve seen groups take different forms from limited liability corporations (LLCs) that hold property jointly to informal clubs where the investors hold their own assets but help the group with different roles.
Identify Critical Members For Your Real Estate Investment Group
I chose to put together an informal club rather than go through the incorporation process and worry about running an LLC. The LLC form can help to keep everyone involved and multiply your buying power but it can also be a hassle trying to coordinate everyone’s investment and owner rights.
Whichever you choose, there are a few critical members that you will want for your real estate investment club.
- Lawyers can be extremely expensive unless you can trade services within your group. Call local law firms and ask around the nearest universities if they have a real estate law course. You might not be able to find a licensed real estate attorney but you might be able to find someone with coursework in the topic.
- Real estate accounting can be frustrating for the numerically-challenged but will end up saving you a lot of money in taxes. Find someone that understands the process around a 1031-exchange and keeping track of your cost basis.
- Many contractors, plumbers, and electricians also own rental properties or flip houses. Find someone that can help the group with a little sweat equity in exchange for other services.
- You’ll also need someone that can help find the best deals and analyze investments. Check around with local real estate agents for local investors that might want to join your group.
You don’t necessarily need people that are professionally-trained in these roles to form a successful real estate investing club. Someone good with numbers can become an accounting resource for the group with a little study into real estate accounting.
Find people that are willing to learn and use monthly meetings to teach each other basic skills in each role.
Make it a fair exchange for everyone in the group. Don’t expect professionals to provide their services for free but everyone in the group should contribute. Spend a little time finding members that can work together and you’ll find the real estate investing game isn’t so stacked against you.
Joseph Hogue, CFA is an investment analyst and blogger. He runs six websites on topics including personal finance, investing, crowdfunding and making money from home. A veteran of the Marine Corps, he holds the Chartered Financial Analyst (CFA) designation and lives with his family in Medellin, Colombia.
Photo via Pixabay CC0 Public Domain