Real Estate is one of the most talked about asset classes, probably after stocks.

As one of the so called tangible asset classes, the popularity of real estate is not without reason. It has delivered solid cash flow and appreciation over many years and decades.

In the modern world of finance, however real estate investing has many forms and ways.

When I started real estate investing, it was almost by accident.

I heard about a commercial deal from a close acquaintance, who also happened to be the operator (the person who was building the asset ground up).

It was a call without due diligence and purely based on faith and other people’s opinion.

The price had to be paid. Thankfully, the money involved became smaller as I grew later.

Then when I moved to the US, I got interested in the systematic way real estate investing is studied and practiced here. I got in touch with people who are doing it, selling it and educating about it.

The first bad deal taught me the importance of being cautious and patient for the right deal to come through. Since then, I have invested in both residential and commercial.

Over the last few years, as I scanned and studied the real estate investing world, I realized that any form of real estate is not good for everyone.

Real Estate has to be personalized.

But before we go into what may work for you, I want to give a brief overview of the different forms of real estate investing. This is not an exhaustive list, so if you are interested, please go through books and information on the internet.

• Construction – You are the builder who buys the land, builds and sells houses.
• Fix and Flip – You buy a neglected house, fix it up and sell it for a profit.
• Short Term Rentals – You buy/own a house/condo, rent it out on AirBnB for nights.
• Long Term Rentals – You buy/own a house/condo, rent it out for the long term.
• Turnkey Rentals – A company sells a package deal, bundled with other services.
• Syndications – A General Partner finds the deal, and you invest as Limited Partner.
• Private Funds – Like private equity, you invest with people in deals from a company.
• REITs – Real Estate Investment Trust, stocks of companies involved in real estate.

Source: https://www.wcicourses.com/p/no-hype-real-estate-investing

Within each niche, there are several sub-classes and details that we will not go into.

One thing to note is that, as you go from Construction to REITs, the risk to you as an investor decreases (due to diversification and hands-off) but the return also decreases.

Personalize and develop a strategy

So if you are a cautious investor, a strategy could be to start at REITs and then move up.

You can move up as far as you are comfortable, but then stop beyond which you are not.

For example, I would stop at Long Term Rentals. Beyond that, it is too much work and involvement that I don’t want to take up or my other activities will not allow it.

Once you decided your upper cut-off and the classes you are going to invest in, you then have to find the requirements of your investing.

Do you want cash flow or appreciation?

All of the above, except the Construction and Fix and Flip (whose main goal is to increase the value and sell), if done right, can provide consistent cash flow.

And then there are deals which can be held for appreciation like a growth stock.

Understanding the asset and its risks

When you select one asset class, read about it and find out all the pros/cons.

When you start with downsides, you do not get excited by the marketing hype.

For example:

REITs can be passive but they are single company stocks. So you have to deal with the volatility of the stock market, interest rates and can be highly correlated to rest of your market linked portfolio. There are ways to diversify through REIT index fund and ETFs.

Private Funds and Syndications can provide great returns and less volatility (not marked to market) but will lock in your money for a long term (5-10 years). The risk also increases substantially from REITs due to non-oversight of regulatory bodies like SEC.

Turnkey and Long Term Rentals may seem passive investment, but you have to analyze a lot of factors (location, condition, value, management) about the property before investing. Things can go wrong and expose you to unnecessary headache and liability.

Short Term Rentals, if not managed in the right way, can also become a full time job.

Fix and Flip and Construction will keep you on your toes almost every minute and hour, and are best done as real estate professional.

Real estate in your portfolio

I am a fan of diversification in the right way. When your portfolio consists of 4-5 different asset classes, the overall volatility reduces and it is known to perform well under different economic conditions and over the long term.

How much percentage of real estate are you going to allocate in your investment?

I think anywhere from 20% to 80% is a good move, depending on how much time and effort you want to devote to real estate investing.

Real estate investing also requires more money to be invested as you move up the categories. For example, you can buy a REIT for $100, but will need at least $50,000 to $100,000 for Rentals and millions of dollars (could be financed) to start a construction.

How much time do you have for real estate?

Again depending on which upper cut off you choose, it will dictate how much time and effort you have to spend to include real estate in your portfolio.

These are examples only, please spend as much time needed in your due diligence.

• You can buy/sell REITs at your computer, while attending a meeting in your day job.
• You can do a thorough research on private funds over a weekend and invest.
• You can evaluate syndications, meet operators, ask questions and invest in a month.
• You can evaluate Rentals (Turnkey, LT or ST) for 3-6 months before buying one.
• You need years of experience and a team (contractors etc.) for Flip or Construction.

Conclusion: Real Estate for right reasons

Buy real estate and wait, do not wait to buy real estate.

This is a common adage in the real estate investing world.

It stresses the importance of long term view in the real estate world.

But it can also cause people to jump in without understanding all the nuances.

If you would like to have an in-depth analysis of your finances and how to get started with real estate investing, you can email me at: info@startyourfinancesright.com.