Real Estate Investment

So, you’ve decided to take a step towards improving your future, by investing your hard earned money. Undoubtedly, one of the routes you’ve surely considered is real estate investing, which can yield returns through appreciation (long term) and rental income (short term).

1. Invest under an LLC:

Regardless of how confident you are in your research, you do not want to acquire real estate under your private name. To better manage the risk, and for greater tax efficiency, it’s best to set up a real estate holdings limited liability company (or similar). Above all else, investing under an LLC ensures that your personal assets such as your 401(k), your personal accounts, and your private home are safe in the event that the investment loses its value, or if an accident occurs on the property, leading to a lawsuit. This can be done quickly with a licensed attorney, so don’t be delay if you’re already in the process of purchasing a property.

2. Incur debt responsibly:

Investing requires capital, but you absolutely don’t have to be wealthy in order to invest successfully in real estate. In fact, even if you have liquid capital, it’s often more beneficial to take out a mortgage since the interest incurred is low, and they can then use the available liquid funds to invest in other channels. If you’re considering debt in order to purchase a property, do your due diligence – ensure the market is solid and rising, confirm the property’s condition and any outstanding liens, and have a plan to meet loan repayments in the event that resale or rental don’t materialize for a period of one year.

3. Assess risk and costs thoroughly:

Unfortunately, many novice investors underestimate the costs of investing, often misguidedly limiting it to the cost of the property itself. However, the expenses hardly stop there; “there are closing costs, renovation and constructions costs, taxes, and agent costs associated with any successful real estate investment” says Managing Partner and Chief Investment Officer of Sorin Capital Jim Higgins. To make a sound and conservative decision, calculate added costs of about 15% of the property value, and determine whether or not the risk is worth it.

4. Zero in on a market:

If investing in real estate was clear cut, everyone would do it. It takes a lot of time, dedication and research to find a niche you’re comfortable investing in from a risk, return and capital perspective. In order to make a good decision about the first real estate investment you’ll undertake, speak to local experts such as real estate agents, brokers, fellow/rival investors (you might find a partner!), and even longtime homeowners – all of whom have seen the area go through various ups and downs. Read relevant and up to date analyses of the neighborhood, city and state you’re considering, and then create a spreadsheet with criteria to track in order to evaluate each property as it comes on the market. Armed with this knowledge, you’ll gradually become much more familiar with the area you’re planning to invest money in, and feel a lot more comfortable taking a leap of faith when the right opportunity comes along.

5. Don’t invest in a rush:

You’ve done your research and zeroed in on a geographical zone, property type and price range. You’ve even lined up the capital, and you may have already missed out on a couple of opportunities because you were “too slow”. All of these circumstances can lead you to make a mistake and invest in real estate that doesn’t meet your criteria or that doesn’t check out – for various reasons. Understand that there are consequences to rushing through the process and skipping vital but time-consuming steps, such as inspections and paperwork. Any seasoned investor will tell you it’s always better to spend a little more time covering your bases before committing – so stop agonizing over all the ‘perfect’ opportunities you missed.

Tags: , ,
  • 0Shares
Sorin Capital Jim Higgins
Jim Higgins founded Sorin in 2004 and is Sorin’s Managing Partner and Chief Investment Officer. Prior to founding Sorin, Mr. Higgins was Senior Managing Director and Co-Head of Bear Stearns’ CMBS/Commercial Mortgage business, responsible for all capital commitment, new issuance, securitization, secondary trading, structuring and research for CMBS, commercial mortgage whole loans and commercial real estate CDOs.