Some of the wealthiest people I know made their money in real estate.
They didn't start out big. They started by buying one small property or project, and then after the first came a second, and so on.
I personally didn't start investing in real estate until I'd experienced a liquidity event from my original business, Wilmar--a company that gave me plenty of experience in real estate business. We were one of the largest suppliers of plumbing, hardware, electrical, and maintenance needs in the industry, to some of the biggest apartment owners in the country.already
In 1997, I invested as a majority owner of a 106,000-square-foot, seven-story office building in New Jersey. I still own the building today. But it wasn't until 2008, when I entered the tax lien business through my firm Crestar Capital that I really got experience underwriting real estate.
Over six years, we underwrote over $3 billion in residential real estate. In 2012, we began to foreclose on a small number of unpaid tax liens. Three years later, we owned 450 homes.
It was through attempting to get financing for these properties that I realized there was a massive opportunity to create a real estate financing company for investors like myself, acting as a lender, but driven by technology--that led me to start LendingOne.
This is how I've come to realize that real estate can be a great side-hustle for any entrepreneur--after all, we all want to build long-term wealth for ourselves. And you don't need a liquidity event or a ton of cash to get started.
Four questions to answer if you want to invest in real estate.
Owning real estate is a key part of building wealth and diversifying your investment strategy. Start by answering these four questions:
- What's more interesting to you: commercial or residential?
- How much capital do you have to invest?
- Will this be a full-time business, a part-time hobby, or a part-time interest with the intention of it becoming a full-time business?
- Are you looking to invest your own money or other people's money--and will you use debt?
The last question is arguably the most important, since debt is what will allow you to make larger investments, faster--to either fix and flip, or hold and rent to tenants. Reason being, debt is a fundamental part of the building process.
In everyday life, the concept of debt is bad. In real estate, and in business, debt is necessary. The whole idea is to put as little of your own money down as possible, so that you can not only invest in more real estate, but get a better return on your invested dollars.
Once you answer these questions, you can then choose how you want to approach the business of investing in residential real estate. Here are some strategies to consider:
Fix and flip.
Some people like to buy up a property, fix it, and then resell it six months later.
The pros of getting into the fix-and-flip game are there's endless opportunity, with plenty of homes that need rehabbing given the age of the U.S. home inventory; and flipping one, two, or more homes per year can make you quite a healthy profit.
The cons, however, are that you're responsible for managing the work, for incurring (and managing) your costs, and for seeing the project through to completion. Some people are great at this, but others drastically underestimate the amount of work that goes into a final product.
Think about single-family rentals in terms of accumulation over a lifetime. Again, real estate empires don't happen overnight. Like I said, it starts with one home, leveraged to the next, to the next, and so on.
With single-family rental units, you can then rent those homes out at a price that's higher than your mortgage, which makes it pay for itself. The cons, unfortunately, entail everything from frustrating tenants to bad markets, unforeseen repairs, and vacancies--all of which influence whether your properties stay profitable.
There are two ways to patriciate in turn-key solutions. The first is to be the manufacturer of the home you buy/fix, then rent, manage, and sell the property to passive investors.
Many professionals that don't have time required to buy/fix/rent but still want to own real estate fall into the second category. If you are someone who doesn't have the time or expertise you can find great turn-key opportunities from companies like Roofstock.
Getting started building your real estate portfolio doesn't need to be complicated. Once you buy that first property, you'll realize it's a process--just like anything else in life. And then you'll be well on your way.