To be clear, the goal of this post is not to discourage you from being real estate investors. Rather, it is to lay out the potential challenges ahead should you decide to invest. It’s also very much dependent on the type of real estate investor you want to be. When we got started in multifamily investments, Philip and I started out as passive investors first because of the current stage of life we were in at the time. That allowed us to be where we are today – we got the time to learn before making the leap to become active investors owning and running the business.
Watch our video about what passive & active investing mean in real estate syndication on our YouTube channel.
When we talk with family and friends about real estate, we hear a lot about diversification. We’re a fan of diversifying your investment tactics and would always recommend it. We like real estate because it aligns with our work ethic and overall financial strategy for our family. However, it may not work for some people depending on what they’re looking for from their investments or where they are in their lives.
#1 – Requires time & attention: It’s a lot of work
For real estate in general, you need to put in the time and efforts to understand the market, the different types of assets, understanding the variety of strategies and much more. Now, in a real estate syndication, the level of efforts vary between passive and active investor. See the differences here. Being a syndicator/general partner/active investor takes much more effort. You have a business and the return on investment is directly linked to your skills in finding the right network, assessing and getting the right deals, market your assets, keep up with current laws, managing strategy for the assets, following the market swings, and more. It’s not magic and without dedication, it can fail as quickly as you started.
#2 – It’s not liquid!
Like the first point, the level of control you have also differ when you are active or passive. Any given deal requires a large upfront investment. Therefore, unless it’s the right time following the strategy, getting your money out of a real estate investment requires more effort. You have to find an agent, get it listed, negotiate, and pray the deal doesn’t fall through while waiting for closing. Overall, it’s far more challenging than the clicking to sell stocks or bringing precious metals to a pawn shop.
#3 – Diversifying in your real estate investment = higher cost
Every investment in real estate syndications has a high minimum. Although in a syndication, you would have a much lower barrier of entry than, say, trying to buy single family house, small multifamily, mobile home park, etc. on your own. It’s still not as low barrier of entry than the stock markets where you can easily get into a mutual fund or stock in a few clicks.
Diversifying in real estate investments is a great option. For example, location matters a lot! Our recommendation is to focus on one first, then make sure to diversify based on factors like location or even the type of real estate investments.
Is real estate as investment option overrated? Absolutely not. With the right amount knowledge, effort, and time that’s right for you, it can yield fantastic results. Got questions? Contact us!
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