Fifteen years ago, real estate investing was often considered an “alternative” investment option that was reserved only for people with very high-risk tolerances or, at the very least, enough money to buy a new property in cash. This was especially true given the climate of the market at the time, which had been badly damaged by the 2008 Financial Crisis.
But, today, things are now dramatically different. Real estate isn’t just for banks and bankrollers—instead, it is now an investment option that is often even more stable than the stock market and can be easily accessed by a variety of different people.
There are quite a few reasons why this notable shift has occurred. To start, the passage of the JOBS Act (2012) helped make it considerably easier to engage in crowdfunding and syndication, which, for people who are interested in real estate to enter the market, is a big deal. Investments that had previously cost hundreds of thousands of dollars can now be accessed for around $10,000, or possibly even less.
Additionally, a lot of investment advisors have begun to view real estate investing as a much more stable opportunity. Real estate is finite, real estate will always be in demand, and real estate is a physical asset that continues to increase in value over time.
Keeping things in mind, you might be interested in becoming a property investor. But of course, you’ll need to make sure you have a system in place that can help you find the best properties available.
When comparing different properties, be sure to keep these five things in mind:
01-Equity and Cash Flows
Generally speaking, there are two primary ways to make money by investing in real estate: equity growth and monthly cash flows.
By equity growth, mean ongoing increases in property value. If you can find a property that is currently undervalued, you can set yourself up to either borrow against the property or potentially sell it for much more than you paid for. In St. Louis, for example, multi-family property values increased by 12.5% in 2021 alone.
But that’s not the only way to make money as a real estate investor. If you can find a property, such as a multi-family unit or some other category of rental property, you can receive consistent cash flows even before you decide to sell the property. When the property is correctly priced and managed effectively, the cash flows generated via rents will be considerably higher than the monthly cost of actually owning the property. And if you are willing to live in one of the units, your profit margins can be even higher.
02-Potential for Growth
It has long been said that the most important component of a property’s value is “location, location, location.” This basic principle of investing is, without a doubt, still true to this very day. That’s why a 1,000-square-foot property in San Francisco might cost considerably more than a 100-acre property in, say, rural Montana.
However, while most investors are aware of the importance of location, it is also important to realize that potential is just as important. In the nation’s most expensive markets—San Francisco, Washington, New York, Boston, etc.—the high cost of property is already baked in.
In other words, if you want to maximize your overall return on investment, you’ll want to look at properties that are most likely to rise in value over time. Finding undervalued properties can often be quite profitable. That’s why a considerable number of risk-averse investors have begun looking away from high-value markets and instead have begun looking for better-value investments in the Midwest and South.
03-Local Laws and Infrastructure
Before making any sort of investment property, you will also need to consider local conditions which, ultimately, will impact the rents you can charge and the rate at which your equity investment will grow.
If you are hoping to rent your property—which is usually the goal—you should consider the rights, and obligations, you will have as the property owner. For example, what are the current property tax rates? What other taxes and fees might apply? Is the state you are considering investing in considered friendly for “landlords”? Is there reliable infrastructure that will help ensure your property maintains its value?
Taking just a few moments to answer these questions will help make it much easier to find an investment property that fits your needs.
Most people don’t have enough capital to buy an investment property with cash—and even those who do will still typically look for some kind of syndication or financing, which can help them maximize the potential of the money they currently have.
That’s why it is extremely important to understand the investment structure you are currently using. With a real estate syndication, which—as suggested—has continued to become a more viable option, investors can make a cash investment in exchange for future monthly (or quarterly payouts). When comparing various property investment options, be sure to read the fine print and understand your commitment.
While this might be a bit of a “catch-all” term, real estate investors should also carefully consider how ongoing trends might affect their future ROI. Luckily, in the information era, learning more about different real estate markets is easier than ever before.
If you are interested in a particular property, ask yourself the following questions:
- Is the average price per square foot increasing or decreasing?
- Are property rents going up or going down?
- How long do properties typically remain on the market?
- Which other market-specific trends are unfolding
In other words, knowledge is power. And when working with a reliable real estate investment partner (such as a syndicate), it should be clear how and why you will be able to achieve your desired return on investment. By taking the time to do your research and explore your options, you should be able to find investment opportunities that work well for you.