Before anything else, just before we begin to discuss the two methods to passively invest in real estate and obtain a high profit on the money you do invest, I need to acknowledge that in the event that you need to step in and look after your investment, it may possibly become an active investment decision on your behalf (or the team you may possibly employ).
Likewise, the selection of the investment up front ought to be a dynamic process. Nevertheless, taking out those 2 achievable dynamic functions, I would contemplate this as a passive real estate investing technique. With this complete disclosure, let us proceed with the discussion of these two techniques to passively invest.
Initially, you could possibly turn into a private lender.
Private lenders typically lend funds secured by a particular property. They earn a return on the money they invest. Payment agreements vary from monthly installments, to every three months payments, to yearly payments and even to lump sum payments in the event the real estate property sold.
You might receive interest only payments for most of these payments with the whole principal amount of money to be paid off by the end of the investment period. Or, the deal may well contain interest and some of the principal so that over time the entire amount of the credit is paid off like some other traditional, amortized financial loans.
Generally when you grow to be a lender on the property you are receiving a set sum of interest on the cash you loan and not part of the earnings made in the offer. Making use of an oversimplified situation not including many discussions of contract costs, if the loan lasted one year and you had loaned $100,000 at 8% per year you may earn $8,000 on that investment.
Secondly, you could turn out to be an equity partner.
Rather than lending cash collateralized by the property, you may desire to uncover a professional real estate investor and come to an agreement on the best way to partner on the deal. You might be supplying the funds and/or credit to purchase the property as well as the real estate investor would be responsible for the activity portion of the arrangement.
With this sort of investment you might, in a few instances, receive interest on the cash you have put into the agreement too as portion of the profits. Or, you might just receive part of the profit from the offer.
Again giving an oversimplified model excluding transaction and other charges, in case you loaned $100,000 in exchange for part of the profit on the deal plus the deal took a year from start to end, but the income on the deal, after all costs, was $30,000, you may well make $15,000 on the deal and also the real estate investor would receive $15,000 as well.
Structuring win-win deals like this is fun and may be extremely rewarding if performed correctly. There are practically limitless possible methods to structure them depending on the needs of the folks involved. Some lenders may want monthly income.
Other people could wish to maximize capital growth. Some real estate investors may need living expenses while investing the time to manage the project; others may have alternative sources for that. Component of what makes the procedure of structuring these enjoyable is discovering solutions that truly are win-win for all involved.
By Andrew Watson