Real Estate has been the backbone of the U.S. economy for generations and today is still one of the most tried and true methods to building wealth in this country.
Even with interest rates at an all time high of 8% homes are still selling. There are a litany of opportunities to make money in real estate, however they all come with risks and if you’re not informed, you can end up taking big losses.
Active vs. Passive Investing
When it comes to real estate there are two lanes investors can take, active and passive. An active investor is typically the sole proprietor and stands to receive 100% of the profits. On the other side of the coin, passive investors typically split the profits among several individuals or parties.
Fix and flip and renovation projects are a method of active investing where someone purchases a property, fixes or renovates it then sells it for a profit. There are a number of shows involving fix and flip projects on Home and Garden Television today showcasing people who fix and flip houses. .
Flipping houses has gained enormous popularity in recent years. Investors fix and flip both homes and rental properties and in many cases investors will hold on to the property and rent out the unit to make residual income on the property.
One passive method of making money in real estate is through a Real Estate Investment Trust, otherwise known as REITs. A REIT is security that trades like a stock on the major exchanges and owns—and in most cases operates—income-producing real estate or related assets.
“A group of people who own the REIT are probably fixing and flipping houses and purchasing multi-family homes,” Ejiro Ajueyitsi, the owner of the Brooklyn Funding Group told BLACK ENTERPRISE.
“You give as little as $2,500 and based on that, you make money every quarter, monthly or yearly. That brings immediate dividends so you can make like $100 a month or $20 a month depending on how much you’re putting in and what’s your return on the REIT fund.”
Risks
Pierre Bernard, a real estate developer and investor, said while working in real estate can be very lucrative, nothing moves fast in real estate and the risks begin before you close on a home
“One of the biggest risks is dealing with the Department of Buildings and municipalities,” Bernard, told BE.
“You have to get permits, certificates and deal with a ton of paperwork, so timing is important because the city does not care about the fact that you have a mortgage, they take their sweet time with approving plans and everyday that you don’t have the paperwork to get out of the project and make the money, you’re basically giving it to a bank.”
Another risk is market fluctuation, which is currently being played out in today’s housing market. An interest rate change can lead to homes staying on the market. Additional risks include getting into bed with bad contractors.
“You get into bed with a bad contractor and he leaves you holding the bag,” Ajueyitsi said.
“Now you have this thing called scope creep, you were supposed to finish in six months but it took twelve and now you ate through all your profit.”
Do Your Research
Both Bernard and Ajueyitsi the key to success in real estate is making sure your financial situation is in good standing and conducting significant research.
“Know how to research the houses you’re going to buy,” Ajueyitsi told BE. “You need to know the risks, the markets, where you’re going to buy and how much it’s going to cost. Do all the research before you sign on the dotted line.”
“You know how they say measure twice, cut once? well, measure five times,” he added.
Bernard has similar advice.
“Know how the money really works, how to actually finance projects and how to get things done because the biggest hurdle is money,” said Bernard.
“Getting funds or being approved for funding is an art. The Brooklyn Funding Group has saved my butt a couple of times. So knowing what it really takes to fund a project and what is fundable is paramount.”
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