How to invest in real estate passively (part 1)

A few people have asked me recently how you can invest in real estate without doing it full time. It’s a good question, because, as a part-timer, you are competing with other investors who have some built-in advantages, including:

  • Ability to buy all-cash and close quickly
  • A network of brokers who funnel the best deals to the most active buyers, sometimes before they hit the market
  • Ability to more accurately evaluate an asset, given experience with similar assets
  • Better banking relationships, allowing for cheaper debt and faster closings
  • More appetite for dealing with the problems associated with attractively priced assets

It’s certainly not impossible to do good deals without having the above advantages, but it’s not easy.

So, how do you, as an individual, get access to good deals if the deck is stacked against you?

Well, if you can’t beat ’em, join ’em. Real estate professionals (like me) are in the capital-raising business. Our business model is to use our expertise to make money for investors and then take a cut of the profits for ourselves. So one good way of getting exposure to good deals is just to invest with professionals.

There are two main ways to do this:

  1. Investing in syndicated deals; or
  2. Investing in funds

Over the next few posts, I am going to explain how these approaches work and the pros and cons of each.

A word of caution before we begin: Investing in private real estate deals is, by definition, risky. You can get hurt. So this is the kind of thing you do with spare cash that you can afford to lose. And, just like when you buy a building yourself, you need to do your due diligence on anyone you invest with. Caveat investor!