Low Risk Real Estate Investing
By Scott Wright Google
Low risk real estate investing should be the ultimate goal of every real estate investor. There are some very creative ways to secure low risk real estate. Over the years I have learned many ways to create low risk real estate investing opportunities for myself and my friends. Let me share a few ideas with you. Maybe you will want to try these real estate investing risk reduction techniques yourself.
Low Risk Real Estate Investing
There are some pretty simple ways to reduce your risk when investing in real estate. When the USA real estate market crashed I truly learned the value of these investing tactics. While other investments fell into ruin a few others really shined though. By taking a close look at these results it is easy to see why some of the real estate investments crashed while others were able to ride the storm and become success stories. Needless to say, by smartly applying this information it is possible to succeed with low risk real estate investing.
Lessons In Low Risk Real Estate Investing You Should Learn
Some of the most valuable knowledge I learned from the market crash are pretty darn obvious when you hear them. However, when you are out there swinging real estate home runs one after another it is easy to lose sight of tragic days ahead. It is very important to always invest in real estate with caution. It is just plain old school wisdom. Everyone has heard these tips somewhere and they nest in the back of our minds. The issue is, do we really apply this wisdom to our real estate investments or do we stash this information on low risk real estate investing and hope to apply it as the storm is hitting? Obviously, it is too late at that point. Lets look at these:
- Minimize your involvement on each project
- Invest with like minded partners and friends
- Diversify by investing in several properties
- Have several exit strategies
Achieving low risk real estate investing is like reaching investing Nirvana ~Scott
Minimize your involvement in each project – There are many ways to minimize your involvement in each real estate project you invest in. The way I accomplish this is to make my money work for me instead of keeping myself overly involved. This is probably the greatest reason I have for embracing the Property Trust as much as I do. Fact is, a good property trust with a Trustee and Director offers fantastic security and eliminates so much undue stress. This is especially true when you are attempting to create a low risk real estate investing process using like minded partners and friends. This real estate investing method is highly protective of all involved and reduces worry and stress.
Investing with like minded partners and friends – You may have heard from your grandparents, parents, old books or other sources that you should not invest with your friends. Well, that is just stupid in my opinion. Just who do you want to share success with if not your friends? So, investing with strangers is better for you? Investing with know idea who you are investing with could be a catastrophic event. I don’t know about you but I want my friends by my side. No matter if things are going roughly or smoothly you usually can depend on your friends. With this being said, it is critically important to protect your friendship.
The best way to do this is by using excellent documents. In my opinion great documents protect great friendships. Using Property Trusts is probably the very best way to invest with your friends. Each person becomes a beneficiary of the trust that holds the property. Each person is granted a percentage of beneficial interest in the trust based upon how much they contributed to the project. If a person wants out of the trust prior to completion of the project or during the long term hold the other beneficiaries (people) in the trust are offered that persons beneficial interest at a fair price or all beneficiaries can jointly contribute to buying that friend out for a percentage spread out to everyone in the trust.
The greatest advantage of all is that nobody can randomly sell anything to an outsider. The Trustee (Attorney) can not do anything without a letter of direction signed by each member of the Property Trust. There is literally no way to hurt each other because everyone is bound by the exact same rules. Everyone helps each other within the investment. It is a beautiful thing.
Diversify by investing in several properties – This is probably the most obvious of all. It doesn’t matter if you are doing quick flips, fix and flips, renovate and holds or cash flowing properties. The fact is, it is much better to spread your funds between several investments instead of just one. The old adage “don’t put your eggs all in one basket” is the voice of wisdom passed over centuries of time though a visualization. This isn’t a joke. Instead it is pure intelligence.
By investing with friends and partners you can own percentages of beneficial interests in many properties instead of just one. Are you starting to see the advantages of investing using Property Trusts? Low risk real estate investing is not just dependent upon the property you purchase but also on the methods you use to purchase the property right from the onset. You create success right at the start of the real estate investment and by planning a smooth path.
Have several exit strategies – If your focus is truly on how to achieve low risk real estate investing success than this is the most important thing of all. Always have exit strategies. Plan for the unexpected. Cover yourself by really thinking ahead.
THE MOST VALUABLE LESSONS ARE LEARNED OVER TIME
When the real estate market crashed many of us thought we had covered all of our bases. In fact, my own personal purchase model was to only purchase properties that were 65% of the actual value of the property based on recent comparable sales from neighboring properties. Now, one would think that this would be an excellent buffer even in the worst of investing environments. Wow, that was so far from true! Real estate sales came to a complete halt. Values dropped to NOTHING. 65% above zero is a whole lot of debt suddenly! Talk about shock setting in. My world and the worlds of many of my friends were completely turned upside down in an instant.
There is a light at the end of this nightmare of a tunnel and the light is KNOWLEDGE. If these properties were all in Property Trusts and I had invested with my friends and trusted partners instead of using bank loans and private lenders all of the properties, funds and profits could easily have been protected. The properties I had structured like this were the only properties that were saved. The funds invested were recovered when the market turned around. Sure we had to wait it out. Still a far better option than losing everything.
IF you have not figured it out by now I am a strong believer in Property Trusts. They are an amazing tool in real estate investing. Even stronger when considering low risk real estate investing as a whole.
Advanced Low Risk Real Estate Investing Tips For Real Estate Investors
- Use Property Trusts instead of C-Corp or S-Corps
- Make sure your Trustee is an attorney
- Create a director of the Trust to buffer your trustee
- Beneficial interest in a property is better than ownership
- Identify short term, mid term and long term options
- Do not turn your friends into lenders
Friends should be PARTNERS never LENDERS. This is probably the quickest way to destroy a friendship. When problems happen friends can handle these together. On the other hand lenders can not and will not be on your side. Quite the opposite. IF you are borrowing from your friends you are the race horse. When the race horse does not instantly win first place it is put down or taken out of the race. Same thing in real estate investing with lenders. They will remove you at the first sign of a problem. Friends investing as partners in a Property Trust can work together to solve any problem. Think about it.
Want to learn more about Property Trusts? READ MORE HERE