Real Estate Made Easy

Real estate is one of the best long term investments that you can make, but the barrier to entry is what holds many black investors back. What often is not understood in our community is that there are at least three financial levels of real estate investing.

  1. Big Money
  2. Medium Money
  3. Small Money

Big Money Investors

When someone has access to a large some of money, it is easy for them to make a down payment and buy a piece of real estate. This is most often what we think of when it comes to real estate investing. As with any level of investing, there are pros and cons to this:

Pros
  1. You control a physical asset that you have the keys to.
  2. You can leverage other people’s money (OPM) through a mortgage to control an asset.
  3. You can rent it out for monthly income.
  4. You build equity while generating monthly income.
  5. Your credit score will sky rocket after a few months of paying your mortgage on time.
Cons
  1. You need to have access to enough cash for a down payment.
  2. You are responsible for any repairs that need to be made to the property.
  3. You are responsible for collecting rent and if necessary evicting tenants.
  4. Your cash is not liquid and you have to go through a process to access it.
  5. Difficult to diversify without a lot of money to invest.

Medium Money Investors

In the past, people that didn’t have enough money to buy real estate alone would often partner with family and friends to purchase real estate as a partnership or group. In the age of technology, we can invest in clubs, funds, and groups that pool money together in order to buy property. For the sake of the pros and cons lists, we’ll stick to funds that operate online. Partnerships with your family and friends will have completely different rules in most cases.

Pros
  1. You can get started for as little as $500.
  2. You don’t have to worry about collecting rent or handling evictions.
  3. You can earn a return on your investment without doing any of the work.
  4. You don’t have to take care of any damage done to the property.
Cons
  1. You do not have any control over which property gets purchased.
  2. Unless you are the fund or group manager, you do not have access to the physical property.
  3. You are often required to keep your cash invested for a minimum period of time.
  4. Difficult to diversify without a lot of money to invest.
  5. You don’t get the benefit of an increased credit score.

Small Money Investors

This is the category that many of us will fall into. However, it’s not a bad category to be in at all because it is actually the most versatile of the three options. At this level the only option not based on any strange circumstances is to invest in Real Estate Investment Trusts (REITs).

Pros
  1. You can get started for the price of a single share of stock, which can often cost less than $5.00 (five dollars).
  2. REITs often pay dividends which can be reinvested, allowing you to take advantage of compound interest.
  3. You can buy as little as one share or as much as you can afford.
  4. You get the benefits of owning stock and real estate at the same time.
  5. REITs allow you to invest in commercial properties such as malls and retail space, as well as rental properties.
  6. You don’t have to deal with collecting rent or handling evictions.
  7. You don’t have to take care of any damage done to the property.
  8. You can sell your shares in minutes to access your cash if there is an emergency or you change your mind.
  9. Very easy to diversify.
Cons
  1. You do not have any control over which property gets purchased.
  2. You do not have access to the physical property.
  3. You are often required to keep your cash invested for a minimum period of time.
  4. You don’t get the benefit of an increased credit score.

Diversification

The great thing about REITs is that not only do REITs often own multiple properties of the same type… you can also invest in many types of real estate that you may not otherwise invest in. Here are just a few examples of the types of real estate you can invest in with REITs.

Disclaimer: I'm not a financial expert. Actual results may vary. Investing has risks, and investments are not guaranteed. Any information found on this site is for educational purposes only.