After thinking it through for a while, you’ve decided that you want to get started in real estate investing as a way to boost your portfolio and net worth. You’ve examined all of the options and concluded that passive real estate investing is the way you want to go – you don’t want to lead construction crews through fix and flips, or chase rent checks. Perfect! Now all you’ve got to do is decide on which real estate investing firm to work with, which can be a little tricky. After all, every firm is going to tell you that they’ll provide you with high returns – but how they go about managing their business to get those returns is what’s most important.
Below we’ll take a look at four things you need to know before you sign with a real estate investment firm.
- What are their average returns?
This is probably the very first question you’ll ask any firm you speak with. Some firms may advertise their return rates right online or in their print materials, whereas others will hold the information for in-person conversations to avoid committing themselves to a specific number. Of course, it’s highly unlikely that any firm will guarantee a specific return rate, but giving you a solid answer for their average returns and evidence, such as a quarterly or annual report to review, will go a long way.
- What does their due diligence look like when lending to developers?
Investment firms are going to operate in much the same way as any other business – tossing out numbers about how many deals they close each year, how much money they bring in, etc. While it may seem impressive to hear that they lend to 1,000 developers per year, it’s important for you to find out whether these are good deals or not. Do a bit of digging to find out the criteria that the firm uses to determine exactly who they’ll lend to – are they lending to any Weekend Warrior who comes in and decides they’d like to undertake their first fix and flip, or are they only lending to experienced developers that they’ve worked with before? Perhaps it’s a combination of the two. In any case, you’ll want to make sure that you’re comfortable with the criteria they set forth for their lenders, since it’s your money that will be backing the deals.
- Is their portfolio diverse? How diverse is it?
Having a diverse portfolio is important to ensuring that all of your money won’t be swept away with a single bad deal, and a sound real estate investment firm will know that. When you discuss the diversity of their portfolio you should be expecting to hear that they invest in a variety of property types and that they aren’t focused on one very narrow area. Focusing their expertise in one city, or a large section of a city is good, but if they only focus on very specific types of deals, such as historic rehabilitations within a specific sub-division, that could be a red flag.
- Does the lender have their own money in the game?
One of the best things to hear from a real estate investment firm is that they have their own stake in the game. Of course, their main business is investing the funds that their investors are bringing to them – but if they’re also investing their own capital in a project, it goes one step further to show that they have confidence in their methods and strategies. After all, if they aren’t willing to put their own money up, that’s a little bit troubling.
Now that you’ve got a handle on what you need to know before signing with a real estate investment firm, get in touch with us to see if we’re the right firm for you!