One of the biggest decisions you’ll need to make if you decide to become a passive real estate investor is which real estate investment firm to work with and when you should begin investing. After all, you’ll be handing your money over to the firm to back developers and contractors that you’ve never met and may never know anything about – that requires a huge level of trust. Choosing the wrong firm could be a major investing mistake, but there are things that you can take into consideration when making your decision to potentially avoid a catastrophe.
How well do they vet their borrowers?
Just as you’re doing your due diligence to make sure you’re choosing the right real estate investment firm, it’s important to make sure that the firm does their due diligence. Every firm has their own method of determining which borrowers they’ll lend money to, and you would be well within your rights to ask them to go over what that process is.
It may also be prudent to ask some of the following questions:
- When reviewing proposals from developers, what are the criteria they’re looking for?
- Do they specialize in a certain type of project or a certain neighborhood?
- Does anyone from the firm make on-site visits to each project to check on progress and make sure that all of the initial plans are being followed through?
It may seem tedious – and possibly even a little presumptuous – to ask these questions to every firm you speak with before making your decision, but your decision must be based on which real estate investment firm will put your money to the best use, and this is one of the best ways to find out.
Are they responsive?
Another aspect to consider is how responsive the real estate investment firm is. If it takes them more than one or two business days to get back to you, that may be an indication that they’re disorganized or not capable of handling a high volume of investments. After all, if someone is trying to invest their funds with them it stands to reason that if they’re on top of their game the firm would want to speak with the potential investor as soon as possible. Their responsiveness to an investor is also indicative of what their responsiveness might be like to those on the other side of the coin – the developers and contractors they’re working with. If they’re slow to reply to those individuals, they may miss out on opportunities to lend money and get involved in a great deal for their clients. Finally, you want to be able to trust that the individuals handling your money will always be transparent and forthcoming, and the ability to get them on the phone with relative ease plays into that.
When should you invest?
Alright, so you’ve found the firm you want to invest with – but how do you know when to actually start? Of course, you may be itching to invest your funds so that you can begin getting your return checks, but there could be a benefit to sitting back and waiting a beat. For starters, you may want to speak with a tax professional who can advise you on how much you can reasonably invest, or in what stages you should do so – for example, a CPA may advise you to only invest a certain percentage of your total invest-able funds to start, so that you can see how the process goes and what the returns are.
You may also want to consider what your ultimate investment goals are – if you’re hoping to ramp up your retirement account and are only a few years away from your goal retirement date, then you’ll need to be more aggressive with your investing plans.
At Walnut Street Finance we take pride in offering our investors high returns and lending only to borrowers that we feel have a high probability of success. If you’re interested in learning more, and asking us some of the questions we laid out above, get in touch!