How to: 3 main ways to invest in Real Estate

Here are 3 main ways to invest in Real Estate to suit your needs.

1. Equity – Be the owner or partial owner.

2. Debt – Be the lender

3. Private REITs or Funds

There are fundamental risks associated with any investment. Do a google search for “rules of investing” and you will find a number of them on the internet.

We can all agree that it is PARAMOUNT you start with a PLAN!

One fundamental rule for real estate investing is to have the knowledge of the main investment structures in order to choose the model that works best for you and your plan (If you have not started one yet… Please reference above and start there) Let me emphasize .

Make A Plan! Now that I have made my point, let’s move on.

If you have a Self-Directed IRA, a 401K or Solo 401k, Pension Plan, another type of Retirement Vehicles or Cash and depending on what your plan is… i.e.- wealth generation, immediate monthly cash flow, or both.

The question you need to ask yourself is:

Do I want to do it, or do I want someone to do it for me?

DIY (Do-it-yourself) vs. DFY (Done-for-you)

I have talked with many investors over the years who strictly adhere to the do it yourself approach, and some have been very successful! They might take on a buy and hold, then might flip, but in every case these investors are committed to spending their own time and skills on making certain that they are the ones who win or lose. They have effectively created a side hustle or “2nd Job” for themselves. And that works for them. But it isn’t for everyone.

The other category of investors choose the “done for you” options. This is what I refer to as passive investors. They invest 50-100K or more with companies or in projects in the trusting that they select the right management teams and the best projects for their goals.

An even larger number of real estate investors straddle both categories optimizing their bandwidth and profitability by leveraging others. Opting for the “hands-on” profits that can happen on a DIY and putting a portion of their funds into DFY so that their money can continue to grow.

Here are some pros and cons to consider. Over the next 3 articles we will deep dive on each method that you need to know and fully understand in order to make well-informed decisions.

1. Equity Investing – Be the owner or partial owner

Pros

• Highest potential return
• Depreciation shelters income
• Tax deferral with 1031 exchange potential
• Highest level of control in selecting investment
• Highest Level of Control of Asset and Management

Cons

• Highest risk if you don’t know what you are doing
• Illiquid for 3-7+ years (Equity should be considered a long-term strategy)
• May require state tax returns to be filed, depending on your state
• Usually requires accredited investor status, depending on if you invest yourself or work with a firm that partners with Non-Accredited Investors
• Little to no control or timing of sale, unless you have a properly structured exist strategy
• Little to no control of direct Management depending on if you choose DIY or DFY (Tip: Make sure to properly vet your management company)

2. Debt Investing – Be the lender

Pros

• Lowest risk
• Short time horizon (typically 12 months- 36 months)
• Typically backed by the asset in 1st lien position
• Typically monthly interest payments
• No state tax returns required
• High level of control in selecting investment

Cons

• Very tax-inefficient
• Requires foreclosing in event of default
• Usually requires accredited investor status
• No control in management of investment

3. Private REITs and Funds – Debt or Equity

Pros

• More diversification than individual investments
• May not require accredited investor status
• More liquidity than investing directly
• No need to select individual investments

Cons

• 0% control in selection of investments
• 0% control in management of investments
• You are at the mercy of what the REIT or Fund chooses to charge for Management.
• Okay, let’s discuss the companies that I think are worth considering for your investment dollars. Note that I’m not going to discuss individual funds in this post nor individual syndicators.

4 Strategies for Investing As a Non-Accredited Investor

Are you a non-accredited investor? Are you trying to find a reliable, safe and lucrative investment to place your capital for mid- to long-term wealth generation?  

In your experience, does it feel as though non-accredited investors are being penalized or disregarded?  

I’ve had so many conversations recently with investors frustrated by forced changes to their investment strategies. You build rapport, build trust and finally invest with a fund. Then some time later… months or even years… you get that call telling you the fund managers are shifting their strategies, and they will be returning your capital because the fund is no longer providing placement for non-accredited capital.  

WHAT? But you have been an investor with the fund for so long! Where is the loyalty? Whatever happened to the old adage “What’s good for the client is good for us”? You receive your wire, but with little or no offer to assist you in finding a new home for your capital.  

So why are Funds and REITs turning away capital from sophisticated, educated, and experienced investors?  

Here’s why… 

The JOBS Act of 2012 created lots of opportunity for syndication and it added regulations that allowed for non-accredited investors (506a and 506b). 

HOWEVER, when non-accredited investors are involved, firms are then required to provide AUDITED financial statements. This may not sound too difficult on the surface, but when you are considering a 506b offer that represents a $10 million acquisition with 20 or more investors, and adding in the complexity of funding and operations, all while maintaining transparency, the task is not an easy one. Audits of this nature can run $50-100K per year, which seriously reduces the amount of money available for returns. 

When private equity offers accept only accredited investors, they are often able to deliver a higher return with less workload on the managers of the offer. They are not constrained by the requirement to provide audited returns. 

Don’t get me wrong, oversight to protect investors is a must! But at what cost? The standards for accredited investors should be amended (how) and indeed this has been discussed in congressional committees over the last couple of years. 

So back to your investment problem: you’ve been booted from your fund, and now you are on the hunt….yet again…to find a new company to build trust and rapport so you can find a new home for your investment dollars. However, fewer and fewer companies are willing to work with non-accredited investors… 

So what is the solution? Where can you safely place your capital as a non-accredited investor?  

As a non-accredited investor, if you have cash, a self-directed 401k, a self-directed IRA, a pension plan, or one of a multitude of other investment vehicles, here are a few places you can direct your investment dollars to work for you and get the returns you are looking for: 

1. Equity Investing: Joint Venture/Partnership 
2. Debt Investing: Specific types of Note Lending 
3. Select REITs 
4. Select Funds 

Don’t lose hope…You are not alone!  

And more IMPORTANTLY, you are not out of luck. There are plenty of opportunities to invest directly, indirectly, and passively into real estate that provide great opportunity with low risk. These investments are very appropriate for sophisticated investors who want passive income and growth.  

Contact Grande AMA and Associates at investorrelations@amagrande.com today to see if we can assist you in identifying the right place for your investment. Visit our website at https://amagrande.com or give me a call directly at (480) 542-7772. 

I look forward to assisting you with any questions you have regarding non-accredited and/or accredited investments for your portfolio. 

Beyond the Rink

Give your Investment Strategy a Checkup: How the new tax laws can save you money on your taxes

It’s upon us again…. As the old saying goes

The only 2 guarantees in life are Death and Taxes

As we prepare for tax season, it’s also time to get your checkup….no not that one…. The one with your Investment adviser and CPA to see how your investments did last year

Have you ever noticed that sometimes it kind of feels like a prostate exam? You pucker a bit and ask the dreaded question

Bend over….

How’d we do last year?

It’s feared for 1 of 2 reasons

1.You lost money

2. You made money …YAY….but now you have the tax liability you were not expecting

How do you offset this added tax liability?

Well…How balanced is your portfolio?

Do you have safe haven Investments assets like real estate integrated and weaved throughout your portfolio to create tax treatments?

Are you heavily invested in one particular type of stock, is your portfolio too aggressive, or or not aggressive enough for your age?

This is the time to get all this stuff figured out, corrected, and benefiting you and your loved ones.

Deprecation from certain types of Safe haven investments can offsets your taxable income…. Why give the government more than you should

What vehicles are you using to create passive income, allowing your capital to work smarter not harder? Have you looked at diversifying your retirement portfolio into real estate to create a more predictable and stable cash flow into your retirement?

Does your real estate strategy match up with the rest of your portfolio? Maybe it’s time to balance that out?

What are your goals for 2019, and beyond? Let us help you generate cash flow and long-term wealth.

It’s a new year it’s a new start it’s a chance to find better ways to grow and develop you’re wealth.

At Grande Ama & Associates we are laser focused on creating a custom plan for your long-term real estate needs. We specialize in creating cash flowing real estate for our investors. AND we bring a network of highly skilled professionals to assist with your planning needs.

Someone once said that wealth building is a team sport. The checkup of your investments is a great place to start. The health and composition of your wealth building team should get reviewed just as often.

Here is your CHALLENGE:

Find out if your CPA understand the nuances of real estate? If he/she well versed in the multitude of new tax laws changes? What deductions are you missing?

Here are a few questions to ask your CPA while you are working on your taxes together

1. Would Real Estate Investment property reduce my tax liability?

2. What can I do this year to save more on taxes?

3. What are the benefits and drawbacks on holding Real Estate in my name vs and LLC?

If you have questions regarding Real Estate Investing, I would love to chat with you to see if its right.

GrandeAma is disrupting traditional acquisition and management by aligning our goals with yours. We create consistent and predictable cash flow, long term wealth building and multi generational legacy.

If long term real estate investing is part of your investment check up, then Contact Anne immediately Schedule time a strategy session

Crock-pot Investing vs. Microwave Investing Chapter Two: Microwave Investing

Latch Key Kids, This ones dedicated to you!!

If you were a latchkey kid…. your experience may have looked like this… you come home to an empty house, you and your siblings would fend for yourself while mom and dad worked. Typically needed to figure out dinner for yourself…. Mac and Cheese, TV dinners and microwave chicken nuggets were in regular supply. Remember when the chicken nuggets would stick together and you needed to pry them apart with a knife or when they didn’t cook right!?

SO MUCH WORK!!

When you invest in short-term, high risk, high reward investments …

I call this Microwave investing…you end up working more than you expect you would to get the short term results.

You end up working more than you expect. Let’s look at the last bubble. Those flipping house over leveraged, looking for the highest high return in the shortest time possible….Chicken Nuggets anyone?

This is a short term benefit, and as we know chicken nuggets if eaten every day, are not going to give us the long term benefits from a health perspective. (I am not a doctor so double check with yours just to be sure 😊)

So you flip a house….then what? You get your return, pay your Capital Gains taxes like a good American and then have 2 options.

• KEEP FLIPPING
• LIVE ON THE EARNINGS

Well you can’t stop now….the money needs to be re-invested…so you are forced back into investing in another flip….then another and so on….

And now guess what?

You’ve created another job for yourself….This is not passive investing! Do you recall Chapter one: the crock pot ion which we had a plan which created time freedom? Instead, you have created a 2nd job for yourself…possibly your spouse and children who are now helping to get the properties completed so you can get them back on the market before the next crash…. Microwave investing will never create time freedom.

In an effort to get rich quick you have created another job for yourself….Not only that, you have created a large tax liability drastically reducing your return/income!?

2018 IRS Capital Gains Taxes

Microwave food was never intended to be the end all, it was suppose to give us substance in a pinch…its fine in limited quantities or for short periods of time but you need to return to a better nutritional base….

So what is your nutritional or “financial” base for Passive investing?

 Are you investing in your Crock-pot or in your Microwave?

This is by far the simplest way I’ve ever been able to explain the difference between getting rich and becoming wealthy.

If you didn’t catch Chapter 1: Crock-pot investing…Check it out Here

Don’t Forget to Schedule some FREE Time with Anne to help you start planning for 2019!

Crock-pot Investing vs. Microwave Investing Chapter One: Crockpot Investing

We all remember watching Mom in the kitchen putting ingredients into the Crock-Pot, first it was the roast, then potatoes, carrots, onions, celery, topped with broth a little salt and pepper, a pinch of rosemary….individually none of these would taste good. But then she would set the Crock-Pot for anywhere from 6 to 12 hours.

THEN…..

You got home from school, welcomed with an aroma emanating from the kitchen, and you could hardly wait. But, you weren’t allowed to peek, there were still many hours before dinner.

This perfectly represents the way many of us learned how to invest. We put our money into our 401k, IRA, Defined Benefit Plans or other retirement vehicle typically tied to the company we work for, told to leave it in that crock-pot for 20-30 years

And BOOM

RETIREMENT….

In reality we know this is not the case.

This is a great theoretical concept for building wealth, but are you using the right crock-pot?

Choosing the right crock-pot is PARAMOUNT….you can get an inexpensive crock-pot at Walmart for $19.77 OR you can buy a high-end crock-pot with all sorts of features (tax benefits, appreciation, depreciation, etc) that can enhance your food experience (Return and benefit).

Your standard 401K/IRA or Basic Crock-pot vs Buy and Hold Real Estate or your benefit rich Crock-pot

What type of Crock-pot do you have?

Talk to Anne about a better Crock-pot Today 

Institutional Investors Sprinting toward Safe Haven Investments

You woke up this morning, as you sip your coffee, your phone starts to ping you….Who is up this early?

Nope not a text….It was a stock alert…The DOW is down 400 points…Another PING! S&P down 1.68%….Panic sets in as you begin trolling through articles to find the cause….

What we are seeing is a Fund Rotation. Institutional Investors are moving away from over crowded tech stocks and moving their capital into Safe Haven Asset and investments. This mass liquidation of Tech such as Apple, Amazon, Google and a rotation into Safe Haven investments such as P&G, McDonalds, J&J, Pepsi and CocaCola.

What is a Safe Haven Asset?

Safe Haven investments are assets that are expected to retain or increase in value during times of market turbulence. Safe havens are sought by investors to limit their exposure to losses in the event of market downturns

A tried and true Safe Haven investment is Real Estate. There are countless reasons Real Estate is a top Safe Haven for more Sophisticated Investors. Here are just a few favorites among them.

1. Stabilized Returns: Even when Real Estate markets turn, cash flow remains stable as rents or “dividends” are not reduced based on the asset value.
2. Leverage-ability: Sophisticated Investors utilize leverage to maximize profits in their Real Estate investments.
3. Safety and Security: Sophisticated Investors know the key to security is holding assets for the long term. This is why Warren Buffet has been so successful over the years, he invests and holds for years…decades…Grande AMA and Associates take this approach to building our portfolios of Real Estate as well as my stock portfolio.
4. Superior Tax Treatments: IRS changes in 2018 have created a huge tax advantage for Real Estate owners. Many of the investors we work with will be offsetting large portions of their AGI. Resulting in more cash in their pockets.

This is working smarter not harder….

This is your money working for you instead of you working for your money…

This is passive investing at its finest.

Recently I read a great article that said “Don’t copy mediocre people. Pick only the top 1% — listen, learn, emulate, and shoot your goals higher than the rest.”

When you are ready to talk about adding the safety and security of Real Estate to your Portfolio, click on the link below to schedule a time to chat.

Schedule a Strategy Session with Anne and Check us out my latest podcast!