The Insider's Edge to Real Estate Investing summary

Sam was the son of immigrants. He didn’t have an affluent childhood. He didn’t have a privileged educational background. He didn’t start out with a trust fund or seed money. He was just a hardworking guy. 

In college, he and his friend managed some apartment units. Later, Sam began purchasing and flipping homes. And it was this hard work and experience that laid the groundwork for what he did next: invest in mobile home parks in the 1990s. 

This was a time when virtually no one was interested in that type of property. But Sam kept his focus, buying up real estate at low costs, and it paid off as mobile home parks increased in popularity. In 2016, Sam’s investment firm made $869 million.

It’s easy to look around and feel overwhelmed by the real estate investment market. But the key is to do your homework – and start small.

Before scooping up a property, consider the implications of the asset class you’re buying into. In real estate, there are four main asset classes.

First, there are multi-family units. These properties are a solid start to a real estate investment portfolio. They’re likely already bringing some income in, and the cost of making any upgrades should be manageable. Additionally, with multiple tenants, you spread out your risk – if you lose one, you still have others, which gives you time to replace the one that left.

Next up? Retail. This describes anything from small buildings for mom-and-pop shops to large-scale malls. Your tenants will be businesspeople. The thing you have to consider with retail is the potential for unpredictability. For instance, COVID-19 shut a lot of businesses down.

Third is office space. To invest in office assets, you need to be well-funded and have a lot of resources. The initial expense is high, and any renovations and upkeep can be costly. Here, you also have to consider the effects of phenomena like the pandemic, and gather insights into where the world is headed; office space may not always be easy to rent out.

Finally, there’s land. This is the highest cost asset you can invest in. It requires a lot of teamwork from other investors and developers to go from initial investment to finally seeing returns.

If you’re just starting out, look for something that will shorten the time between your investment and your return – unless you’re full of capital, in which case you can go for the long game with the biggest payoff.

Besides knowing your property types, it’s also important to start building a team. At first, it may just be you and a partner flipping houses like Sam and his friend. But as your capital grows and you begin to make bigger investments, you’re going to want to build up a team. Not even the top investors can make it alone in this industry. 

Let’s look at a few of the most common players.

First, sponsors are the ones spotting opportunities and guiding the project to the greatest return possible; they tend to be involved every step of the way. Limited partners, on the other hand, are investors who generally stay out of the daily decision-making. Becoming a limited partner is a good option if you want to invest while observing from the sidelines. 

Then there are brokers – these people know the marketplace well and normally have access to insider deals. Once you decide to buy, title agents and specialized attorneys are the ones who make sure everything is paid off and legal. Here, you’ll also need the support of specialized real estate accountants; your regular CPA probably isn’t equipped to handle accounting of this magnitude. 

If you’re getting into development investing, don’t forget to have architects and contractors on hand – they’re the ones who’ll tell you what’s feasible in terms of construction. Finally, once the purchase is done, it’s useful to work with a property manager so you don’t have to do the hands-on work of taking care of the estate.Once you’ve established the property type you want to buy and built your team, it’s time to zero in on an opportunity.