Investing in Real Estate – Active Or Passive?

to become landlords and property managers, both of which are in fact, a career in themselves. If the investor is a rehabber or wholesaler, real estate becomes more of a business rather than an investment. Many successful property “investors” are actually real estate “operators” in the real property business. Fortunately, there are other ways for passive investors to enjoy many of the secure and inflation proof benefits of real estate investing without the hassle.

Active participation in property investing has many advantages. Middlemen fees, charged by syndicators, brokers, property managers and asset managers can be eliminated, possibly resulting in a higher rate of return. Further, you as the investor make all decisions; for better or worse the bottom line responsibility is yours. Also, the active, direct investor can make the decision to sell whenever he wants out (assuming that a market exists for his property at a price sufficient to pay off all liens and encumbrances).

Passive investment in real estate is the flip side of the coin, offering many advantages of its own. Property or mortgage assets are selected by professional real estate investment managers, who spent full time investing, analyzing and managing real property. Often, these professionals can negotiate lower prices than you would be able to on your own. Additionally, when a number of individual investor’s money is pooled, the passive investor is able to own a share of property much larger, safer, more profitable, and of a better investment class than the active investor operating with much less capital.

Most real estate is purchased with a mortgage note for a large part of the purchase price. While the use of leverage has many advantages, the individual investor would most likely have to personally guarantee the note, putting his other assets at risk. As a passive investor, the limited partner or owner of shares in a Real Estate Investment Trust would have no liability exposure over the amount of original investment. The direct, active investor would likely be unable to diversify his portfolio of properties. With ownership only 2, 3 or 4 properties the investor’s capital can be easily damaged or wiped out by an isolated problem at only one of his properties. The passive investor would likely own a small share of a large diversified portfolio of properties, thereby lowering risk significantly through diversification. With portfolios of 20, 30 or more properties, the problems of any one or two will not significantly hurt the performance of the portfolio as a whole.

Types of Passive Real Estate Investments

REITs

Real Estate Investment Trusts are companies that own, manage and operate income producing real estate. They are organized so that the income produced is taxed only once, at the investor level. By law, REITs must pay at least 90% of their net income as dividends to their shareholders. Hence REITs are high yield vehicles that also offer a chance for capital appreciation. There are currently about 180 publicly traded REITs whose shares are listed on the NYSE, ASE or NASDAQ. REITS specialize by property type (apartments, office buildings, malls, warehouses, hotels, etc.) and by region. Investors can expect dividend yields in the 5-9 % range, ownership in high quality real property, professional management, and a decent chance for long term capital appreciation.

Real Estate Mutual Funds

There are over 100 Real Estate Mutual Funds. Most invest in a select portfolio of REITs. Others invest in both REITs and other publicly traded companies involved in real estate ownership and real estate development. Real estate mutual funds offer diversification, professional management and high dividend yields. Unfortunately, the investor ends up paying two levels of management fees and expenses; one set of fees to the REIT management and an additional management fee of 1-2% to the manager of the mutual fund.

Real Estate Limited Partnerships

Limited Partnerships are a way to invest in real estate, without incurring a liability beyond the amount of your investment. However, an investor is still able to enjoy the benefits of appreciation and tax deductions for the total value of the property. LPs can be used by landlords and developers to buy, build or rehabilitate rental housing projects using other people’s money. Because of the high degree of risk involved, investors in Limited Partnerships expect to earn 15% + annually on their invested capital.

Limited Partnerships allow centralization of management, through the general partner. They allow sponsors/developers to maintain control of their projects while raising new equity. The terms of the partnership agreement, governing the on-going relationship, are set jointly by the general and limited partner(s). Once the partnership is established, the general partner makes all day to day operating decisions. Limited partner(s) may only take drastic action if the general partner defaults on the terms of the partnership agreement or is grossly negligent, events that can lead to removal of the general partner. The LPs come in all shapes and sizes, some are public funds with thousands of limited partners, others are private funds with as few as 3 or 4 friends investing $25,000 each.

Don H Konipol has a BS in Economics and an MBA in Finance from the University of Michigan and is General Partner of the Managed Mortgage Investment Fund LP, a private limited partnership that invests in short term, high yield private mortgage notes. He is also General Partner of Real Estate Asset Management Fund LP, a private fund set up to invest in distressed property as 60% or less of value .He can be reached at 832.577.8838 or by email at [email protected].

[http://PrivateMortgageFinancing.com].

ABOUT DON KONIPOL

Don Konipol holds an MBA in Finance from the University of Michigan and a B.S. in Economics from the City University of New York. In 2002 he formed the Managed Mortgage Investment Fund LP as a high yield real estate mortgage fund, and serves in the capacity of General Partner. The fund invests in a diversified portfolio of short term, high interest real estate mortgages secured by investment real estate. Upon receiving his MBA in 1975, Mr. Konipol went to work for Societe General De Survalliance S.A., Geneva, Switzerland in investment banking.

He left in 1978 to come back to the United States and went to work as a commercial realtor for First Equity Company in Houston, Texas. In 1984 Mr. Konipol formed the Investment Realty Group to purchase distresse

The Five W’s of Real Estate Training

he training. If one feels that they can carve their niche in the property sector and have what it takes to excel in the profession, a good real estate course will be of crucial importance.

Amid the current financial recession when all industries appear to be toppling, property industry is still somewhat stable. Although there is an evident slowdown in the industry, yet it is growing. So the requirement for real estate professionals has not eroded and every property company needs a property professional. Today, when career opportunities in other professions show a great deal of saturation, the potential of real estate industry is slowly dawning upon people who are now taking up real estate training courses to enter this vast field of opportunities.

What?

What are the real estate training courses about?

Real estate of course! Every country of the world has its set real estate laws and ordinances. These laws may vary largely from country to country, and also from city to city within in a country. This is one reason why it is important for a real estate professional to not only become aware of, but also have a deep insight into his region’s property laws and regulations. The real estate training courses consist of a series of classes or lectures which cover anything and everything about real estate in your region. The courses are designed, handled and delivered by the area’s real estate experts with vast experience of the local property market. The most common things covered in the property training are the property laws governing your area’s real estate industry, your responsibilities as a real estate agent, and the types of real estate present in your zone of operation. The courses are also designed to hone your buying and selling skills as a property agent.

Where?

Where are the real estate training courses available?

Probably not far from you. These courses are gaining popularity around the world and many established property companies and agencies have taken this initiative. Not only established real estate companies, but also experienced property professionals have started educationg people about the property business and its ethics with a special focus on the latest real estate trends of their own region’s property industry. So it’s very probable that after a brief search, you’ll be able to find a property company, agency or individual offering this course near your house or somewhere else in your city. And if you don’t, there are numerous real estate training courses available online in which anyone can enroll with ease. All it takes is a little online search and you’ll come across innumerable options. Most people consider online course more convenient than the classroom study as you can study at your convenience without having to rush for taking classes. It saves you the time and hassle of the traditional classroom study. Many online universities and institutions have even started bachelor and master degree programs in real estate development and management.

When?

When can you enroll for the course? How long does it take to complete?

It depends on various factors. Your choice between online and classroom study, the mode of training, and the trainer’s discretion, all these factors come into play. The best way to find an answer to this question is to visit the trainer in person if it’s an offline (classroom) course, or to visit the website of the trainer if it’s an online course. The websites of educational institutions bear all the details of the courses they offer including the course objective, outline, duration, and choice. One trainer may offer more than one property training course at a time designed for different individuals as per their requirements, suitability and market exposure.

Why?

Why should you take this course?

Well, we’ve already discussed it in the 1st answer. One definite answer to this question is that the property market is still booming when the other industries appear to be falling down in the current financial recession. As the industry is expanding, there’s more and more room for real estate professionals in it. Taking a real estate training course can help you make a career in this booming sector and excel professionally.

Daniel Marshel is a senior real estate consultant associated with Better Homes, a leading rea

Why Do Would-be Real Estate Investors Fail?

Let’s face it, there’s tons of real estate investing information out there. But of all the people you’ve seen at seminars lapping up the words of wisdom from the real estate gurus, or the people you see at Barnes and Noble skulking around til 11 PM reading all the real estate investing books they can get their hands on (A charge of which I am guilty!), how many do you think actually succeed in their real estate investing businesses?

I don’t have exact figures, but based on my experience as a real estate investing information provider and coach, I would guess it’s close to only 1-2% of people who want to be real estate investors get into the business and stay in the business and make it profitable.

Those figures are so disappointing.

Why is it so hard? Why do so many would-be investors fail before they begin? And why do others, who are able to take the first steps of their real estate investing career successfully, still fail to meet their goals long-term?

I realized the deck was stacked against me as I begin as a real estate investing student at a seminar a few years ago. I bought all the real estate investing courses, signed up for private coaching, and watched as many of the people around me fell by the wayside. There were many times I wanted to quit, myself. You probably have your own story of struggle in your real estate investing career.

It’s the million dollar question. Here are the conclusions I’ve been able to come up with.

Why Do Real Estate Investors Fail In Spite of Great Real Estate Investing Information?

1) The Myth of Get Rich Quick – Why do would-be real estate investors fail?

Just because there are real estate investment strategies, such as flipping homes, that can be implemented quickly (60-90 days), that doesn’t mean that it is easy to find deals, negotiate them and close them in the first month or two after you start your real estate investing career. In my experience, most people need to take a little time to become familiar with the real estate markets in their area, real estate terminology and strategies, and then get started implementing so they can practice finding and negotiating with motivated sellers.

Even with a good deal closed, you might only walk away with $5,000 or so from a flip. With a subject to or lease option deal, the property may take years to “ripen” in your portfolio before you are able to sell it for a significant profit. The biggest money I’ve seen people make quickly is coming from rehabs and short sale negotiations. Pursuing these types of deals can verge onto a full time job. They do work, and work quickly, but they take a lot of time to implement.

2) The Myth of No Money Down

So many times, I have heard students come on coaching calls with me and say, “I just lost my job, so I am really motivated to make this work quickly.” or “My goal is to flip one house a month every month because I need some cash for start up capital.” These sentiments are probably being perpetuated by the gurus out there who encourage people to think that real estate investing is a no-capital-required business. Even after you get the formula down, it can take years before a paper-profit becomes cash-in-hand if you own rental property or do lease/options.

The exception proves the rule and I’m sure it’s true that some people during some periods of time are able to make “thousands” quickly, when they need it most. For example, I know folks who get a lot of free deals off of craigslist or calling through the newspaper. However, for the vast majority of real estate investors, some money is required for marketing to find motivated sellers if they want to keep their deal pipeline reasonably full. In addition to marketing to find motivated sellers, deals take money for due diligence, legal fees, inspections, and so forth. If you plan to hold property as a landlord, the costs escalate even more steeply. If I had to put my finger on one major reason for lack of success in this business, besides false expectations, I would list lack of funding right at the top.

3) The TRUTH in “It doesn’t work where I live.”

There’s a cliche in the real estate guru field that speakers like to joke about. It’s that a lot of students like to say, “Your strategies won’t work where I live.” Guru’s play it off as a joke, like the person is making an excuse for not getting started in their investing, because they “can’t.”

The truth of the matter is, there is a LOT of variation in the performance of real estate markets across the country. In some areas, like the South and Midwest, property values are relatively stable and properties cash flow well. In other areas, Southern California, Florida, and Las Vegas come to mind, property values fluctuate wildly and you can make a fortune or lose your shirt on the changing tides of appreciation.

It’s very important to understand real estate market cycles and where your market fits within the current phase of the market. You implement to take strategies that work in your marketplace if you want to be successful locally. Otherwise, you need to do what I’ve done and learn to invest where it makes sense, without being constrained feeling a need to invest where you live. There are pros and cons to each strategy. However, my point is that it’s not right for the gurus to mock people who raise this objection. It’s a valid concern raised by thinking investors, even if it doesn’t help sell the guru’s real estate investing courses.

So, I’ve raised a lot of concerns about the mis-information being circulated in the real estate investing industry. Have I disappointed you too much? I are you “off” of investing now? If you are good – if you can be talked out of it that easily, I’m glad I got you out BEFORE you invested any more of your precious time and money pursuing a strategy that doesn’t appeal to you.

If not, even better. it is certainly possible to take a realistic approach to real estate investing and make it work for you. You can grow your net worth to millions, but it does take time and perseverance. I hope you’re willing to stick it out.

Commercial Real Estate, A Career – How Do You Get Into It?

1. WHAT IS IT AND HOW DO YOU GET INTO IT?

Several years ago, I was attending a Society of Industrial Realtors Annual Spring Conference in Maui. My wife had accompanied me on the trip so that we could also do a lot of sightseeing. Colliers International, a 241 office worldwide firm, sponsored its own company cocktail party the night before the Conference officially began and my wife and I attended the party.

A short while into introductions, a fellow came in from the golf course and he sat down at our table. Andrew Friedlander introduced himself an we discussed our home in Philadelphia, his original home in Brooklyn and his new home in Honolulu. As to how he ended up in Hawaii, Andrew told us that on R&R during his tours in the Army in Vietnam, he decided to take a break in Hawaii after he was finished his last duty tour. He rented an apartment, waited tables, washed cars, etc. to have some extra cash. He said that he paid his apartment rent to an older man who came around once a month and he finally asked the man whether that was his business. Andrew said that he never thought about property management as a business, but the more he spoke to the man the more that he realized how diverse a business commercial real estate could be, particularly in Hawaii. The rental agent began to show Andrew the basics of the business and Andrew decided not to return to Brooklyn.

Forty years later, Andrew is the manager of approximately six Colliers International offices in Hawaii with over 40 brokers and salespeople as his responsibility. Aside from selling and leasing commercial real estate and traditional brokerage transactions through the islands, Andrew’s team is involved in all of the other aspects of commercial and industrial real estate.

As one concierge person told my wife and I while we were touring there, “Yes, it is a great place, now where would you ever think of moving to once you are here.”

In the past year, a young Army Captain and friend called me from Hawaii. He and his wife were taking in some R&R after his last duty tour and he called to ask me for some advice on commercial real estate firms. I gave him Andrews phone number after I checked with Andrew on his availability. Andrew treated my friend to lunch and introduced him to Colliers’ business in the islands. As it turned out, my friend and his wife decided later to relocate to Florida to be closer to their parents. Our Colliers office in Ft. Lauderdale was anxious to interview him and did so. He found a better fit for a concentration in office brokerage with another firm, but I think that it is clear that opportunities do exist with major firms for someone who has an interest, who can demonstrate that they are self motivated and whose comportment (manners, speech, personal grooming, business attire) are all positive. A long time friend told me one night after we and our wives checked in, very late, at a hotel owned by a well known hotel group, “That desk clerk is the person representing this hotel company to its customers and I know the CEO. That clerk’s slight rudeness toward us does not at all represent what their CEO wants his company to be known for in their business. He will need to learn that if he is going to be more than the late night clerk.”

I mention this because a company such as Colliers or any of its competitors must ensure that a salesperson or broker first meeting a potential customer properly represents the company’s image. So much money is spent defining that image to the business community that each person, including all staff, must reflect that effort. Otherwise, a potential customer will choose to hire a competitor whose act is together. My understanding is that customer relation training at Wal-Mart is quite strong for all personnel. I would think that any major restaurant chain has in place a thorough program for staff training and it may pay to observe whether if the customer is not always right at an establishment how the staff person handles a customer who is being a bit particular.

2. Entry

I use Andrew’s story as an example of the opportunity that commercial real estate offers. A senior business mentor and good friend of mine told me in Florida in 1971, just at the beginning of that recession, that commercial real estate offered an opportunity to enter a business without having my own capital to invest other than my time and energy, and, with no limit on the size of transactions that could be put together. We discussed this in relation to my going back to law school. His opinion was that it was almost a “sky is the limit” approach, but with some basic sense to it. I had done a few financial reports on potential deals offered to him. I also handed over that year, at my mentor’s instruction, a $300k commission check to a broker who he had employed to buy a property that he had settled on the year prior to that. The next year, at the same time, I handed over the same check to that broker as the second half of that commission to that broker. Please realize that in 1972 that commission amount in the onset of that recession was a significant amount of money for any transaction.

Each state has its own regulations for licensure. Florida required a person to take a sales licensing course, pass that, then work in a licensed real estate broker’s office for a minimum of two years before being eligible to take a state broker’s exam. The sales course is offered by numerous private firms and colleges, evening courses in particular. The cost of the course is minimal. The basic skills for reading, writing and math portions are not difficult. Depending upon your educational qualifications, commercial real estate firms may often offer to provide the course. Smaller, more generalized, brokerage firms may also do the same in order to gain a salesperson.

There typically is a recognized “culture” or business reputation known for a real estate firm in any community, The community can be local, regional or national. It pays to do your homework as to which firm appears to suit your style. The internet is definitely one of the most productive sources for finding a firm’s history, its areas of expertise, personnel, and its successes. Recognize that major metropolitan commercial firms often outsource client needs in an outlying area to a smaller commercial firm in that area rather than requiring one of their main office brokers to commit to travel time. Consequently, if you are in a rural market outside or between major metropolitan markets, you should investigate which real estate firms have those relationships for the larger deals.

Your time for success starting in commercial real estate (particularly without capital) will be the result of what you put into it. I had the option in the early ’70′s of returning to law school and finishing. What I realized most was that I liked being out of an office and “on the street.” My attorney friends in Ft. Lauderdale were spending innumerable hours, as needed, in their offices to write briefs, draft documents, etc., all of which that profession requires. My decision was to put in the same hours on commercial real estate that I would have to put in for any law practice. If it worked, then fine, if not I would go back to school.

Considering that the early ’70′s recession in Florida hit every occupation with almost equal damage, many attorneys had practices with slim billings and clients whose businesses were suffering economically. Several real estate brokers who I met were having very difficult times because the banks were not lending money for deals. Florida had a usury cap of 14% at that time. Deposits were down and when interest rates in California started to go above 14% that is where the money went.

Weekdays in those years, I was knocking on the doors of businesses in the West Palm to Miami corridor. Weekends, I was often painting a house or captaining a motor sailer owned by a friend’s corporation. Weekday evenings after dinner, I was at the office reviewing property information, ownerships, tax data, etc. for the next day’s driving or phone calls. I found that it was possible to earn a living while getting into the commercial real estate field. I later found out after moving back to Philadelphia, that several of the commercial real estate firms did not mind their starting salespeople to moonlight as bartenders, waiters, or whatever until they had enough experience to close transactions. That has changed somewhat in the larger cities due to the financial strength of the larger firms and their ability to either offer a base salary or draw to new salespersons.

Gender in today’s commercial real estate world is not an issue as it was in the ’70′s. At that time, men only eating clubs were often the norm and women were not often able to match that type of selling locale. The number of women who have joined commercial real estate organizations such as SIOR, CCIM, etc. (which I will discuss later) has increased dramatically over the past 15 years. The commercial real estate courses offered today provide an excellent means of obtaining knowledge that once was taught generally “in house” by senior brokerage personnel responsible for a new salesperson’s progress.

Therefore, in considering commercial real estate the aspect of having minimal capital has not changed. Gender is not an issue and many women who have chosen to specialize in industrial or office real estate have done very well. You
can choose your hours, choose your area of specialty(s), choose your market area(s), and choose who you want to approach as a firm to join. Most commercial real estate involes the standard business week, not including late Saturday or Sunday hours (vs. residential Sunday open houses). These are several of the positive aspects of working in commercial real estate. The competition is keen, your competitors respect a good work effort and, most importantly, they respect a strong reputation for any individual.

You should investigate both larger commercial firms and smaller real estate brokerage firms. There are advantages and disadvantages to both.

A). Larger firms may be willing to offer a base salary or a draw against commissions. They may prefer prior business experience, but not necessarily prior real estate brokerage experience that may conflict with what their “culture” is and what their in-house training entails. Typically, a new salesperson would be assigned to a senior broker or brokers to do cold calling, marketing materials, marketing reports for any existing client’s property and probably handle property inspections by other competing brokers with their prospects.

A few points on Larger Firms:

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