Have you been sitting on the sidelines? Perhaps you’re interested and excited about real estate investing but aren’t sure where to begin. In this article, we’ll show you how to get started. We think you’ll find it easier than you thought.
Investing in real estate may seem daunting, especially with all of the time and money required to get going. But there are several ways to participate more passively, allowing you to learn and familiarize yourself with the industry and earn returns as you work your way up to doing your own deals.
We aren’t shy about encouraging new investors to join the Akras Team as an investment partner. We have great deals in the pipeline and we’re always looking for people who are ready to involved by investing in these deals. We do the hard work of building our network, generating leads, and analyzing deals, ensuring our investors have access to only the best properties on the market.
Become A Debt or Equity Partner with Akras. Wait, what does that mean?
Let’s break down what a Debt Partner is using the following example scenario:
After analyzing numerous deals brought to us through our local networks, the Akras Team identifies one that matches our strict criteria. We are confident this property will cash-flow and provide great returns upon sale. However buying any property requires capital. It is typically either an all cash deal, or we need cash for the down payment on a mortgage and remodeling costs. This opens up the door for an investor to get involved: investors loan us capital to help pay the costs of purchasing a property with a fixed return secured by a note/contract. We pay our investors interest on this loan at a mutually agreed rate and period. Current rates range from 6-8% and length of time range from 1-5 years. Returns are better than stocks, and they are secured by a tangible property. We call this a “debt partner”, or “private money lender”. To simplify, when you come in as a debt partner:
- The investor lends Akras Capital money, which we put toward the down payment, the purchase price, and remodel
- At the end of the loan, Akras pays back the principal loan amount to the investor
- The investor earns 6-8%
- All parties sign a legally enforceable contract
- The loan is secured, which means if Akras can’t pay back the interest and/or principal on the loan, the investor will have the option to sell the property to be paid back.
- Minimum participation is $10K
What about Equity Partners? What does this mean and how does it work?
Equity is just another word for ownership. Here’s another example in which Akras would seek an equity partnership with an investor:
When our team finds a great “value add” property deal, where the purchase price and rents are below market rate, and the property may require more significant remodeling (and therefore require more money). Such properties often provide the highest returns. Some of these deals may require an all-cash offer and/or a fast close to be competitive. As a result, traditional banking and financing is often too slow to be a good option for these types of deals.
For smaller properties (less than 10 units), we would look for a single equity partner to fund the entire deal, including the rehab and remodel. We then manage the close, property management and rehabilitation process. We would split ownership of the property, as well as the returns related to the monthly rent. After we have raised rents and stabilized the property with solid tenants, we will look to bring the property to the bank and secure a traditional mortgage, paying back the equity partner. The equity partner would continue to get a share of the rental income as long as we co-own the property and then a share of the proceeds if/when we sell the property.
- The investor lends Akras money, which is used to purchase and rehab the property
- Akras does the “heavy lifting” to ensure the property remains profitable
- The investor becomes a partial owner of the property, enjoying monthly cash flow, repayment if we refinance and profits from the future sale
- Minimum investment amount is dependent on the cost of the property, but a typical 7-10 Unit in Spokane costs $450-800K
For larger properties (approximately 10-30 units) we may seek a few equity partners. This is called a Joint Venture (“JV”). The several equity partners split the cost of everything as well as ownership, revenue and profits from sale.
Finally, for REALLY big properties, with approximately 75 or more units, we employ a technique for raising the necessary money called “syndication”. This is where a small group of partners led by an experienced general partner organize a deal and then raise a large amount of money from a big group of investors who join the deal as limited partners (LPs), who invest, but don’t have any voting rights. This is a great way for less experienced people to passively invest their money in real estate.
OK, so even though we broke it down a bit, it’s still a lot of information. If you really want to explore this idea further, the best thing to do is give Charlie, Kristina or Linying at Akras Capital a call. We’ll happily (and simply) explain how all this works so that you can make a choice with all the necessary information.
This Sounds Awesome, but WHERE Do I Find Money to Invest?
Many of us don’t realize we have capital to invest because we only think of the cash savings we have in our bank account. Alas, there are other places to look and hidden capital is all over the place. Ever thought of your IRA, or equity you have built up in a home or property you might own? If you want to think more about ways you get tap into capital to invest in real estate, check out this article we wrote a little while back about a little known tool, the SDIRA.