The most experienced real estate investors know how to make money while they sleep.
This is not an easy thing to do. Novice investors remain novice investors if they are constantly struggling to make money, never making money work more efficiently for them.
Too many novice investors fall for the allure of press stories like this one where a young investor makes half a million annually with a net worth of $9 million, without appreciating such success is an outlier and that there is more to the story.
The primary keys to financial security include making prudent investments and generating multiple revenue streams. Learning how to do those things via real estate investments takes time, experience, and strategic goals.
Let’s emphasize the words “time,” “experience,” and “strategy” as we go forward.
The average real estate investor makes about $120,000 annually.
However, the experienced real estate investor never settles for average regarding protecting and growing their financial net worth.
The experienced investor learns how to do more than just make a healthy ROI on their investment. An experienced investor knows how to grow their net worth in more ways than one exponentially. He also updates his investment knowledge and techniques as necessary.
Experienced real estate investors are in tune with the market and scrutinize their portfolios because they are always looking for new ways to make their money work for them.
Let’s discuss several ways experienced real estate investors can grow their net worth.
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Buy Commercial Real Estate (CRE)
Investing in commercial real estate can provide immediate cash flow injections and augment your long-term wealth generation prospects.
Commercial properties like multifamily buildings, office buildings, storage facilities, laundromats, restaurants, and so on are usually rented by professionals with cash flow and a clientele base that depends on their services.
The income flow from commercial real estate markets is usually stable and guaranteed for longer terms, in comparison to residential projects.
Due to the rising costs and inflation, commercial real estate rents increase incrementally. And as commercial real estate rents increase, your net worth also increases over time.
A well-maintained commercial real estate investment could potentially offer an annual ROI of 10% over a 25-year time span. And that is a better ROI potential than a traditional stock investment on the S&P 500 Index.
Local tax benefits allow you to grow your financial net worth with commercial real estate investments.
Depending on where your commercial real estate investments are located, the value depreciation of such properties could qualify the investors for the deferment of tax liabilities on their profits.
The aesthetic maintenance, repairs, renovation, and continual upkeep of commercial real estate properties are legal reasons to qualify for tax-deductible benefits as well.
Is your commercial real estate property located in an Opportunity Zone? Any investor who moves millions of dollars in investments in economically distressed areas, like investing in commercial real estate, would qualify for extraordinary tax benefits. Such benefits could include, but are not limited to, the reduction or eradication of outstanding taxes due to capital gains.
With the proper knowledge, strategic commercial real estate investments can grow your net worth.
Invest in a Syndicate to Buy CRE
A commercial real estate syndicate is a professional group of like-minded investors who join forces and pool their finances together to initiate and finalize a large-scale commercial real estate investment deal.
How you leverage the formation of a CRE syndicate is up to you. You can approach investors you know and discuss common goals, or you can approach investors after you have finalized a deal but realize it is more than you can handle. You can also join a syndicator who leads the projects as one of its financial investors.
A CRE syndicate is a relationship-based business arrangement. Make certain that you have a lawyer involved when arranging the formation of a CRE syndicate or when participating in one.
A CRE syndicate can grow your net worth via equity participation or the collection of asset management fees.
Invest in a REIT
A real estate investment trust is an indirect version of a CRE syndicate. It is a real estate investment firm that allows investors to invest in full or fractional shares of real estate assets.
After investing in a REIT, you will receive a regular share of the income generated proportional to your original investment, also known as a dividend. A REIT investment could include a mall, commercial office building, supermarket franchise, and other commercial real estate properties.
One REIT can have hundreds or thousands of investors, and might be publicly traded in stock exchanges.
Some REITs will take money from any investors. Other REITs are marketed toward experienced real estate investors and may have a minimum investment amount of $25,000 or more.
Invest in a Private Equity Fund / Real Estate Limited Partnership (RELP)
A private equity fund is usually beyond the reach of average, novice, and small-dollar investors. The executors of private equity funds typically like to do business with well-experienced real estate investors.
A private equity firm pools investors’ finances to invest in or buy private companies that are not listed on public stock market indices. The firm then coordinates with the executives of the private companies, or portfolio companies, to strategize to make the companies more profitable.
The companies are then sold at a profit, benefiting all of the investors and growing their net worth.
A real estate limited partnership, or RELP, is similar to a REIT but deals exclusively in private equity investments. Unlike a REIT, a RELP dissolves once the ROI goal is achieved.
And instead of a dividend, a RELP pays investors a lump sum once the partnership term is dissolved.
Complete a 1031 Exchange
A 1031 exchange is a real estate tax break that allows real estate investors to swap out one investment for a similar one strategically.
Meanwhile, you can defer the payment of capital gains taxes that would be due at the time of sale.
Invest Online in Real Estate
You can also invest in online real estate marketplaces like CrowdStreet or Cadre, and participate in fund raises by various real estate entrepreneurs. It’s important to learn how such online marketplaces work and how to use them smartly to your benefit.
Trade in Real Estate Investments
Real estate investors now start trading in secondary real estate investments via companies like SecondRE. SecondRE’s marketplace enables investors to buy and sell holdings in cash-generating residential and commercial real estate properties, with the sponsors’ blessing.
Read more about SecondRE to learn how to strategically replace investors in existing real estate projects that are generating reliable cash flows.