Real estate investment is an exciting venture. When you’ve never done it before, it can also be mystifying in its own way—how do you actually do it? What really goes on? Going from the point of wanting to invest in real estate to actually doing it and doing it successfully are very different things.
If you have the desire to create your dream retirement through passive investing, save for your child’s college fund, or use real estate as a means to achieve other financial dreams, you have to take that step from thinking about investing in real estate to actually doing it.
That said, taking those first few steps into the wild world of real estate investing can be scary. It’s a big financial decision, and being prepared for it is paramount to your success. So what should you expect...and what should you look for?
What Every New Passive Investor Should Be Aware of Before They Start Investing
The Tax Implications
When you buy and invest in real estate, the tax implications are enormous. One of the primary reasons people choose to invest in real estate is because of its tax benefits. That said, it can greatly complicate your taxes. If you’re used to dealing with fairly straightforward filing each year, this can be a bit of a shock.
You should have a system in place for tracking and filing any and all pertinent tax documentation from the get-go: paperwork with your bank, your turnkey company, bank statements, so on and so forth. Go ahead and track down a CPA who has experience working with real estate investors. Not only can they help you know what documentation you’ll need, but they’ll be able to help you make the most of your deductions—not to mention navigating some of the finer points of the tax system that you may have never dealt with.
Who You’re Partnering With
For passive real estate investors, this is especially pertinent. While other investors deal with many contractors and companies, the passive investor typically deals with one. They have a turnkey partner, like Memphis Invest. It’s so critical that in choosing your turnkey provider that you have done your due diligence. Not only do you want to understand what this company really does and what you, as an investor, are getting, but you want a sense for the people you will be working with.
What role will they really play in your investments? What role are you expected to play? Understanding your partner and the joint role you will both have in your investment success is paramount.
The Market You’re Investing In
While passive investing is in many regards “hands-off,” it is valuable that passive investors know the markets in which they invest. Part of this is knowing their turnkey partners. By extension, you will see the markets they are investing in and what your options are. From there, you can begin to research and get to know these markets.
What you want to see are real estate markets that offer sustainability—rather than inflated rental prices, you want to see trends of population growth, job creation, and market diversity. These are indicators of a market that has the strength to withstand an economic downturn, maintain rental demand, and bounce back quickly. You will want to find sources that keep you in-the-know about the rental markets you invest in, including local publications.
How You’re Tracking Your Income
One of the things you’ll want to be prepared for as a passive investor is how you’re tracking both your income and your expenses from your investment properties. Too many new investors make the mistake of funneling their passive income into their personal checking account. When you do this, it gets jumbled up with your regular income—and disappears before you know it.
Instead, you must be intentional with your passive income. Usually, the effective tracking of passive income involves a separate bank account in which you keep funds to cover costs, as well as your passive income. This not only streamlines the bookkeeping process, but it also makes it easier to manage come tax time.
What You Want to Do with Your Investments
Before you begin investing in real estate, it’s crucial to know what you really want out of it. Different people have a different idea of what success looks like in this business and it is important that you know how to communicate what it is you are looking for and anticipating to your turnkey advisor.
One of the primary failings of turnkey investors is a lack of further property acquisitions. They sit with one or two properties and fail to truly grow and scale their portfolios. To succeed in real estate investing, one must have a plan in mind for how you will progress in your career. That progression can look different for different people—there's not a right or wrong speed to grow. However, having that plan and purpose for yourself is key. Talk to your turnkey provider about your goals and ambitions.
Your Plan for Being “Hands On”
Passive real estate investment has a reputation for being “hands-off,” but it demands a certain level of engagement from its investors. This is something that many passive investors are unprepared for. What does being a “hands-on” passive investor look like?
In many respects, it has more to do with your mental engagement than it does anything else. Successful passive investors take the time to continue their education—increasing their financial literacy, knowledge of real estate, investing strategies, and the markets in which they invest.
They also value and grow the relationships they hold with their turnkey partner—namely, their portfolio adviser. They recognize the value in these long-term relationships, investing in knowledge, and engaging in the process that secures their financial future.
Learn how to achieve success in turnkey real estate through world-class services and expertise with Memphis Invest.