Passive income through real estate is an attractive option for investors with a good job, or would rather rely on an experienced operator rather than take on the risk of investing on their own.
Kathy Fetke, Co-Founder of Real Wealth Network, and returning guest to CREPN Radio identifies the risk investors face when investing passively. Real Wealth Network works to educate investors on the investment options available so they can prepare for a secure financial future. In this episode, Kathy explains the steps you can take to protect investment to minimize your risk when investing.
Passive Income Opportunities in Real Estate can be very lucrative. Ideally, passive income is truly passive that does not require you the need to tend to the day to day operational concerns. Instead, you place your investment with a deal sponsor, then receive handsome monthly or quarterly returns.
In addition to the positive cash flow, you receive the multiple benefits real estate provides. These include, depreciation, appreciation, and principal reduction. Together, these benefits combined with positive cash flow make real estate a tough investment to beat.
Sponsor Due Diligence
Sponsor due diligence is critical to save guarding your investment. The recent recovery from the 2008 market crash has provided handsome returns for anyone who invested post crash. Some deal sponsors have only experienced the upside of this recent market. If your only experience is from a once in a lifetime market, where everything increased in value, it’s doubtful you have a true understanding of the risk posed by real estate.
Unfortunately, the recent profits that have been made in real estate have attracted interest, and some less that stand up characters who appeal to the unwise potential passive investor. The digital, social media world makes it easy for anyone to market themselves as an expert.
Real Wealth Network performs background screens on all of the deal sponsors they invest with. Ideally, the sponsor or a member of the team will have more than 10 years experience, and has survived multiple market cycles.
Market Due Diligence
Market due diligence is critical to safeguard your investment. It is easy to isolate any property and identify its upside. However, if you do not understand the market the property is located in, you can easily lose your investment principal or be stuck with a property that has no possibility to sell.
The real estate market is not singular. Real estate is local. It requires that you understand the local state of jobs, population growth, and the supply of housing. Is the housing affordability in the area?
What is the local government’s attitude towards development and landlord laws. Your understanding of the local market is fundamental to your success.
The current market cycle has little room for error. Prices are up, interest rates are down, and affordability is stretched in most primary and secondary markets. This is a very different market than the last ten years where the market has risen from historic lows.
Given this change, Kathy and her team have moved into single family starter home development. Interest rates are low, and qualified buyers can get affordable rates. The demand for first time home buyer homes is significantly greater than the supply. This is a great opportunity to invest with a developer for handsome returns.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
Darrin: Kathy Fetke, What is the BIGGEST RISK?
Kathy: There are so many, but I would say the BIGGEST RISK is not being educated, which is why it is my mission to help people. Like I said at the beginning, the show to raise the wealth consciousness of the average person and definitely of the average investor because there are so many landmines. Whether you’re investing in the stock market or in real estate or in Bitcoin or whatever you’re investing in. You’ve got to really take a deep dive and understand it. We’ve been sort of trained over the years to not really understand it, but hopefully our financial planner understands it and we hand over our money and hope they do well with it. So we haven’t really been taught that it was important for us to understand it. We don’t we’re not educated and in high school and probably not in college for most people.
So first and foremost, the biggest risk is not understanding what you’re investing in. From there, I would say what I’m seeing is a lot of gurus. We’re at that stage in the market where people have maybe done fairly well, then maybe they did one deal and it went well because we’ve been in the market and now they are a guru. I’ve seen this. They can very easily start a podcast or it’s so easy to become sort of a well-known person. Thanks to all social media and the Internet and so forth. So these people now don’t have a lot of experience, but they’ve kind of become this guru, so to speak.
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