Types of Real Estate Investments You Can Take to Accredited Investors
When it comes to making money in real estate, you generally need to have a healthy amount of capital upfront to make a lot. But who says you have to use your own capital?
The reality is that accredited investors are out there, and, if you know how to work with them, you can easily operate in the major league of real estate investing.
An accredited investor is any high-net-worth party—either an individual or an institution—that can access higher-risk and complex investments. For instance, an individual must have a net worth of over a million dollars to be considered an accredited investor, in addition to earning at least $200,000 during the past couple of years (or $300,000 with a spouse).
The question is, though, what types of real estate investment opportunities attract these types of investors?
What Real Estate Investors Look For
For many accredited investors, the prospect of investing in properties is an exciting one. However, they may feel insecure about owning their own properties. Fortunately for them, it is relatively easy today for accredited investors to own partial stakes in jointly funded commercial deals or even invest in funds that focus on these types of deals.
A wide variety of deals are available to accredited investors. For example, they can own parts of the mortgages of shopping malls if they’re interested in lower-risk opportunities. Of course, the lower the risk, the lower the return.
Meanwhile, they can also invest in local fix-and-flip professionals who are selling equity in upcoming projects. This strategy comes with high risk but also a higher return.
The reality is that a mix of property types, risk profiles, and expected returns exist in real estate investing for accredited investors. Here’s a look at a few types of real estate investment projects you can present to these investors so that everyone involved, including yourself, can build wealth and diversify their portfolios.
If you want to attract new accredited investors to your deals, consider the following types of real estate investment deals.
- Multi-family Property: offers the greatest amount of stability
- Industrial Property: staple of your average investor in real estate
- Retail Property: offers more stable returns than office property
- Office Property: offers variable returns, but strong ones in a good economy
By the Numbers:
Requirements to be an Accredited Investor:
- $1 million net worth
- Individual earnings of $200,000 within the past two years
- Combined earnings with a spouse of $300,000 within the past two years
Multi-family and Apartment Properties
These types of real estate investment projects have historically featured the most stability of all classes of nonresidential real estate. Why? Because the renter culture is as strong today as it’s ever been. After all, no matter how the economy is doing, people will always need places to live. This makes apartment and multi-family investing a smart engine for creating wealth over the next two to three decades.
In a normal market, residential occupancy usually remains reasonably high. And even if you lose a tenant, this won’t affect your bottom line much. The opposite is true if you invest in single-family residences (SFRs) with the intention of renting them out.
In addition, for most types of commercial property, a tenant lease is either partially net or net. In other words, you can pass most of your operating expenses along to your tenants. This is not true with a residential property, as the property owner must bear building operating cost increases during a current lease.
If you’re wondering what real estate investors look for, note that industrial properties also offer good passive real estate investment opportunities. These deals often require smaller investments on average and also aren’t as management intensive. In addition, their operating costs are lower when compared to retail and office properties (more on these properties later).
A variety of industrial properties are available for accredited investors, depending on how these buildings will be used. For instance, buildings can be utilized for distribution, research/development, manufacturing, and warehousing.
However, a number of factors are important to consider when dealing with an industrial property. For instance, is it functional (is the ceiling high enough) and is it close to key transportation routes? Also, what’s the building configuration like? Consider these items carefully before taking these types of real estate investments to an investor.
Retail properties are also a viable option today, despite recent news reports about the death of retail. The truth is, physical retail is not dead—it’s simply changing.
A number of retail property options exist, including single buildings or large shopping malls that are enclosed. However, right now, the power center retail format is in demand. With this format, retailers occupy bigger premises than they would with the enclosed shopping mall format. As a result, they have a lot more visibility as well as access from nearby roadways.
Several factors drive retail space demand, including the following:
- Income levels
- Population growth
- Population density
The great thing about retail is that returns from these deals are more stable when compared with those of office properties, for example. This is partly because a retail lease is usually longer. In addition, a retailer is typically less motivated to relocate when compared with office tenants.
Still, office properties do offer some advantages to accredited investors.
Offices are flagship investments for many owners of real estate. Why? Because they are often the highest-profile and largest types of properties. These properties are usually located in office parks located in sprawling suburban areas, or you can find them in downtown areas.
Returns from these types of real estate investment can admittedly be quite variable, as the market is sensitive to how the economy is performing. In addition, these properties’ operating costs can be on the high side. However, office properties may attract accredited investors because, when times are prosperous, these properties are usually high performing. The reason for this is that rental rates can quickly increase during these periods, and it takes a while to build new office towers to offer relief from these rate increases.
Start Working with Accredited Investors
Now couldn’t be a better time to start investing in real estate with the help of accredited investors. With these types of investors and the many types of real estate investment projects available today, you can be well on your way to boosting your bottom line based on your desired risk level and financial goals.
Get in touch with me, Joe Fairless, to find out more about what real estate investors look for and how to start building your real estate empire. In no time, you can be creating wealth at levels you previously only dreamed of.