How I Invest in Real Estate without the Hassle

I love investing in real estate. In the past, I’ve flipped homes and owned rentals. In the most dramatic example of the former, I flipped a fancy lakefront home:

My current home is nothing to sneeze at either:

However, I haven’t been very successful at flipping or renting lately. We live in a white-hot housing market where bidding wars are the norm for single-family homes. And it’s even worse for multi-family units.

Last year, a four-plex came on the market for $800,000. It was bringing in about $6,000/month in rent. The units needed a lot of work and weren’t in the best part of town. It was overpriced, but that didn’t stop a bidding war from breaking out anyway. It sold for $960,000. No thanks.

 

Investing in Real Estate without the Hassle

I’ve found other ways to invest in real estate through private lending and crowdfunding:

Private lending: I have loaned $314,671 in the form of 4 loans. They bring in $2,525/month or $30,300/year. I love these numbers and I’m eager to loan more money this year.

Crowdfunding: I’ve been investing with Fundrise for almost 2 years and have earned a consistent 10% return. Other platforms that I’m deploying money to include RealtyMogul, PeerStreet and RealtyShares. These companies are young, so these investments are an experiment. However, I think they have a lot of potential and offer a nice alternative to a traditional REIT.

My article over at InvestmentZen explains private lending and these crowdfunding platforms.

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43 Responses to How I Invest in Real Estate without the Hassle

  1. Its good to hear that you have liked your experiences with crowdfunding sites such Fundrise. I’ve looked into them but have not taken the plunge to invest yet. Have you heard of “RoofStock”? I just heard about it on the Stacking Benjamins show… it sounds like a turnkey company for real estate investing.
    Mrs. Adventure Rich recently posted…The Three Year Experiment’s Interview w/ Mrs. Adventure RichMy Profile

    • I have heard of Roofstock, but haven’t had a chance to research them yet.

    • I heard of RoofStock after listening to a podcast on Listen Money Matters…there’s also a post about it on that site. It’s an interesting concept but after going through the site, I didn’t really find any deals that were very compelling. Although it does seem like the real estate market is generally tight nowadays. They’re kind of a hybrid turnkey company but different…it seems more like a platform to sell rental property while also offering a recommended and vetted property manager.

  2. I definitely have thought about jumping on the fundrise bandwagon. I’ve heard really amazing things and think it could be really interesting. Definitely need to look at them again. Thanks for the reminder.
    Mustard Seed Money recently posted…How Your Name Might Affect Your SuccessMy Profile

  3. I have kind of a basic question. I currently have money in Vanguard’s REIT fund. What are the advantages of Fundrise or the other crowdsourcing sites versus a REIT?
    Mr. Freaky Frugal recently posted…Instant savings with discounted Gift CardsMy Profile

    • Fundrise claims that their niche strategy allows for higher returns. So far, that’s held true. However, I think Vanguard’s REIT is a proven, solid investment.

  4. I’ve thought about this more than once . . . but haven’t really put in the research time . . . the first question that always pops into my mind is . . . how liquid is the investment? Is the money locked in for a period of time, or are there options to make it relatively fluid? Thanks for sharing.

    • Yeah, these investments aren’t as liquid as a traditional REIT. With PeerStreet, your money is tied up for the length of the loan. With Fundrise, you can get money from the REIT quarterly.

  5. Comtnadventure says:

    Thanks for this post, have been meaning to send you an email about this topic since you had mentioned this in an earlier blog.
    Now I need to get my butt in gear and look at these alternatives

  6. I’m definitely interested in hassle free real estate investing. I’ve been hearing on BP that the real estate market is really hot in the Denver area. It’s always been pretty crazy here in NYC. A single family house in my area would cost $800k! That’s why I never got into real estate until I decided to buy an investment property out-of-state. I also did some crowdfunding but prefer to directly invest for the tax benefits, leverage, etc.

  7. Dylan says:

    I’ve been looking for private lender so I can get into buy and hold real estate investing. Any advice on how to find lenders? How did you get into it?

  8. Mrs. BITA says:

    I hold Vanguard’s REIT, and a few months ago put my toe in the water with Fundrise. I’ve invested in their heartland eREIT. It is a minuscule portion of our portfolio, and so far so good. They’ve recently been sending me email about their ‘new platform’ and I’ve mostly been ignoring those. Any idea what is up with that?
    Mrs. BITA recently posted…Ten FIRE Games to Pass the TimeMy Profile

    • “It is a minuscule portion of our portfolio…”

      Smart. I like these companies a lot, but I want to see how they perform over a downturn.

      “They’ve recently been sending me email about their ‘new platform’ and I’ve mostly been ignoring those.”

      Yep. You specify your level of risk and Fundrise automatically deploys money across their different funds.

  9. Mike says:

    How do you source your loan customers? Based on previous articles, you’ve lent primarily to acquaintances. I’ve heard that one of the things you can do with realtyshares is lending. Thoughts on how you will find more lending customers?

    • I lend primarily to one mega-investor. He’s an acquaintance who owns around 60 properties and is always adding more.

      Sourcing loan customers is the hardest part of the whole deal. My wife and I have know this guy for a while and trust him as much as we trust each other. I happily hand my money over to him.

      If I were starting out, I’d hit up the forums on BiggerPockets. Feel folks out and establish a good relationship. I’d try to find local folks and meet them in person. I’d also check out their properties. No doubt, all of this is work, but it’s so worth it if you can partner up with someone great.

  10. Looks like I am getting in at the wrong time. I am getting ready to join a local real estate investing group this month (it was on my list of “things to do this year”) but the market seems too hot right now.

    I’ll probably just do research and study with them over the next 6-12 months and do my due diligence. Maybe by then the bubble may pop. Right now, the bidding wars are rough.

    Great article, and thanks for the info in your past on this.

    • Dylan says:

      I’m in the same position. However, I think you can find a good deal in any market if you are willing to do some rehab.

      • It is tough, but I know people who are still doing deals now. You just have to be more creative. For example, identify 20 properties that you may want to buy and send letters to the landlords. You never know when a fish may bite and it’s always better to pick up a property before it goes on the market.

  11. I love looking at the homes you’ve flipped! It’s definitely not for the faint of heart, but I’ve heard of many people making their fortunes by flipping houses every few years.
    Mrs. Picky Pincher recently posted…How To Sell On Craigslist Without Getting MurderedMy Profile

  12. Wow great returns on the lending, I’m still building my core assets so I’m not ready to experiment with new venues just yet, but I’m definitely interested to see how this pans out for you. Thanks for the interesting ideas and showing your always crazy success!

  13. Joe says:

    I’d love to try flipping, but the missus doesn’t like it. She hates moving and she’d kill me if we move every few years. Happy wife, happy life… So we just have to grow our wealth some other ways.

  14. Flipping is getting harder for sure. Especially in hot markets like yours and mine (Los Angeles / Orange County). I’m not into it, but I know people who’ve done it. Just curious, how long have you done private lending? So is this with friends and/or family? I’ve always heard to not mix money with family and friends, so I’m curious as to how you feel about that. It sounds like you’re liking it, but I’ve always felt a bit leery about it.

    • Our career as private lenders is young; only 8 months. We’ve done 3/4 deals with one guy who we completely trust. He’d done over 50 deals, so has a load of experience.

      The hardest part of the whole deal is vetting folks…

      • Team Cf says:

        That indeed is the main risk with these types of investments, you need to find a person you can trust and also has your interest (pun intended) in mind when doing real estate transactions.
        Would not mind finding one over on this side of the pond to work together with!
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  15. ESI Money says:

    The two markets I’m interested in (where I live and where I have my current rental properties) are white-hot too. Currently I’m building up cash because I know things will turn — and when there’s blood in the water, I’ll be ready. 😉

    BTW, enjoying your stuff on BAS.
    ESI Money recently posted…Help a Reader: Can I Retire?My Profile

    • Yeah! There were SO MANY deals in 2009, but we had no cash. My wife and I could have bought a million dollar, 8000 square foot home for $400,000 if we had the cash. But we didn’t. Sigh. I would have loved to buy the thing and sit on it for 5 years. Such is life…

  16. Mr. Tako says:

    The market we live in is also STOOPID expensive, so I avoid investing here (other than our single family home).

    I’ve used REITs as alternative real estate investments for years, and they’re stable but fairly correlated with the stock market. But that doesn’t bother me though, as we don’t buy and sell — We simply collect the dividends.
    Mr. Tako recently posted…Farmers, Hunters, And Investing For Financial IndependenceMy Profile

  17. Divnomics says:

    We’ve been busy with real estate as well lately. In the Netherlands you notice the house market is getting more difficult each month. Still, we found some area were it’s possible to buy for a good price.

    The alternatives you mention are very interesting. We’ve been to some meet-ups were we met people who do something similar. Meet-ups or probably one of the best ways to find people to work with (or lend money to). We found a group of real estate investors through the forum of BiggerPockets, meet-up.com is also very interesting to find local meet-ups.

  18. Mrs S says:

    Now that makes me envious. We are still waiting for a REIT to hit Indian markets and we had been hoping it would be around this time. But nope, nothing on that front has come up. Private lending however is an interesting thing if we can actually find someone to loan to. Also we are more small amount consistently invested kind of people and I doubt that would be interesting to someone.

  19. REinvestor says:

    I still prefer to buy and hold rentals over private lending or crowdfunding – private
    lending provides none of the tax benefits of owning real estate, plus you have to recognize the interest income as ordinary income and since I have a day job, it is taxes at the highest marginal rate (however, I do like it for a retirement account); and most other platforms/REITS don’t accept 1031 money, so you have to pay capital gains on dispositions. It sounds like the property you mentioned above sold for a 6 cap, which isn’t horrible in this market, and if there is an opportunity for a value add and you can improve the cap rate, it might turn out to provide a better long term return than the easier options provided by indirect ownership or money lending.

    • I like owning property directly too, but I go where the returns take me. If I was savvier and had more time, I’d explore out of state rentals. For now, I’m very happy with my 10% returns that require no work besides reviewing a deal and signing a couple pieces of paper that formalize the transaction (30 minutes).

      Regarding taxes, I invest from a self-directed solo 401(k), so I’m not nailed with income taxed at the ordinary rate. I know this isn’t a possibility for everyone, but I highly recommend it if it is: http://www.investmentzen.com/blog/solo-401k/

  20. I only hold REIT’s other than our primary residence so far. I never considered physical real estate an option for us since we were so time poor. Now that I am recently retired I may add some rental properties to the portfolio since the metro Atlanta market has some pockets of reasonably priced real estate.

  21. Chuck B says:

    You’ve added a second floor to both houses. Will you ever have a the story on the process of how to add SQ Ft to a your house by building up?

    • Good idea, but I don’t recommend it for a flip. Too complex! With both, I paid carpenters to frame it and get it weathertight. I finished off the inside myself.

  22. I’ve been interested in lending through one of these platforms for a while now. It seems you’ve have great results. Thanks for sharing.
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  23. Whoa, tell me more about this private lending. Are you part of a club or group? Or are these just loans to people you know?
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