As part of the School of Accountancy Financial Planning Workshop series, David Chadwick presented “Get your Foot in the Door: Investing in Real Estate” to a group of 27 alumni, students and staff. David has experience investing in Real Estate on a personal level as well as investing for the benefit of the University of Colorado through the CU Real Estate Foundation.
Here are five tips on investing in real estate from the workshop:
- Before investing, consider whether direct ownership is the best way to invest in real estate. Indirect investments through REITs (Real Estate Investment Trusts) are currently outperforming other types of direct investment options such as multi-family, office, industrial and retail.* Additionally, REITs are forecasted to be the only investment type with increasing returns in the next two years.**
- Once you decide to invest, it is essential to seek mentors and network to become better informed about the process and opportunities. These mentors are likely the first to hear about emerging opportunities and steer new investors in the direction of success. David explained that his mentors encouraged him to spend time on due diligence and talk to tenants in order to really learn a property.
- Start small and focus. Initially, invest in only one product type: multi-family, office, industrial or retail. Learn everything about that product type and the economic forces influencing the outlook of that product group. With focus, investors can learn what drives rents. For some product groups, location will be more important than the property condition. Achievable rental rates will not necessarily support the capital improvements required to make a property marketable.
- Due diligence is key. While professionals should be engaged for certain aspects of analyzing a potential acquisition, investors should rely on their own due diligence – if you must fall in love, fall for the numbers, not the property. It is important to read and understand everything yourself, including the small print and print that is in all CAPS. In the end, you must be willing to walk away if it is not the right deal.
- The most common way to own real estate is through an LLC. If you are investing with other people and you choose not to form a limited liability company to hold the property, you should at least have a tenancy-in-common agreement. Always make sure to discuss and agree on the amount of time each partner has to devote to investing, risk tolerance, available equity, credit worthiness, and vision.
Looking for more financial advice? Join us on May 19th for our final Spring 2016 Financial Planning Workshop entitled “Using Your (Human) Resources: Financial Implications of HR Decisions.” Learn more and register online.
*Source: 1996-2015, National Council of Real Estate Investment Fiduciaries
**Source: 2016-18, Urban Land Institute Consensus Forecast