...

Skyline Point Capital

Everything You Need To Know As a Beginner in Real Estate Investing

Last Updated: August 21, 2o24

Steve Nabity

August 21, 2024

Wealth Generation with Skyline Point

Greater access to real
estate investing.

Introduction: Real Estate Investing For Beginners

Why did the math book look so wealthy? Because it had a lot of problems! Entrepreneurs and business owners are no strangers to problems. They solve them every single day and become wealthy in the process.

However, once they have accumulated wealth, there is another problem to be solved: how to preserve and grow that hard-earned wealth? One could invest in stocks, buy ETFs, or invest via mutual funds. Some might invest in precious metals or cryptocurrencies. Business owners and entrepreneurs could also consider investing in real estate.

Immediately after reading that sentence, some questions will surely pop up in your head. Is real estate a good investment? Does it offer decent returns? Don’t I need a lot of money upfront to invest in real estate? I am not an expert on real estate, how do I go about investing in it? Should I invest in residential, commercial, or industrial real estate? Is there any tax benefit?

In this blog, we will touch upon a variety of questions that you might have about investing in real estate. We want to help you expand your portfolio and understand an underrated asset class.

Why Real Estate is a Good Investment for Business Owners and Entrepreneurs

What makes an investment a good one? Firstly, it has to enable you to achieve a life goal. After all, isn’t that why we invest? Whether it is commercial real estate investment or stocks, your investment has to grow to some pre-desired size in a reasonable timeframe so that you can actually enjoy the benefit of that investment in your lifetime. You also want an investment to be stress-free and not take up a majority of your mindshare. After all, you’ve got a business (or multiple businesses) to run.

Investments that provide regular and consistent cash flow can also be desirable as you don’t have to lock away your money and wait for years to see real tangible cash returning to you. An investment also has to be evaluated in terms of how it fits in a portfolio or other existing investments. Diversification and low correlation among various investments are what we are talking about. Wealthy individuals are among the most taxed in the US. So, an investment that can deliver returns while offering tax benefits is like a bonus.

source: https://deutschedigitalassets.com/insights/news/correlations-in-portfolio-theory

Real estate investment potentially includes all of the above parameters. We say potentially because real estate investing has to be done the right way to see all of the above-mentioned qualities. No investment is risk-free and real estate is no different.

Skyline Point Capital has a long track record of investing in multifamily properties.One such property was Empire Apartments, a 24-unit apartment complex in Fremont, NE. The idea with this investment was to generate regular cash flow from the rental income while also benefiting from a capital appreciation that arose due to certain value-adds that enhanced the rental income. A higher income at a similar or higher cap rate (a valuation metric used in real estate) led to a higher sale price. The hold period on this investment was 3 years and it ended up generating a 4.4x return on the equity initially invested with an IRR (a metric of annualized return) of 69%. Sure you can also make a 69% return on the next altcoin, but for the risk taken, the proportionate returns may be considered fairly strong.

Additionally, interest paid on the mortgage when making this investment reduced the taxable income while depreciation also provided a tax benefit. Our investors never had to deal with the tenants or any day-to-day running of the property. Skyline Point Capital had a team to execute the deal, manage the property, and then complete the sale process. Stress-free passive real estate investing is what our investors got along with their returns.

How Commercial Real Estate Investments Work

If the example of Empire Apartments intrigued you, then you may also be interested in delving a bit deeper into how the entire investment process works.

1. Property Acquisition: There are plenty of real estate deals available in the market these days. The key is to identify the right opportunity that fits the purpose of investing. That purpose influences the choice of the market to invest in, the size of the property, the neighborhood, the target audience/tenant, the age of the property, the value-add potential, and the price. Skyline Point Capital has a thorough underwriting and due-diligence process which takes care of the questions “what to invest in” and “how much to pay for it”.

2.Investment Strategies: The value generated from a real estate investment can be derived either from the cash flows, upgrades made to the property which result in higher cash flows, or from a price appreciation. The investing strategy can be buy-and-hold, buy-for-value-add, low-income housing, or some combination of these factors. The choice of the investment strategy will depend on the investor’s core investment philosophy. Skyline Point Capital has experience in a few such strategies.

3.Financing: During the underwriting and due diligence process, there also has to be clarity on how the deal will be financed and how long the investment will be held. Skyline Point Capital has a track record of working with various financiers including lenders and can optimize the debt and equity structure to ensure the success of the overall deal. We also communicate to our lenders and investors what our business plan is post-acquisition and how long we plan to hold the investment before making an exit and returning capital to our investors.

4.Property Management: Property management is a specialized area within real estate. It involves the maintenance and upkeep of the property, preventing costly repair expenses in the future by being proactive, and ensuring that the property is in good condition to sustain high occupancy levels. Tenant relations are also a vital part of property management. Regular and clear communication with the residents as well as being receptive to their concerns results in lease renewals and low turnover levels. 

Ultimately, property management translates to financial management as the owner has to be on top of budgeting for operational expenses and capex. Collecting rents on time and optimizing cash flow is vital for a real estate investment. Skyline Point Capital has extensive experience working with professional property managers.

5.Generating Returns: If the acquisition is done right, the price paid is prudent, the due diligence is thorough, and the property management is professional, then there should be no difficulty in generating returns from a property. It is only by understanding the market, structuring lease terms according to the local dynamics, and executing its investment strategy that Skyline Point Capital provides its investors with returns that meet or exceed expectations.


6. Risks and Consideration: There are some key risks associated with real estate investing. Market risk involves any downturns, supply-demand mismatch, or local issues affecting a particular market. Skyline Point addresses this by diversifying into multiple locations. Tenant risk entails the risk of residents not paying rent or unexpectedly vacating. Skyline Point Capital works with asset managers who follow strict tenant screening, background checks, and due diligence processes. Lastly, financial risk can involve overpaying for a property, having a low debt service ratio, and incurring unexpected expenses. Skyline Point Capital’s prudent underwriting at the pre-acquisition stage can mitigate this risk.

Get More Content Like This Right to Your Inbox

How to Invest in Real Estate with Limited Capital

Big money is made when big money is invested. Real estate is not cheap. Ticket sizes of properties can be substantial. If you are wondering how to invest in real estate with no money or with little money, then there is no comforting answer. It’s tough.

However, there are ways to creatively finance an investment and put up a relatively lower amount upfront to enter a deal. Much depends on understanding the local market trends, something entrepreneurs will have done in their businesses as market analysis. Having the right network (or as business owners would say, the right team), an ability to negotiate favorable terms with the seller, and partnering with the right lenders/financiers are also ways to reduce the initial outlay. Those with business experience will know what it means to negotiate a favorable deal that minimizes costs.

Seller financing is one way to significantly reduce the initial outlay. Investing as a limited partner (LP) is another way to invest in real estate with limited capital. Skyline Point Capital has syndicated deals in the past where LPs had to contribute a minimum of $50,000 to participate in a deal.

By constantly learning about real estate investing, teaming up with someone with experience and expertise, and combining the various deal metrics highlighted above, you can build wealth from real estate even with limited capital.

How SPC Can Help You Begin in Real Estate Investing

Wealthy individuals like entrepreneurs and business owners are investing in real estate. According to a Knight Frank report, real estate was among the top asset allocations in the portfolios of ultra-high-net-worth individuals.

( source: https://www.knightfrank.com/research/article/2023-03-06-the-wealth-report-2023-key-highlights- )

If you want to follow the “smart money”, then real estate could be one asset class to consider.

Skyline Point Capital is well-positioned to help entrepreneurs and business owners begin their real estate investing journey. Our experienced and knowledgeable professionals can offer valuable insights about the real estate asset class. Our team can identify the right opportunities, devise an investment strategy, and raise the financing needed to successfully execute deals.

Having been in the industry for so long, Skyline Point Capital has built a network to source promising deals. Dedicated in-house professionals conduct the deal underwriting and due diligence process. Investing in different types of real estate across different geographies allows us to mitigate some of the risks associated with real estate investing.

We also recognize that as a beginner in real estate investing, you may have several questions at various stages of an investment lifecycle. At Skyline Point Capital, we offer ongoing support to all our investors and regularly communicate with them.

Skyline Point Capital acts as a comprehensive partner for entrepreneurs and business owners who are just beginning their real estate investment journey. Check out our free ebooks on finding the right deal and mastering real estate investing.

You may also request an invitation to join our exclusive community of business owners and entrepreneurs and get access to institutional-grade private real estate investing opportunities.

Learn more about Skyline Point Capital here.

Conclusion

We hope that you now have a better understanding of why real estate can be a good option for investing, how the investing process works, and what the various stages of a deal are. We have also highlighted the various types of risks associated with real estate investing as well as the key benefits that the asset class offers.

Lastly, we hope that we have dispelled a popular myth that real estate investments are only for those who have huge sums of liquid money lying idle. Real estate investing, if done right, can be done with limited capital.

We encourage you to download our free ebook on The 5 Keys to Mastering Real Estate Investing to get a primer on the subject. You can also reach out to us or request an invitation to be in the loop on promising real estate investing opportunities currently on the market.

We wish you luck in your investment journey!

Related Post

Leave a Comment

Your email address will not be published. Required fields are marked *

Want To Invest In Real Estate But Don't Know Where To Start?

With this ebook, you’ll learn the four critical elements to finding the right first deal and creating real estate wealth
Seraphinite AcceleratorOptimized by Seraphinite Accelerator
Turns on site high speed to be attractive for people and search engines.