Real estate investing can be a challenging industry. At the same time, the risk/return profile of real estate investments dwarfs just about any other investment opportunity out there, and anyone can invest in real estate.
The beauty of real estate investment is that there are so many ways to participate – the key is finding which one is best for you. There is no way we can hope to cover every type of real estate investment out there, so for the purpose of this article we are going to focus on ‘Fully Managed’ real estate investments versus Do-It-Yourself (DIY) real estate investment.
We should start by saying, that even inside this comparison there are going to be many different types of investment. There are going to be fully managed options for flipping, buy and hold, lease options – you name it. The same can be said for DIY investments. So we are going to specifically be focusing on the pros and cons of the fully managed concept of real estate investing compared to doing everything yourself.
Fully Managed Real Estate Investing
Time
The main advantage to fully managed real estate investments is that you don’t have to do anything. With fully managed options your investment provider takes all the work off your plate. Finding good real estate investments can be time consuming – not to mention maintaining them – if you don’t have a lot of extra time on your hands, fully managed real estate investments can be attractive.
Expertise
The second advantage to fully managed options is that you don’t have to know anything about real estate investing. A good fully managed real estate investment provider is going to have years of experience under their belt. There are many ways to make money in real estate, but there are also many ways to lose money in real estate. Experience is an extremely valuable commodity in real estate. Most seasoned investors would tell you that their first few investments didn’t go as planned. As with most things, the more you do it, the better you get.
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Options
One of the main disadvantages to investing in fully managed investments is that you are going to be limited to what’s being offered by the providers out there. Even assuming that all the investment offerings being offered by providers are actually good – which is definitely NOT the case – you will still be limited at the end of the day.
Returns
Another disadvantage with fully managed investing is that you are not buying from the source. Since the provider you buy from is in the business of making money too, they are going to be looking to make a profit in the deal. Since there are more hands in the pot, the end return potential to you the investor is going to be lower with fully managed options. Not all providers are created equal in this area, however.
Some providers resell properties at ridiculous prices looking to take advantage of clueless investors. The better providers, though, look at their investors as partners, rather than suckers off which they can make a quick buck. They sell their properties at reasonable rates, and even though they make less on each deal, they understand that if the investors make money they will want to buy more properties from them. This is the type of provider you want to work with.
Do-It-Yourself Investing
Returns
As mentioned earlier, DIY investing offers the best potential to generate returns. Since there is no middle man, all the profit in a deal – from start to finish – is yours.
Options
DIY investors have a world of options at their fingertips. In many aspects, real estate investing is only limited by your imagination… and negotiation skills. On the flip side of that, many investors can get caught up in what has been coined ‘Paralysis by Analysis.’ If you spend all your time trying to find that perfect investment, you may never actually move forward on anything. In addition, this is one of those areas where it pays to have experience. Locating and evaluating quality investment opportunities is not as easy as it may sound.
Time
DIY investing is going to be a lot more time consuming at the end of the day, because you are doing most things yourself. You can certainly build a team around you – which is advisable – however, at the end of the day it is going to be more draining of your personal time than going with an out-of-the-box fully managed option.
Expertise
DIY investing offers a ton of potential, however, lacking sufficient experience, many investors are unable to take advantage of it. There are bootcamps, books and all sorts of educational material out there about real estate investing, but none if it is going to replace real life experience. If you are serious about DIY investing, it’s a great idea to find an experienced and successful investor to serve as a mentor. Work with them on a couple deals from start to finish and learn how they manage their real estate investment business.
Conclusion
Real estate is one of the best investment opportunities you’re ever going to find, but not all real estate investments are created equal. If you are looking to invest in real estate, one of the first decisions you’ll need to make is whether to do-it-yourself, or work with a fully managed real estate investment provider. There are pros and cons to both, but the biggest things to consider are your experience and time commitment. If you decide to go with a fully managed solution it is imperative that you find a great company to work with. A good company will be your real estate investing partner – they won’t look at you simply as a source of cash.
