How to combine short, medium and long-term real estate investing | Private Equity Weekly

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Not all real estate investments require a long-term commitment. I combine short, medium and long-term real estate investments to spread risk and reward.

Contrary to popular belief, Private Equity Real Estate Investment actually Increase The risk-adjusted return of an average portfolio. EquityMultiple’s Soren Godbersen analyzes Data on how real estate can boost returns within an average portfolio while reducing risk.

If you can stay invested long-term, that is. This is exactly why you need to balance your portfolio with short-term investments.

Try the following ideas to diversify your portfolio not only across geographies and property types, but also across time.

The purpose of short-term investment

I can’t predict the future better than you can. A sudden crisis could erupt, requiring cash—and lots of it.

This is why people keep emergency funds. Many personal finance experts recommend keeping 6 to 24 months’ worth of living expenses in an emergency fund.

That adds up to a huge amount of cash, losing money due to inflation Per year. So while I do keep a month or two of cash out there ready to go, I also keep some money for short-term investments.

These range from flexible investments that I can withdraw (albeit with a delay) to regular investments that last less than a year. I also keep a few unused credit cards to further bolster my emergency defenses.

Short-term investing won’t make you rich. But they will protect you from financial disaster because you will have access to funds when you need them.

My short term real estate investment

You can buy a publicly traded REIT at any time and sell at any time. However, REITs are more volatile, which makes them better suited to buying and holding for the long term, waiting for a short-term correction.Even worse, REITs are too closely tied related to stock market Overall, this defeats the purpose of diversifying into real estate.

Instead, I hold short-term real estate investments in private notes, Groundfloor notes and Concreit funds.

A promissory note, or “note” for short, is a legal document signed by one party when he or she lends money to another party. You can sign a private note to borrow money from someone else, such as a real estate investor you know and trust. You can negotiate the term, whether it’s a fixed term (e.g. six months) or a flexible term (you can cancel at any time with a certain amount of notice).

I currently hold several notes with other investors that pay me 10% interest on time.

Some companies borrow money in the form of notes.For example, I lend money to norada real estateand hard money lender First floor. Groundfloor currently offers 1-month, 3-month and 12-month notes.

as an alternative Crowdfunding options For real estate debt, Concreit offers a pooled fund with hundreds of short-term loans. You can withdraw your funds at any time, with a delay of two to four weeks.

If a crisis happened tomorrow and I couldn’t handle it with my cash emergency fund, I could simply look at these other short-term investments to find the best cash investments.

The purpose of medium-term investment

I consider investments lasting one to three years to be mid-term investments.

Some have great cash flow, while others plan to get my investment back relatively quickly. If I get my money back within 18 months, I can use it for major expenses as needed (like a new roof for my house) or I can reinvest it for a high cash flow rate.

In fact, I might be able to pursue unlimited returns in them. Let’s say I invest in a real estate syndicate and the sponsor refinances the property, giving me my initial investment back.But I retained ownership of the property and continued to collect cash flow. At the same time, I can reinvest the same money again and again.

Finally, because you held these investments for more than a year, the IRS will tax any profits at the lower long-term capital gains rate.You have many options to postpone or Avoid taxes on real estate gains.

My mid-term real estate investment

As mentioned above, I invest in a number of mid-term real estate syndicates. But while I would like them to return my money within two or three years, I don’t have any control over them. I had to accept that I might not get the cash back in three years.

You do have some crowdfunding options that allow you to sell within a medium time frame. Ark7 and Lofty offer fractional ownership of single-family rentals, multifamily properties and Airbnb short-term rentals. Both have secondary markets where you can sell your shares after an initial holding period (usually one year).

If you use Lofty, be aware that you will be paid in stablecoin cryptocurrencies, and not every investor is comfortable with this.

Some companies and individual investors offer notes with maturities of one to three years. For example, 7einvestment Offer notes that allow for early redemption, although the full term is four years.

The purpose of long-term real estate investment

Real estate is fundamentally an illiquid asset. Buying or selling costs a lot of money and time.

This means that most real estate investments are long-term investments.

The majority of your investment portfolio should consist of long-term investments. Of course, you’ll need some short-term investments to help shore up your emergency fund, while medium-term investments give you some extra flexibility and possible cash flow.

But strong returns—the kind that lead to financial freedom ——from long-term investment.

Also remember that when you Invest using tax-sheltered accounts, you usually can’t touch the money anyway. So it doesn’t matter if you put your money into an investment for four to seven years.

My long-term real estate investment

Today, I primarily invest in private equity real estate as my long-term investment.

I get all the benefits of owning real estate, from cash flow to appreciation to tax benefits, but I don’t have to be a landlord or deal with contractors, tenants, city inspectors, lenders, or property managers. Get rid of the baggage.

That doesn’t mean you shouldn’t invest directly in income properties.Countless investors buy and hold rental properties every year, and many Earn great returns. As a busy entrepreneur, husband, father, and frequent international traveler, I now prefer to passively invest in real estate.

I sometimes invest in long-term real estate debt funds. But overall, I prefer short-term debt investments.

As an alternative, you can purchase a fractional share of a rental property through Arrived for $100. Like Ark7 and Lofty, you collect cash flow and the property (hopefully) appreciates in value over time. However, Arrived does not offer a secondary market for the sale of shares, so the expected holding period is five to seven years.

Expected returns for different investment lengths

Generally speaking, I accept a short-term ROI of 6.5% to 8% and a medium-term ROI of 8% to 10%.

But for a long-term investment, I would expect a return of at least 10%, preferably more. In our joint investment club, we meet every month to review new deals together, and our goal is to achieve annualized returns of 15% to 25%.

High returns do not necessarily come with high risks (although they can). All investing comes with risk, so astute investors seek asymmetric returns with relatively low risk and high returns. They’re out there, and you’ll find them when the entire investor community comes together to review deals.

Just as you diversify your portfolio to cover different markets and property types, you can also diversify across timelines.

Whatever you do, don’t try to predict the market. It’s a fool’s errand and a loser’s game.