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Since I work with tens of thousands of investors from across the country and even some from outside the United States, I often uncover that some newer investors believe that investing in real estate is a passive investment. They, incorrectly believe that once they buy some rental property and have a property manager in place that their work is done. Unfortunately, real estate investing is not a completely passive investment, but there are ways to make it very, very close to passive and there are ways to invest in the industry that are passive.
Let’s take a look first at how to take real estate investing and make it as passive as possible.
First, work with a team. There is a great deal of time and effort that needs to go into finding, negotiating, structuring and financing the new property purchases. In addition, there is also time that needs to be put into finding quality tenants, tenant buyers or buyers for your properties as well. The good news is that it does not have to be you that puts all the time and energy into this, but you do need to manage your team or, at a minimum, manage the management you hire to run your team. You can bring in an acquisition team, a finance team and a property management team. You can even hire an administrative team and executive manager to run your business, but you still need to manage them to make sure they are running the business according to what you want.
I also mentioned another way to invest that is as passive as you can get investing in real estate: becoming a private lender (also known as investing in trust deeds). With this type of investment you are finding a professional real estate investor and you are loaning money to them purchase property for their business. With this model you usually get a nice, high fixed rate of return secured by real property with a healthy cushion of equity and all the management of running the business is the responsibility of the professional.
So, while real estate can be an extremely attractive business with amazing returns, it is truly an active investment unless you are becoming a private lender.
Until my next post,
James
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This is the penultimate question from our private lending FAQs. The question is: How does title insurance help protect me as the lender?
And here is our answer:
When people buy properties they want to make sure that they are buying the property with clear title and that there are no unknown liens or other encumbrances on the property. Title insurance is what is usually purchased to protect the buyer and any new lenders against any unknown liens or encumbrances on the property.
Should we discover, some period after we have purchased the property, that there was an unrecorded lien or encumbrance against the property, the title insurance would insure against those claims.
Until my next post,
James
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We are in the home stretch of questions from the private lending FAQs series. Today, I am going to share with you how I answer the question that deals with insurance that we purchase that helps protect our private lenders and ourselves.
The question is: How does property insurance help protect me as the lender?
And here is my answer:
We buy property or hazard insurance to limit our risk and liability as a property owner and to protect the investment for the lender.
If there is a fire at the property that completely destroys the property (or another problem covered by the insurance policy) and the insurance company pays the claim, the proceeds and can be used to restore the property so it can secure the loan against the property.
Until my next post,
James
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I think it is best to deal with potential concerns as early as possible and your private lenders may want to know what happens if they run into an emergency. The question and my answer that I want to share with you today from my private lending FAQs deals with that.
The question is: What if I need to get my money back in an emergency before the term is up?
And here is my short answer:
Since I am confident that, with the attractive interest rate I am offering, that I can find another private lender to replace you as a lender, I feel comfortable telling you that if an emergency came up and you needed access to funds, we could replace you with another private lender within 60 days.
Until my next post,
James
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