This is a lightly edited transcript of a video from Graystone Investment Group’s official YouTube channel byJorge Vasquez, Graystone Investment Group CEO.
What Kind of Return Should I Expect on My Investment and Why?
This is one of the most common questions I get when I’m speaking with investors. The answer is fairly simple. It depends on what your investment is. In broad terms, there are two types of investors: Passive and Active.
Investment Return for Passive Investors
A passive investor is someone who doesn’t actively participate in the business but mainly wants to put money in and take money out. They don’t need to be in the same city as the deal, and they don’t need to put in any work. They don’t even need to have any experience in the field.
Here are the options they have:
- Lender. You can be a hard money lender and make around 10% on your money. Your risk is limited because there is substantial equity in the property, and in the event the borrower defaults, you get the underlying property. You can set it up to collect monthly payments or ask for the payments to be made at the end of seven months, which is the typical loan term.
- Turnkey rental investor. You can receive around 12% on your money in terms of the rental return alone. After adjusting for equity gain, appreciation, and tax advantages, the return is usually in the range of 30% per year. In this option, you would buy a turnkey property that can be rented from the time of the purchase and bring in cash flow every month. You would need to buy the property with conventional financing at low interest rates to get this rate of return.
- JV partner on flips. You can get a return of 15 – 20% by being a JV partner on flips where you put up the funds, and the other partner does the rest of the work: finding the deal, doing the rehab, and selling the property. These deals usually take around six months to complete from start to finish.
For most people who actively work in another profession, and are not seasoned investors, being a passive investor is a better way to grow your capital. The advantages are that you can be located anywhere in the country, even the world, and get an attractive return.
Investment Return for Active Investors
The second type of investor is an active investor. They are typically seasoned in real estate, and it is their full-time profession. They are real estate agents, lenders, or from an ancillary profession. They wish to increase their income by putting in more work rather than money. They need to be based in the same city as the deal, and they typically self-perform many of the tasks. They find the deal, rehab the property, sell the property or manage the rental. Since they self-perform, the amount of money they make is a function of their skill as compared to their monetary investment. The greater their skills, the more money they can make. The stories you see on TV and YouTube are typically from active investors who are flipping houses. It’s not possible to make that much money as passive investors.
Investment Return for Hybrid Investors
A third category is a hybrid between the two. The main investment is the money, but it comes with a certain amount of risk-taking capability. The typical return as a hybrid investor is in the range of 15 – 20% and sometimes a little bit more.
I hope that helps provides some clarity on how much money you can make with investing in real estate. In case you wish to invest money actively or passively, do reach out to us and tell us what you would prefer to do so we can help you accordingly.
ABOUT THE AUTHOR
Jorge Vazquez is a broker and founder of Graystone Investment Group, headquartered in Tampa, Florida. He has been in the business for over 20 years and has participated in more than 2,000 transactions. Graystone is one of the first companies in Florida with all divisions under one umbrella: Wholesaling, Brokerage, Private Lending, Rehabbing, and Property Management. You can find Jorge at homes4income.com or Graystoneig.com and connect with him to either join his brokerage, invest, or just to learn more about real estate.