Some People Buy a Property, Others Become a Lender. Which One Are You?

Real estate investments are a great way to diversify your portfolio. The best part is that there are several ways of getting into the market. You can go the traditional route of purchasing a rental property and hiring a property manager, or the modern method of investing in someone else’s property. The latter has the added benefit of having a stake in the property (through lien) without any accompanying hassles.

This post will talk about these two options in detail to help you make the best choice for your investment.

Hiring a Property Manager

Owning a real estate property is a big thing. It can be a quick drain on your finances and time if you are not prudent. Hiring a property manager can be a great decision if you don’t want to deal with the everyday hassles of being a landlord. Property management companies are essential middlemen between the owner and prospective or current tenants. They take care of mundane tasks, like maintenance, vetting and finding new renters, and collecting rent.

Property managers can take the bulk of work away from you. Purchasing real estate and allowing another company to handle the tasks may be worth the added costs if you have another job to do. This is recommended for people that purchase a rental property for the sole purpose of investment. Property management companies know the turf. They know how and where to find the best tenants.

They can take care of the application and screening part as well, leaving you free to focus on other things. Most property managers agree to handle emergencies, day-to-day maintenance, move-ins and move-outs, and evictions (rare cases).

Pros of Having Your Property Managed

There are a few benefits of having your own property. These benefits are surpassed by having a property manager oversee the real estate. These are a few pros of hiring a property manager:

1. Saves Time

If you are one of the few people that take concrete steps to make their real estate portfolio grow, there will be a time when you hit the threshold where work becomes too difficult to handle. Property managers can take the load off and help you focus on what’s important – investing in real estate!

2. Outsourcing Opportunities

You may not live near the properties you own, which can make maintenance and everyday chores difficult. Property managers can take care of important tasks.

3. No Landlord Duties

Being a landlord is hard work, especially if you are not passionate about it. You should consider purchasing a property and having a manager take care of it if you don’t want to handle the responsibilities of a landlord.

Cons of Hiring a Property Manager

Every good thing has a downside. These are a few drawbacks you should be aware of while letting a property manager handle your newly purchased property.

1. Loss of Control

As a landlord, you get to make all the decisions. There may be a significant reduction in that control if you let the property manager call all the shots.

2. Lack of Screening Integrity

Nobody cares about your property the way you do. The property management company may not want to apply a lot of resources and time towards finding the right tenants.

3. Added Costs

There is always the drawback of added costs. Good property management companies are hard to find and tend to cost a lot. You may need to pay a flat vacancy fee even if the unit is vacant. Other costs include setup fees, leasing fees, lease renewal, advertising, repairs, and basic management fees.

Investing in Real Estate by Lending Money

The smartest and safest way to grow wealth is by investing in real estate. This strategy can prove to be lucrative to anybody with the right knowledge and proper foundation. There is a growing market for money lenders in the real estate industry. People don’t always want to approach a bank or traditional financial institutions for a mortgage.

Instead, they look towards flexible options in the form of private money lenders. You can lend capital if you have excess funds and don’t want to purchase property directly. You could always hold the lien on the property to minimize your risk. Real estate lending is far more lucrative than lending for other purposes because you get a good return and you can be sure that your investment will only appreciate in value.

A mortgage lien can provide you with the safety and comfort of offering loans to others for purchasing a property. They can be the property owners while you sit back and enjoy your profits in the form of interest. Borrowers always try to pay the mortgage payments on time since they know you hold a legal right to the property.

It is important to note that private real estate lending requires significant time, effort and money upfront.

Pros of Being a Private Lender

These are a few advantages of investing in real estate by lending money:

1. Passive Participation

The biggest advantage is to not be responsible for the daily activities associated with real estate. At the same time, you can enjoy the lucrative benefits of real estate investing.

2. Higher Returns

A typical benefit of being a private lender is that you get to receive a higher rate of return without the added work. This return is usually more than what your savings accounts would offer. Generally, returns for private lenders in the real estate market are anywhere from 6% to 15%.

Cons of Being a Private Lender

There are cons involved with all types of financial opportunities.

1. Upfront Capital

Your biggest challenge to this investment opportunity would be to secure enough capital to get started with. The amount of required funds is a steep barrier to entry for many.

2. Borrower Default

Most people stay away from lending because of the inherent risk of a borrower defaulting on payments. This risk is mitigated to a huge degree by owning the lien on a property. However, you will still need to go through proper legal channels before you can recover your losses.