Grove Family Investments

Becoming an equity or private money partner (PMP) on an investment real estate property can be a great way to get significantly higher returns on your investment. As an equity partner you don’t earn an interest rate but get a portion of the rent profits every month. More importantly, you own a share of the equity on the house as it grows over time. This is a far greater source of income than the rent profits alone. I’m seeing investments where a conservative estimate would put a 6-10x return on investment over 10 years. While this is a significantly more lucrative investment than traditional ones, it comes with its share of risks for both borrowers and lenders. Here’s a closer look at some potential pitfalls and how to mitigate them.

1. Incorrect Property Valuation: If a property isn’t valued correctly, refinancing or reselling can become problematic. To avoid this, ensure accurate comping by finding very similar houses that were recently sold nearby.
2. Rental Income Shortfalls: Sometimes, the estimated rental income falls short of expectations. Mitigate this risk by getting rental estimates from local property managers who are familiar with the house and the market.
3. Property Risks: All properties come with inherent risks, such as issues with the roof, HVAC system, water heater, or potential flooding. Mitigate these risks with thorough inspections before committing to the loan.

The Reward: High Risk, High Reward

With higher risk comes the potential for higher rewards. Private money lending can offer significant returns, much higher than more traditional investments which is why you’ll rarely find a high net worth individual who is not invested in real estate.

The Risk of Not Investing

People often only look at one side of the equation; they only think of the risk of investing in real estate but not investing in real estate also has risks. Doing nothing is doing something. You run the risk of the lost potential earnings.

1. Every Investment Has Risks: If you invest in the stock market, it could drop, and you might lose money from fees as well. Real estate, while risky, offers tangible assets and potential for substantial returns.
2. Missed Opportunities: By not investing in higher-yield real estate opportunities, you miss out on potential gains that could significantly enhance your financial portfolio.

In essence, there are risks on both sides. The rewards follow the risk but you’d hate to look back to now in 10 years and wonder what would have been. Reach out if you’d like to learn about investing with us.