3 Common Ways Real Estate Investors Leave Money On The Table

capital raising real estate investing Sep 13, 2021
Real estate investing

How much real estate do you want to own? If you are like most real estate investors, the answer is "as much as possible." Real estate investing has become the best investment in the world for many people because it offers a way to create financial freedom and escape your 9-to-5 job. The thing is that most real estate investors don't structure things right and end up replacing one 9-5 job with a 9-9 version instead.

I write for an audience that is focused on real estate investing and my goal is always to help them find new ways of buying properties or grow their investment portfolio by raising other people's money. In this blog post we will discuss 3 common ways real estate investors leave money on the table when they should be maximizing their potential.

If you look at any large scale real estate syndication you will notice a wide range of fees that are factored into the equation; and still many of these projects are projected to yield above average, double digit returns to investors. Why? Because these real estate groups know what their time is worth, what an investor needs to make and start from there when negotiating on a transaction. Most smaller scale real estate investors don't account for their time and end up working for free.



Acquisition fees are a normal part of the investment process. It often takes several months and hundreds of hours for a real estate investor to find the right property, at the right price. Most real estate syndicators charge anywhere from 1-3% on the property purchase price. Investors pay these fees because they understand that it takes time & money to find & structure profitable deals.



Another common overlooked fee is the project management fee. If you're looking to increase the value of the property, chances are very good that you'll be taking on a renovation (or potentially a full rehab). Real estate developers typically charge anywhere from one percent up to ten percent of the work required. In the case of a $100,000 renovation that could represent a fee of $1,000 - $10,000 depending on the level of complexity. Managing a project takes a tremendous amount of time and someone needs to be paid for it.



It's been years since you've acquired the property, managed to drastically increase the profitability of the property and now it's time to sell. If you've ever sold a property you know how much time that takes... even with a realtor at your side this activity can easily eat up all of your time right up until the moment the property is sold. This is why major real estate investment firms charge a disposition fee anywhere from 1% to 3% depending on the asset.



The biggest payday for the real estate group and it's investors should always come from the profitability of the project itself but just about every major real estate investment firm that raises capital charges additional fees to offset the cost of doing business. Real estate is generally a long term investment and there is a tremendous amount of work that has to happen over that period of time to make sure things go according to plan. If you're unable to build some fees to compensate for your time while an investment matures - you are doing the wrong deals and need to rethink your investment strategy and process.


Marcin Drozdz



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