Today, Jason Fritton goes over the need to always remember the basic fundamentals of smart real estate investing in each and every deal you consider.
Jason Fritton emphasizes the need to research the cap rates, comps, neighborhood demographics, job growth in the area. In addition, there’s also a need to research the borrower.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Jason: Hi, everybody. I’m Jason Fritton. I’m the CEO and co-founder of Patch of Land, the leading alternative online marketplace lender for real estate investing, and I’m today’s host of REI Classroom. And I’ve been asked to talk about how the basic fundamentals of real estate investing are always the same.
Mike: This show was sponsored by PassiveRental.com.
Jason: Now as we all know, in the very recent past, there have become a great many different ways opening up to be able to invest in real estate, including Patch of Land, including other portals like us to the point where now, unlike at any point in the past, you can now invest in real estate in two minutes flat from your mobile phone. Where in the past, perhaps, it’s been a backroom handshake type deal where you’ve gone through the numbers with a great deal of due diligence and a great deal of attention to detail.
I’m here to remind you that that still is required these days. No matter how easy real estate investing has become and how quick and streamlined the process has become with this new online marketplace, I want to remind everybody still that the basic fundamentals are still the same. You need to be able to take a look at what the actual bottom line actually is, what the numbers still look like, what the exit plan actually is, what the marketplace looks like. It is still very, very, very important for you to continue to do your due diligence.
And to put it simply, if you can’t move forward to invest, you shouldn’t invest. Don’t put your last dollar into investment. There is always the risk, even with real estate, which is traditionally a very stable, lucrative asset class, there’s always the risk that you may lose some or all of your principal.
So with online investing, like what we are actually seeing today, it’s very possible to get caught up in the pictures, in the story, in the narrative. There’s a lot of merchandising that goes into real estate investment. But in the end, you still need to be able to keep a very close watch on the numbers. The LTV, the Loan to Value of a particular property is extremely important. Cap rates on those particular properties, that particular type of asset class is very, very important.
If you’re looking into a cash flowing asset, you need to be able to take a look at the rent rules. In today’s world, it’s very, very easy to look up what the average rent rules on a particular property are in a particular marketplace. You need to be able to take a look at the borrower, or the sponsor, the investor who is actually processing the individual investment, who is managing that particular investment as well to make sure that they have the experience and capability necessary to be able to pull the project off. Or in worst case scenario, if they do get into trouble, that they have the ability to continue to manage the project, or continue to be able to put money in without getting completely locked up and get to the point where they don’t have anything left to put into it and they walk away.
That’s very, very important to us here at Patch of Land. We make sure that our borrowers are very experienced and that they’re well-capitalized so that the project have a good amount of float, I guess, would be the best word to continue operating in the case that we run over budget, or there’s an issue, or something happens.
The ability for an investor, at this point, to be able to take a look into the fundamental basics of a real estate investment have never been stronger. At this point now, you can look up online either through our portals or through the places like RealtyTrac, through county websites, through actually the MLS itself, to be able to take a look at your own cost, to be able to take a look at how that market has been performing, to take a look at demographics, see how that marketplace has been performing over the past six months and where it’s projected to go. How is job growth? How are unemployment figures actually looking and actually trending? What is the absorption rate or potential for a particular asset?
So if the exit plan falls out, was that the only chance of being able to get out of that particular asset? Or is it a large enough marketplace and well performing enough marketplace that other people will be able to step in and be able to get a positive disposition on that particular asset?
And it’s never been easier at this point to be able to reach out to other professionals as well on the real estate investing side to be able to get advice from them. You can even call me at any time of Patch of Land and I’ll give my thoughts on a particular marketplace as well.
But the interconnected nature of these new portals of this new world of real estate investing has created some concerns, but also created some enormous , enormous opportunities. We want to make sure that our investors don’t ignore the basics of real estate investing and get too excited about investing in New York City, and investing in Los Angeles, investing in Houston, and then ignore the fact that, “Hey, maybe the numbers don’t quite match up.”
If you are interested in investing in real estate, I strongly, strongly urge all of you to continue to take a look at the capitalization of the project itself, how the construction budget is going to work out. What’s actually being done with a project, and specifically take a look at the borrower, and take a look at the individual marketplace as well. And if you can’t get that information, don’t invest in it. Period. Thank you, everybody. I’m Jason with Patch of Land.
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