by Zain Jaffer, serial entrepreneur and the Founder and CEO of Zain Ventures
Although real estate, like any other asset class, experiences its share of fluctuations, there is no question that it is one of the most stable and reliable ways to build wealth out there. The demand for housing never goes away, and, especially in recent years, the demand for short-term rentals has become a major industry unto itself. Moreover, the real estate market is structured in such a way that, once you have begun owning properties, it becomes much easier to diversify and own more.
It can be difficult and daunting to enter the market in the first place. For one, it typically requires a lot of up-front capital, often with the help of financing. Beyond that, it places you in competition with a large number of extremely savvy buyers and investors, and it can often feel like you do not have the strategies and information necessary to succeed. However, the best way to learn is to do, so this article contains a few key tips to help you get started in real estate.
Tried and True
As with any investment, it is critical to do some effective planning beforehand. The best way to begin is by creating a plan that works for you and that you will be able to stick to. Doing so requires asking some serious questions: not just what kinds of properties you want to invest in or where you want to invest, but what your broader financial goals are and why you want to enter the market in the first place. Once you have come up with satisfactory answers to those questions–answers which, you should note, will naturally change somewhat once you’ve actually begun your journey–you can then work backwards towards addressing the more logistical concerns.
While some people have the disposable income necessary to enter the market by buying or selling a house straight away, not everyone is in a position to do so. Fortunately, there are ways for people with lower incomes to begin investing in properties without breaking the bank. For example, rather than buying, individuals can rent out a few bedrooms or units to get a feel for how this process works while earning some extra income on the side. There are also a variety of ways to pair with more experienced investors, such as working as a buyer’s agent or leasing agent, and gain an insider’s perspective on the market before you even make your first purchase.
One of the best features of real estate as an asset class is that, once you’ve initially gotten your foot in the door, it becomes much easier to accelerate your profits. Your first purchase will likely be your toughest, but it will provide you with the income and experience necessary to pursue more properties down the road. Learning how to effectively flip houses is a real game-changer, but it requires some extra caution and expertise, as the laws governing these kinds of transactions are complex and subject to change. Still, you do not need to engage in flipping to create a thriving real estate portfolio.
Fractionalization
As steady as it is, the real estate business, like every other industry out there, is able to be profoundly disrupted by emerging technologies. When it comes to real estate, the major changes will not concern physical structures themselves so much as the new ways in which we are able to buy and sell them. While people rarely think of the blockchain, a distributed digital ledger technology, in connection with something so tangible as housing, recent developments promise to make blockchain a powerful force in the real estate industry.
The concept of turning a property into an NFT (known as “tokenization”) may sound science-fictional, but it is a very real process that shows major potential. Tokenization works by representing the ownership of a property on the blockchain through an inalterable record that is not owned or controlled by any one party. In a similar vein, blockchain-based smart contracts–digital contracts which automatically execute functions, such as transferring ownership, as soon as pre-set conditions are met–are set to radically shake up the industry by drastically reducing the need for bureaucratic red tape and third-party mediation.
One of the most exciting phenomena that will arise from this combination of technologies is a boom in fractionalized investing. Fractional ownership refers to the process by which multiple parties contribute different amounts of capital to owning a property and share both usage rights and any profits made by the property.
With the advent of tokenization and smart contracts, it is now easier than ever to break an asset down into smaller pieces and allow for greater partial ownership. This process allows for the democratization of real estate by making it easier for people with lower incomes to get their foot in the door and start learning about property management without the need to take out loans or mortgages. Instead of working with a single real estate agent, they can join a community of individuals of varying levels of skill and experience with whom they can share knowledge. This ability to share both knowledge and profits is an unprecedented development that promises to make it easier for people of all backgrounds to get started investing in real estate, creating an even more vibrant future for this already strong market.
Zain Jaffer is a serial entrepreneur and the Founder and CEO of Zain Ventures, a family office which actively invests in real estate as a part of its overall asset management. Zain is also a Partner at Blue Field Capital, which has $1.5 billion in real estate investments across the country and launched a venture capital fund that invests in PropTech startups.
