Real estate investing has long been a proven approach to helping individuals become their own bosses, build wealth, and achieve financial independence.
In fact, an immense 90% of millionaires reportedly made their fortunes by investing in that asset class.
But little progress has been achieved in the Black real estate investing community, with investors continuing to experience a lack of diversity and overall opportunities afforded to them, a new study by Millionacres shows. A Motley Fool firm, Millionacres is a real estate investment service.
In August, Millionacres surveyed more than 650 people about diversity in the real estate investing world. Five percent of the respondents identified as Black or African American. The real estate world encompasses many categories, including rental properties, real estate crowdfunding, commercial real estate, real estate stocks, REITs (real estate investment trusts), flipping houses, and second or vacation homes to name a few.
Among the most startling survey findings is that 7 out of 10 Black investors feel that their race affects their real estate investing opportunities. Here are other top findings of what the Black real estate investing community has to report about diversity:
- Nearly 63% say racial diversity is lacking or severely lacking in the real estate investing community.
- About 56% believe that their race affects their real estate investing returns.
- Around 48% think that early financial education (including information on real estate investing) for under-represented groups would help with lack of diversity.
To reverse matters, Black respondents offered feedback on what should be done about the lack of diversity in the business. Fourteen percent recommend more online content and resources specifically for underrepresented groups. And 11% suggest government intervention on behalf of underrepresented groups.
The findings are also significant from a financial viewpoint. For instance, the combined value of every residential home in the United States alone was $33.6 trillion by late 2019, according to real estate and rental marketplace Zillow.
Real estate investor Lisa Phillips says the 70% of Black investors who feel that their race affects their real estate opportunities is startling to some but very accurate. She says it means that most Black investors are actively navigating the racial burden of trying to invest in addition to the complexities of building a portfolio. “The consequences of that is a much higher burden to obtain just even the same results of bridging the wealth gap,” she says.
Phillips says it is a big deal because it shows that Black investors need to ensure they are deliberately going to sources for funding, education, and opportunities, such as funds and investment groups that understand these nuances. These are generally Black-owned investment platforms that will speak to these issues in a way that mainstream real estate investing platforms cannot articulate. She added this is one way of ensuring the racialized component does not inhibit the accessibility of the Black investor.
So what needs to occur to get more African Americans involved in real estate investing nationwide?
A best-selling author of Investing In Rental Properties For Beginners, Phillips says she personally has found success in training Black investors in a culture of targeting undervalued Black communities, ethically and responsibly (not gentrifying). This way, she added, the cost of entry is a lot lower with homes that run anywhere from $20,000 to $50,000, offering a much lower startup cost.
And if more Blacks were involved in real estate investing, it could potentially help them and their community economically.
Phillips says she has seen investors go from one rental property to 10, and are now major players in the local REIAs (real estate investing associations) and active politically and judicially as homeowners. “We have also seen a pooling of resources, noting which banks are Black investor-friendly (meaning, more likely to give a mortgage loan), as well as which cities and municipalities are investor-friendly,” she says.
“Also, having investors in vulnerable low-income minority neighborhoods who are sensitive and conscious of not escalating rents in order to not displace residents, is having a positive effect individually on streets—this is really grassroots level, which are the best way to get change in my opinion—on our own, not waiting for government or outside validation.”
For Black investors looking to get higher returns from the investing world, Phillips offered some tips:
1. Focus on word of mouth recommendations for banks, lenders, appraisers, real estate agents, educators, investment groups, etc.
2. Focus on portfolios that align with your pocketbook. If you have $10,000 to invest in a property, focus on properties that cost $20,000 to $50,000, generally in minority neighborhoods, and learn how to ethically invest in long-term rentals for relatively low down payment amounts but extremely high cash flow.
3. Ensure you are receiving guidance and education from investors who understand and can speak to navigating the racialized components of getting funding and implementing strategies.
4. Learn how to find these low-cost markets, be it an hour’s drive away or a plane trip away, and learn how to successfully manage them through long-distance investing so you can easily achieve great deals without having to manage it hands-on.
5. Show up in the energy so you can create the business that you have always wanted, and financial freedom, and give back and stabilize communities at the same time.