In 2001, George A. Castro II turned his company, Century 21 Atlantic Realty, into the top Century 21 office in New Jersey. But he wanted to build his wealth. So he invested in what he knew: real estate.
"I have found real estate provides rewards without the risk of other types of investments," says Mr. Castro, who currently has a dozen condominium and house projects under construction in New Jersey and Arizona. "Some people think about buying a...house, fixing it up, and dealing with all the headaches of renting. That's not my idea – I want a substantial return. Developing and building provide immediate rewards."
"Some sophisticated Hispanic investors have seen respectable returns in comparison to investments in the stock market," says Marjorie Torres, CEO of Concrete Stories, a New York-based real estate consulting firm. In the current credit market, a $1 million cash investment becomes a $5 million to $10 million leveraged asset. Ms. Torres suggests these strategies, based on the investor's risk-reward goals:
• Land Assemblage: Buying adjacent parcels and creating development rights; risky but can yield 40 percent returns or better.
• Development: Building properties and selling units can deliver more than 25 percent returns.
• Repositioning: Re-branding semi-vacant buildings and getting new tenants (15-plus percent returns).
• Management: Leasing space yields about 7 percent returns or better.
Middle Class Up
The U.S. Hispanic economy boasts some big developers, including two of the top 10 companies on the Hispanic Business 500®. The largest company on the directory, The Related Group of Florida, reported 2004 revenues of $2 billion.
But most Hispanic real estate investors start off as middle-class homeowners who buy a rental property. Frances Martinez Myers, chair of the 14,000-member National Association of Hispanic Real Estate Professionals, says Hispanics who purchase investment properties already own a home. "They've figured out it's a good...way to build wealth," she says. "When they do it, my sense is they do it with commercial real estate, as part of buying a business, or they do multifamily [multiple-unit properties]. From our membership, my guess is that Hispanics in the real estate business are likely to do that as well."
Adrian A. Arriaga Sr., a certified commercial investment member and owner of AAA Real Estate and Investments in McAllen, Texas, says four-plexes are the investment of choice among Hispanic yuppies along the border. They live in one unit, sell or rent the others, and manage the property.
The decision to purchase a home is often the impetus behind the decision to invest bigger, says Mr. Arriaga. The buyer begins searching for single-family homes, then duplexes or four-plexes to invest in. "Once you find an opportunity to buy," he says, "and you figure you can use it as rental property, you're able to create wealth."
Mr. Castro confirms that among his New Jersey clientele, "probably 99 out of 100 Hispanic families want to buy a multi-family dwelling." By law, a building with two to four units is "residential," while five units or larger is a "commercial property," so to keep it simple most Hispanic investors prefer to buy a four-plex.
Commercial & Second Homes in Florida
Steven Moreira, owner and president of Magic Financial and Magic Property and Investment in Orlando, Florida, believes Hispanic investors in his state are more sophisticated, more diverse, and wealthier than they are in other parts of the United States.
"In Florida we have a broad spectrum of customers," he says. "They have a full understanding of investing in real estate and have looked at it compared with other investments such as gold or stocks."
In Orlando's large Puerto Rican community, for example, investors tend to move from residential to small business purchases, Mr. Moreira says. He defined a small business as one costing between $500,000 and $3 million. This fits with Ms. Martinez Myers's observation that Hispanics who are entrepreneurial often start a business and then buy the building where their business is located.
Miami is different from the rest of Florida, Mr. Moreira adds. "There's a lot more emphasis on the condo and second-home type market," he explains. In this market, those investing more than $1 million in real estate tend to be high-net-worth investors diversifying portfolios and securing a hedge against inflation.
Entrepreneurs in the Bay Area
Ty Leon-Guerrero, a broker and investor in Fairfield, California – a San Francisco Bay Area "bedroom" community – says in his market, entry-level Hispanic investors tend to buy median-priced properties in areas with plenty of rentals, which will rent and sell faster than higher-price-point properties.
"What I've noticed is that [small investors] typically have lots of resources when it comes to the area of housing," says Mr. Leon-Guerrero, owner of Team1Realty.com and SuCasaSuCasa.com. Entrepreneurs in building-related businesses can improve value faster and at a lower cost.
A Better Return Than Most
Ms. Torres advises would-be real estate moguls to begin by learning the market. For commercial real estate, she suggests investing in publicly traded REITs (real estate investment trusts) that specialize in a region or type of property, such as warehouse, retail, or office buildings.
Although housing price appreciation has slowed, real estate still offers plenty of opportunity. "It seems that the commercial real estate market in the United States is going to continue to grow in the next four years," Ms. Torres states. In the residential market, the National Association of Realtors predicts average home prices will rise 5.2 percent in 2006.
Mr. Castro hopes to build apartment complexes with hundreds of units while limiting his exposure to risk. "I'm planning on being part of redevelopment projects in cities;" he says. "But you should not over-leverage yourself. That's the downfall of self-created developers."
Scott Williams and Joel Russell contributed to this story.
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