In general, you probably want to earn wealth on real estate based on the risk you are taking while minimizing the amount of time you need to spend attending the property. In order to accomplish this, you need to make some smart choices upfront when buying investment property. Your goal should be to strive to get as close as possible on as many of these optimal scenarios as possible:
When you buy property you are taking money out of your liquid financial assets – stocks, bonds, CDs – and investing it into a very illiquid asset – real estate. You were earning a rate of return on your financial assets, such as 4 percent or 6 percent, and you should strive to earn a fair cash-on-cash rate of return on your real estate. To do this, you need to pro forma your deals and buy cash flow-positive properties that earn you decent returns – not those prize properties that are negative, negative, negative. For more guidance on this, see Smart Investing – A Tale of Two Townhomes.
All real estate is an extremely high risk. Development of real estate, land, Tenant-In-Common (TIC) investments, private real estate funds, fixer uppers, etc., all have much higher risk profiles than just simply buying a nice established cash flow investment property. In many of those investments, you will never see a dime of your money again because there are just so many things that can go wrong! So if you want to own real estate, consider simply taking fee simple title in your own name – or an entity you wholly own – to the properties you purchase. In addition, you must do the proper due diligence, analyze, test, review reports, etc., to make a lower risk real estate decision.
Some properties just require way too much time and management to make them smart investments. Examples include vacation rentals, low-quality properties in bad areas, college rentals, etc. Nice boring properties rented for as long as possible to decent credit profile tenants seem to take the least time to manage. In addition, treating your tenants fairly and with respect goes a long way towards keeping good relations with them, and reducing your hassles when there is an issue you need to address. And believe me — there will be issues!
It’s the nice, boring, wholly owned, in good shape, cash flow-positive properties that are the best investments. And MLS Deal Finder can help you with that!
You need to do some hard work, research, read up, and make smart, educated decisions to acquire the best real estate investments!