Anyone who is considering investing in real estate probably wants to profit from it. The end goal of real estate investing is to make money on each deal, which results in creating wealth. Another goal of real estate investors is to spend as little time as possible tending to the properties in which they invest. Here are some goals to set so you will achieve the optimal end game in real estate investing.
Minimal Risk Investing
While real estate investing provides highly profitable wealth creation, it is exceedingly risky when you don’t understand the types of property investing available to you. For instance, private real estate funds, land, TIC (Tenant-In-Common) investments, fixer-upper houses, and the like come with a higher risk than buying a well-established, cash flow type investment property.
It isn’t uncommon to reap little to no return on your investment with the riskier types of real estate. If you do reap any profits, they are usually too low to account for the time, effort, and money you put into them. There are simply too many things that can go awry with risky property investments. Reduce the risk in property investing by performing due diligence, research, analysis, testing, reviews, and reliable professional property advice.
Fair Cash-on-Cash Return Investing
When you invest in property, you are taking money from your fluid form of financial assets and putting into an extremely illiquid asset; real estate. Fluid forms of assets include a traditional bank account, savings, stocks, CDs, bonds, and such. In the case where you are taking fluid assets that are earning interest (CDs, stocks, bonds, etc.), your goal should be to aim for the fair cash-on-cash return concept.
How can you accomplish this? Pro forma (calculate present and future financial returns) your real estate deals and invest in cash flow positive property for a better ROI (return on investment). Avoid properties that are negative in nature, like high-risk or high-maintenance properties, even if they seem to be “prime”.
Low-Maintenance Property Investing
Sometimes, cheaper property will seem appealing, but be careful of these properties. Beware of fixer-uppers, “needs a little TLC” properties, and real estate that will require a lot of management and a lot of your time. Maintenance companies are expensive. Examples of high-maintenance properties include cheap houses in atrocious areas, vacation rentals, college rentals, and other like real estate.
Stick to basic and boring real estate that requires little of your time, needs less management, and that can be rented for long periods of time to tenants with proper credit profiles. Idyllic tenants don’t require babysitting, but remember to treat them with respect and build a favorable relationship with them. That way, as issues arise (and they will), there will be fewer hassles when addressing them.
Overall, the best real estate investment still remains in the old standbys – boring, totally-owned, in satisfactory condition, cash-flow positive properties. These properties are available to you, but you won’t often find them on MLS listing all the time. You will need to do some foot work, some research, reading, and due diligence to find and accrue the best real estate investments.