Thursday, April 17, 2014

High Risk Investments Rarely Pay Off

If you are considering taking the plunge into investing in real estate there are some things you need to know before investing your hard earned money. You already know that there is risk but how do you know that you are making the right choices? Just as importantly, you don’t want to invest in a property that requires too much of your time attending to the property. An investment should be a situation where your money is working for you and not the other way around, right? Here are 3 things to consider if you are ready to enter the exciting world of real estate investing.

You must get a fair return on your money
The first decision you need to make is to determine what return on your money is acceptable to you.  It’s not just a matter of making money but making more money than you would in less risky investments. If you are taking money from other investments to start your venture such as CD’s, stocks, bonds or other sources than there is no sense in risking your money unless the possible return is higher than you are already enjoying. You must first decide the minimal amount of return that is acceptable to you before you can possibly decide if a particular investment is worthy of your time.

High risk investments almost always fail
An all too common mistake for investors is to search for the highest possible return in their investment. Does that sound strange to you? It is natural to want to make as much money as possible from your investments but the simple truth is that the higher the pay off, the higher the risk. Fixer uppers, land development, and Tenant-In-Common properties are examples of very high risk propositions and more often than not they fail. There is just too much that can go wrong. If you can’t afford to lose your money than choosing a simple and established property that already has an existing cash flow may be your best choice. It’s true that the higher the risk the higher the gain but it’s also true that failing at such ventures will bring you higher losses.

Time IS Money
You’ve heard the saying a thousand times and it definitely applies to the world of real estate. If your investment requires too much attention from you just to keep it going than it’s not an investment, it’s a job. Vacation rentals, college rentals and lower income rentals in “questionable” areas are notorious time thieves and if you don’t want to spend most of your time dealing with new tenants and chasing down the rent you will want to avoid these types of properties. As I had mentioned earlier, a nice boring established property in an established area is probably your best bet.

Before making any decision you must always do your research first. Talk to industry professionals and anyone that is actively involved with real estate investments to better understand what type of investment is right for you.

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