Tuesday, January 3, 2017

My Favorite Investment

Everyone must choose the investment vehicles that make them most comfortable.  Personally, real estate tends to be high on my list.

As such, I occasionally can be found browsing for-sale properties, watching HGTV, and walking through my local big Orange store.  

Factors in favor of real estate investing:
  • It's a tangible asset (e.g. I can see it)
  • Provides a steady source of income which generally increases with inflation (e.g. monthly rental income)
  • Property values *generally* increase over time (e.g. you simultaneously build equity) 
Factors against real estate investing:
  • Requires active involvement (e.g. property maintenance, finding tenants)
  • Ties up significant capital (e.g. often need to put down 25%)
  • Complicates financials (e.g. have to track income and expenses, tax liability)
The factors against may be deal-breakers for some, but there are many work-arounds to make the less ideal pieces better if you are truly interested.  For instance, if you don't want to be actively involved, you can hire a property manager.  

Within real estate, there are a lot of different investment options and strategies:
  • While residential properties are probably less intimidating, commercial properties are also an option
  • Within residential, property types can include single families homes, multi-families and townhouses, and apartments/condos
  • Condition of the properties can range from poor (e.g. needs a gut-remodel) to turn-key
  • In terms of strategy, options include "flipping properties" (e.g renovating and selling for a profit in a short time frame) and renting properties (e.g. keeping rented for multiple years)
  • Rental contracts can take multiple shapes, too... formal leases vs. "at-will" agreements vs. vacation rentals
  • Finally, If you don't want to deal with the hassle of building maintenance, you can also invest in land without any structures (and in fact, "land leases" are some of the most interesting investments I have ever seen)
Obviously, with so many things to think about, it can take quite a while get comfortable with a strategy, a location, a property before jumping in.  Most of my properties took over a year of searching to determine the right combination of location, price, and features before making a decision.  And I will say that LOCATION is always the #1 most important criteria.  

But if you are thinking that real estate might be right for you, I highly suggest starting by looking around you at some properties online, maybe even finding a few open houses, and starting to get a sense of the options in your area, and how much they cost.  It helps to have a sense of a "good deal" well before you get serious at looking.  
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