Match the Investment Approach with your Appetite for Risk

Real estate investing is considered one of the best methods for building wealth by millionaires around the world. It can be very high on reward, but also includes a factor of risk. It comes in many forms, and you need to choose the one which fits your finances, interests, and acceptable risk levels. Here are a few of the most common forms of real estate investing.

1. Commercial - Owning properties which you lease or rent to other businesses can often be one of the more secure forms of real estate investing. You will need deep pockets to get started, since most commercial properties carry a sizable price tag. Once you fill a property with tenants your turn over is normally very low. Businesses are hesitant to move. They want their clients to be able to find them, and to establish a level of permanency. Your risk increases with a downturn in the economy, when you may lose businesses, and have a difficult time replacing the tenants.

2. House Flipping - This high reward, high risk form of real estate investing has become very popular, and competitive. In this form of investing, you need to find below market value properties, which can be repaired, renovated, and sold for a substantial profit at normal market prices. In a booming housing market you have high potential for profits. In a decreasing market, you need to take extra caution to buy wisely, budget tightly, and sell quickly.

3. Residential Rental Properties - There are always people needing places to live who cannot afford, or do not qualify for a home loan. While residential rental properties do not carry the glitz and glamor of some other methods of investing, it is one of the safest and surest ways to increase your wealth over time. You need to carefully figure all your costs, potential income, and plan for the long term.
4. Rent or Lease to Own Properties - This is similar to rental, but with higher monthly payments from the tenants. Part of the tenants monthly payments is going towards buying the home. These tenants are often more concerned with keeping their properties in top condition, since they are planning to own it in the future. If they move away before completing the purchase, you still own the property, and likely have less repairs to make before the next tenant moves in.

5. Pre-Construction - This is a highly speculative area of real estate investment. You are gambling the city will continue to expand, and your property will be where they come. This can be a very high profit form of real estate investment in the right communities, which are experiencing rapid growth. In a rapid market downturn, or economic changes in the community, these investments can lead to major losses.
Real estate investment is one of the most sound, and reliable ways to increase you wealth. Understanding the risks and making good decisions is the best way to keep your investments increasing in value, and avoiding loss.

Finding the right investment rental property is often a challenge. Even when you find a possible investment property, you must evaluate it carefully and not just jump on the first opportunity, or you may risk possible losses, or low income. Here is a short list of suggestions for finding investment property, and evaluating your purchase.

1. Choose whether you want to search on your own for rental properties, or whether you want to use a broker. Brokers are very likely to know about investment rental property which is going on the market long before a sign goes up, or an advertisement hits the paper. A good broker will also be able to advise you about the market values in the neighborhood, and comparable properties in the area.

2. Just because a property is not listed, does not mean it is not for sale. Call the rental number for the apartment complex, and get the owner's phone number. Call and ask if he is planning to sell the unit. Especially if he is from out of the area, he may be tired of dealing with issues remotely, and is ready to make a deal.
3. Before you even locate your first investment rental property, you should make sure all of your finances and credit are in order. Mortgage companies, banks, and lenders will be thorough in checking your credit before agreeing to the investment in the property. Checking your own credit scores and reports will allow you to fix any problems ahead of time, rather than experiencing a nasty surprise.

4. Whether you are using a broker or not, you need to research the local market. How are house prices in comparison to rent? How much do other apartment units rent for in the area? If house prices are low, you may find your renters are quickly departing to buy homes. If house prices are high, the demand for rentals will stay high. You need to make sure the rent you are planning to charge is comparable to similar properties, and will allow you sufficient profit. Make sure to figure a vacancy rate of 10% or higher into your calculations.

5. Do you want an apartment complex which requires renovations, or one which is up to date and ready for action? While an older apartment complex may appear to save you money, you need to consider the potential costs. What repairs will be needed? How much will renovation cost? Will the renovations allow you to raise rent prices to cover the added cost? Often you will find an older apartment complex in need of repairs can become very expensive, once you factor in all the costs to bring it up to date. Make sure to have an inspection of the property done, by a professional. You want to know about every possible code violation, needed repair, and surprise problems you were not aware of. Only with a thorough inspection can you get a true cost of ownership of for the property.

Just because you are anxious to make an investment, do not run blindly forward. Take the time to evaluate carefully, and buy the perfect property. It may take a little more time and effort, but in the end, your income and happiness will be rewarded greatly.

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