Real estate investing: Are you convinced?

by Kristina on September 16, 2013 · 4 comments

Good morning Dinks.  As a financial planner I am always looking for the perfect investment strategy.  I don’t try to time the market, I try to find the perfect balance between different investment classes that include both fixed income and equity.

I am what you would call a balanced investor.  I don’t like to take too much risk in any of my investment portfolios because the thought of losing money is just more stress than I can handle.  I know that we can’t have big rewards without taking big risks, but I’m not looking for a big reward.  I am just looking for a little bit of constant growth over time with less than average fluctuations in the value of my investments during market downturns.

Is real estate your go-to-investment?

I personally don’t invest in real estate directly; however I do invest in real estate indirectly through income mutual funds.  I know that a lot of our Dinks friends do invest in real estate through their own homes as well as with income properties.

Real estate is just too risky of an investment for me – there is the risk that you won’t be able to rent out the apartment.  Even if you don’t rent out the apartment the mortgage payment is still due and that’s scary.

I have clients who not only invest in local real estate; they also own condos or homes in other countries.  Investing in foreign real estate is way too risky for me, but I’m sure it’s nice to have a condo in Spain on the Mediterranean to visit any time you want. Maybe if I researched the housing markets – both foreign and domestic –my fears would go away. But I would rather just stick to what I know.

How can you make money in real estate investing?

Flippers. The first type of real estate investors are flippers.  These people buy houses cheap, renovate them quickly and flip them to sell at a profit.  The downside of being a flipper is that renovations can be expensive. Also, the entire time you are renovating you must make mortgage payments and utility payments…that can be very expensive.  Then there is the question, but what if you don’t sell the house right away? Well you still need to make mortgage payments every month just the same.

Income properties.  This maybe the most common form of real estate investing, at least it’s the one that I see the most at the bank.  Income property investors buy properties with multiple units such as a triplex or an apartment building, in some cases investors buy a single family home or a condo and rent it out.  This provides a monthly income from the rent, but even if the units are rented out…the mortgage payments are still due each month.

Investing in commercial real estate.  Commercial real estate investors put their money into large developments such as shopping centers, gated communities, new neighborhoods and office buildings.  Some people say that commercial real estate investing is less risky than investing in housing – but I’m not so sure.  One thing that I do know is that investing in commercial real estate is a lot more expensive.

 Photo by imagesofmoney



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