Yesterday I started with the why of investing In real estate but now we delve into the what of real estate investments. Beginners in real estate investments who have figured out the why of building wealth now want to have me give me the scope of investments so I will go through the most asked for investments depending on the financial wherewithal of the client.
Long Term investments: Long term investments are primarily based on cash flow with an eye towards appreciation. Normally this is single family homes or maybe a duplex that yields a monthly income that allows for a conservative approach towards holding the investment for 10 years or more. I have numerous investors who have purchased even 20 years ago that still own the same property. When we analyze return on investment in Oklahoma City we normally get double digit cash on cash based on cash flow alone with a 3% typical yearly appreciation.
Multi-Family Investments: In the next few months I will be selling quite a few newly built quadriplexes and town home projects. Fannie Mae allows you to treat up to a quadriplex as one mortgage so with the ten mortgage limit this allows you to create more doors for positive cash flow. Once I work with investors with 4 mortgages or more this becomes a more asked for investment. We do make the quads have individual legal descriptions so they can be sold one at a time. With Multi-Family beyond this we go to commercial loans that are becoming increasingly attractive for multi-million dollar investments.
Fix and Flip: Warning!! Amateurs need not apply. Too many seminars attract desperate people who believe the hype of huge dollar profit with low risk using other people's money. Problem is many of these strategies are unlawful and too often it also involves hard money lenders at 14% to 17% rates with a ton of points, and bad terms for taking the property back. Fix and Flip can be profitable but those who make the money are those who are hands on and full time. They also have the reserves because even the best can lose money on a flip. The risk is higher and few markets today are volatile enough where properties can be bought cheap. I can make paper returns look incredible with 300% yearly returns if all things work perfectly and homes are snapped up quickly. How often does that happen?
Risk and reward: Any time you invest in anything there is a risk-reward ratio. I have made $50,000 on a flip and I have also lost $15,000 on one so risk there is higher. The conservative approach is a long slog towards wealth but with lower risks and for sure it isn't sexy and if i was a promoter I wouldn't be doing seminars on it because it isn't pie on the sky. My goal is to respect people's money that they have saved and I refuse to use the term no brainer. If anyone told me that I need to put money into something and the riches decision is a no brainer I would run like hell from it because it means I am not using my brain. Every what you invest in has risk so please always put that into your calculations. Money in the bank is a terrible thing to waste.