Larry Arth blog
Investing in real estate has become a very popular investment vehicle over the past five decades – and especially over the past five years, as the markets have rebounded.
I write a number of blog posts about investing.
I attend a lot of real estate forums and events.
I find all too often people continue to study about investing but never actually make an investment.
When I ask the hard question, “Why are you not investing?” I hear two common replies:
- “I do not have enough money.” This one I can understand. It will cause a delay and really lend itself to the second reason people identify that they fail to invest:
- “I do not have the time.” Often they already have a full- time job, or they work 60 to 70 hours a week.
3 quick ways to identify a good real estate deal: Is it just another job or a good investment?
3 ways to identify a good real estate investment deal.
1. Is it a low-risk, low-speculation investment?
Investments that are already a performing asset on the day of closing will give you immediate returns. Examples include investing in notes or turnkey rental real estate.
They reduce risk and time commitment. As you add speculative factors such as house flipping or wholesale investing, those will add a time commitment.
They are more speculative in nature and add to the risk level. Low risk and speculation equate to low time commitment.
2. Good cash flow with good cash-on-cash returns
Investing in real estate is considered a great alternative to investing in savings or stocks. The tradeoff, of course, is lower liquidity. With real estate it takes longer to liquidate the asset, so you want to make sure you have nice fluid returns coming to you in the form of consistent and sustainable cash flow.
This cash flow should generate enough to provide you with good overall cash-on-cash return.
For example, on a $100,000 property in which you invested $20,000 as a down payment, you should generate a stronger return than the $20,000 would generate elsewhere. The future appreciation and tax benefits will be added bonuses. Coinciding with the first low-risk identifier, the less speculation to the investment the better. You want to make sure you have true and solid pro formas to ensure safety and sustainability.
3. Low management requirements
Long-term rentals with long-term leases require less management, which requires less time commitment. Lower-quality properties in bad areas or perhaps things like vacation rentals are time magnets and add to the speculation factor of whether you will be able to find and keep the unit occupied. Tenant turnover is the largest expense and time magnet within investing, so look for long-term rentals to keep your time requirements low.
There is no question that there are numerous real estate investment opportunities.
Some require more time and more work, and more work may translate into higher overall reward. The added work, when done correctly, can pay you for your added time. The true investment part comes from your money working for you.
Time is the culprit preventing people from investing
There are sources and angel investors that can allow you to invest without having a great deal of money, but the due diligence required to find them, vet them and then vet the properties takes time.
Then you have to find tenants and fill the vacancy, which also takes time. So in my never-ending pursuit to help people with investments, I find that the underlying problem to solve is time. People already have a job and do not have time for another one.
So how does a person who wants to invest in a hard asset like real estate do it? The knowledge that real estate has created more wealth in America than any other single investment has made you eager, but time has stopped you dead in your tracks.
A true investment is letting money work for you. Nothing can work harder or more efficiently than money itself.
It’s the nice, boring, wholly owned, in good shape, cash-flow-positive properties that are the best investments. They are out there for your picking, but it’s not as simple as finding a property on the MLS and buying it.
You need to do some hard work, research, read up and make smart, educated decisions to acquire the best real estate investments!
Visit Larry’s site here.
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