- Joined
- Apr 1, 2013
- Messages
- 17
Here are a few things to think about and properties to avoid when you are ready to invest your hard-earned cash equity capital.
1. Anything that doesn`t generate rental income
These include second homes and land investments. Too many people invest
in properties hoping that they will go up in value. But there is an
opportunity cost to having money sit in real estate that doesn`t pay any
income. Even if the property goes up in value, you`ve got to reconcile
and account for all the money you would have earned if your money had
instead been in the bank or in stocks and/or bonds.
2. Anything with negative cash flows
If you buy a `prize property` ` such as a fancy downtown fancy condo,
beach property or vacation rental ` it`s probably going to be 20+ years
before you get your first dime of positive cash flow. And that`s just no
way to invest your hard-earned money. Pencil out any potential deal
ahead of time, and buy properties that pay cash flow from day one ` the
moderately priced properties in non-prize areas.
3. Tenant-in-common (TIC) investments
These were popular from 2005 to 2007 as a way to diversify a portfolio
without having to deal with the hassle of owning and managing real
estate. But few people ever earned a dime because of all the costs and
fees associated with the agreements.
4. Development deals
Development of land is extremely high risk. There are entitlement,
construction and market pricing risks, plus countless others. These
investments are best left to the extremely wealthy and experienced
investors who can take the chance that they`ll never see their money
again.
5. Condo-hotels, intervals & time-shares
These aren`t even investments. There`s no ability to predict cash flows,
rental income or future value/sales prices. And they are very hard to
resell and typically only at a fraction of the original cost.
6. Foreign real estate
You might be OK buying real estate in Canada or Britain ` however don`t
forget about the foreign currency risk ` but foreign countries generally
have different real estate laws, protections and fluctuating
currencies, making these properties extremely high risk.
1. Anything that doesn`t generate rental income
These include second homes and land investments. Too many people invest
in properties hoping that they will go up in value. But there is an
opportunity cost to having money sit in real estate that doesn`t pay any
income. Even if the property goes up in value, you`ve got to reconcile
and account for all the money you would have earned if your money had
instead been in the bank or in stocks and/or bonds.
2. Anything with negative cash flows
If you buy a `prize property` ` such as a fancy downtown fancy condo,
beach property or vacation rental ` it`s probably going to be 20+ years
before you get your first dime of positive cash flow. And that`s just no
way to invest your hard-earned money. Pencil out any potential deal
ahead of time, and buy properties that pay cash flow from day one ` the
moderately priced properties in non-prize areas.
3. Tenant-in-common (TIC) investments
These were popular from 2005 to 2007 as a way to diversify a portfolio
without having to deal with the hassle of owning and managing real
estate. But few people ever earned a dime because of all the costs and
fees associated with the agreements.
4. Development deals
Development of land is extremely high risk. There are entitlement,
construction and market pricing risks, plus countless others. These
investments are best left to the extremely wealthy and experienced
investors who can take the chance that they`ll never see their money
again.
5. Condo-hotels, intervals & time-shares
These aren`t even investments. There`s no ability to predict cash flows,
rental income or future value/sales prices. And they are very hard to
resell and typically only at a fraction of the original cost.
6. Foreign real estate
You might be OK buying real estate in Canada or Britain ` however don`t
forget about the foreign currency risk ` but foreign countries generally
have different real estate laws, protections and fluctuating
currencies, making these properties extremely high risk.