Are There Such Things As Safe Real Estate Investments?
As any seasoned real estate investor will tell you there are no such things as a total safe real estate investment, HOWEVER, the risks can easily be minimized. Real estate is a chosen investment by many because the risk is much more controlled and the investment asset is secured by a tangible asset (real estate) or more commonly referenced as property. Properties are in high demand and every person needs a home to live in, so investing in this asset class in and of itself may be considered a reduced risk. It is fairly common knowledge that better than 90% of today’s millionaires made all or part of their fortune by investing in real estate. Those are some pretty encouraging numbers when considering which investment vehicle to choose.
So how do you minimize risk with in real estate investing?
1. Invest in most sustainable markets: yes there are good markets and not so good markets.
As you know real estate is all about location. Investing in emerging markets is the key to safe investing. You want markets where there is income, plenty of job growth, population growth, job diversity, baby boomer appeal, local governments who have 5,10 and even 20 year vision plans in place to grow their labor force.
2. Invest in undervalued markets.
Since you want your investments to be able to grow in value to obtain future equity (this is where wealth is created), you want markets that can sustain that growth. You can do this by investing in markets that are statistically undervalued. To determine this you essentially want to look at the median price of a home for that city and then confirm that you can acquire the medium priced home for 1/3 the annual revenue of the area’s median income.
It is important to work with a qualified Realtor or Lender to find out this information. A standard lender requires your income to be 3 times your annual house payments in order to qualify for a loan. When you invest within markets where the median income is say 4 times the median house payment (costing only 25% of annual income) you have an undervalued market. The homes here are very affordable and the home prices can easily rise for some time before a threat of becoming overpriced.
3. Choose real estate investments within the sweet spot; every city has a sweet spot.
This is the area where homes are priced at or just below the median home price of the city. Any realtor or lender can give you the cities median home price. You want to target homes at this price point. These are homes that will rent and return the highest yield after expenses. They also represent the homes that will have the best exit strategy. These homes have the largest number of retail buyers so you can get the quickest sale for the most optimum returns.
4. Invest within the path of progress.
Which direction is the city growing, where are the new roads going in and the new gas stations and strip malls popping up? This path of progress will represent the safest part of the city to invest in. This is where the jobs are being created and the desire for occupancies will be. The opposite end of the city may actually be temporarily suppressed during this growth.
Real estate investing bull’s eye
You can start to see how being purposeful will allow you to eliminate many of the risky elements of investing. Actually just think of real estate investing like a bull’s-eye. A bull’s eye has a wide circle with a lot of surface, then an inner circle then the bullseye.
Consider each one of these circles (and the size of the surface) as an element of risk. The closer you get to the center, the smaller the surface of risk you have. This is the true definition of real estate being about Location, Location, Location. If you are purposeful and buy with the intention to reduce risk, and by buying in best markets where growth is not just a hope but more of an analytical based assessment, then buying in the best part of the city, the path of progress and the sweet spot, You will have found a great bulls-eye and a great location. Most importantly you reduced your risk.
If you would like to find out the best markets currently for real estate investments with minimized risk that fits many of the criteria in this post, give me a call today and we can talk about which investments would fit your strategy best! +1 941-718-7761