CAN YOU LOSE MONEY IN REAL ESTATE INVESTING?
This is an interesting question which comes from investors who have had bad experiences in other investments such as commodities or stocks. The question alone suggests they may have lost some money and are now concerned as they look for the next investment vehicle.
To be direct, you can lose money in virtually any investment. If investments all guaranteed profits everyone would be doing it and therefore the profits would not exist.
I believe a better way to look at this is “which investments offer the least risk”
Reducing risk is the key to securing a safe and profitable return to your investment. So it would make sense that to reduce the risk, you want an investment that allows you the most amount of control over the success of the investment. The answer of course may be subjective, so instead of me or anyone else telling you which ones offer the most controls, let’s look at a few investment vehicles so you can determine which may be best suited for you and you can make the determination.
Buying gold and silver, etc. is trendy. Indeed they can go up in big swings and make you a fortune. The values may also stand still or they may fall. Of course a prudent investor would want to do his or her diligence to look at the likelihood of the commodity increasing, but what can you as an investor really do to control it? Other than investing at a time where the likelihood of increases are most plausible, you find yourself purely in a speculative investment with no controls over the outcome of the investment.
Very similar to investing in commodities. You hedge your bets based on companies that are poised for growth. There are many outside influences that happen extremely quickly that will influence the growth, stagnation or fall in values. You do have some stop loss control to prevent you from losing more than you are comfortable gambling away, but at the end of the day, the valuation comes from many outside sources over which you have no control.
Many find mutual funds to be a little safer as your investment dollar is spread out over a number of investments. While one of the companies that your investment dollar is invested in may fall, you may have another company where your investment dollar made money. As your dollar is spread out, your risks as a whole are reduced and along with lower risk comes lower returns. Many find this lower risk to be comfortable, but at the end of the day you have to ask yourself, did you really have any controls or were you at the mercy of the markets.
What all these investments have in common is you tend to have to rely on a number of outside sources to do the investing for you on your behalf and then rely on the outside influences of the buying and spending habits of the masses to advance your investment vehicle forward.
Typically when real estate investing is done correctly, you can “hand pick” the property in which you want to invest in. you can rely on your own diligence or do fact checks to insure the property you buy is in the most advantageous emerging markets and that the property itself is a great property,
Then you buy the investment for the best possible price in today’s market. You can run the numbers on the purchase to make sure they make sense to you. You can pre-determine the demand for future sale of the investment by checking the population growth, job growth and cities economic plan to attract new jobs to the area.
All these things put controls into your own hands. You can pre-establish an exit strategy based on this information. Once you own the property (the investment) you have further controls over the investment by making adjustments to accommodate market changes. Changing rental rates and increasing values by making small improvements can create huge ROI through property value increases and rental increases.
You ultimately win one more time by having strategic exit strategies in place to sell your property to a top paying retail buyer because you were savvy enough to buy the most sought after home (the 3 bed 2 bath 2 car garage home) as an example. Unlike other investments, real estate investing allows you to play an active role in the purchase and making ongoing financial decisions which gives you lots more control.
More predictable market swings
You can also monitor the real estate markets and make strategic moves to sell at the top of the market. Selling real estate investments is indeed a slower sale than the instant sale available with other investments, however the market swings are also more predictable and do not change in such a quick and abrupt way, giving you ample time to do so.
Manage the portfolio
The key to investing in real estate is to manage the portfolio. Implementing the major financial decisions while letting experienced property managers do the day-to-day activity so you are not taking calls for pesky details like toilet repairs. You can have a passive investment and still maintain controls over the financial outcome.
You decide which is best for you knowing all investments have risk factors. I believe to overcome the risk, you need to invest in the products you feel you have the most controls over as no one cares more about your money than you do!