Real estate investment is, by nature, a risk-laden business which is why those who succeed are often adept at quickly assessing and minimising the risks involved in order to close deals fast and make more money in a shorter time.
I can go on for some time about the theory of risk-management and the basics of minimising risk in real estate investment but I will, instead, cut to the chase and say instead that if you are serious about minimising risk in your real estate investing activities you should focus on multi-family dwellings instead of single-family ones.
The reasoning is pretty straightforward: with a single-family property should the tenant’s personal circumstances change you may well find yourself missing out on a couple of months of income which is enough to wipe out your profit from that property for the year.
The risk of this is spread thin with a multi-family property however where a tenant or two moving out does not affect your monthly income from the building enough to seriously jeopardise your annual profit and that is one of the beauties of investing in multi-family properties.
Couple it to the fact that thanks to popular misconception you are competing with fewer other real estate investors for the choicest properties than if you were active in the single-family home market. This is not to say that you should develop a mindset which specifically looks at multi-family properties to the exclusion of everything else.
On the contrary, flexibility of action and the ability to take advantage of opportunity when it presents itself are hallmarks of our profession. What I mean by developing a mindset though is a plan with very clear criteria which then allows you to understand when and why you deviate from what you want to do. You could, for instance, buy a single-family property and flip it for a quick profit in order to get the cash you need and move onto multi-family dwellings which will give you a constant, growing money stream, long term.
As a real estate investor who has been active in almost every possible front of the market and who has a career that has spanned the better part of a decade, I know from my own experience that unless you have that kind of plan in place then it is next to impossible to know where your next move is going to be which means you end up wasting valuable time and effort making the wrong moves when, instead, you could be calculating the profits which a particularly deal will give you as you get ready to close it.
David Lindahl, also known as the "Apartment King" has been successfully investing in single-family homes and apartments for the 15 last years. He has rehabbed over 820 houses and currently owns over 7,232 apartment units. He is the author of three best selling books. Dave Lindahl is a regular guest speaker at CT REIA. Go here for the current list of upcoming real estate investing seminars in Connecticut.
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