Here's something that may shock you – you don't have to risk much at all in real estate.
Seriously. I know that may surprise you given the current state of the economy and the stories you may have heard about people losing millions of dollars in the real estate market, but there doesn't have to be risk in real estate.
Real estate investing shouldn't be like a trip to Las Vegas.
Unfortunately, many investors treated it like that during the rapidly appreciating market just a few years ago and then got stuck when the bubble burst.
That's not investing. That's gambling.
Here's a better way to invest that gives you all the rewards – without the risk!
Consider this: real estate is a calculated investment. We don't roll the dice and hope everything is okay.
If you're buying low- and moderate-income properties as you get started, which is what we preach, you virtually eliminate the risk.
Here's one of my best kept secrets: Don't go into any investment unless you're willing to hold it for 3 to 5 years.
I don't advocate the get-rich quick methods a lot of other gurus seem to teach. I only practice what I preach. I don't go into a deal unless I can expect to earn positive cash flow every month for several years.
Why? Because I'm interested in properties that will produce income right away – and they're NOT dependent on whether market values go up. That's a HUGE risk. And that's not a game we want to play.
That said, if there is a property that you can flip quickly and there's very little risk then of course that's a good deal. But it depends on the circumstances.
For the most part, planning to invest in a property for 3 to 5 years is a sound proven strategy that worked 30 years ago and continues to work for our students today.
For example, in areas like Cape Coral and Ft. Myers, Florida where the population and economy was booming, builders added tens of thousands of luxury homes. They overbuilt and as a result home prices dropped and foreclosures soared. This occurred mostly in the high-end markets – not in low- to middle-income markets because most of them were already built out.
My point is that the low- and moderate-income markets aren't as susceptible to depreciating values which means less risk for you.
I don't think I've ever seen a landlord lower someone's rent because housing prices have dropped. They don't do it because the rental prices rarely go down! They only go up – and that's the business you want to be in, especially when you're first starting out.
Here's the bottom line: When analyzing an investment property such as duplex or triplex, figure out what you can earn in rent and calculate the expenses in advance so you can anticipate your cash flow.
So it doesn't matter what happens with the economy if you follow my proven advice and use this buy-and-hold strategy. You know that if you buy the property at a certain price, you can anticipate your income, your expenses and whether you'll generate positive cash flow.
You won't even care what happens with the economy because you'll still have money coming in. If the market appreciates, great! If not, you're still in great shape.