When deciding on entering the world of property investment, you’ll need to tailor your investments to your individual personality and situation in life. And in so doing, you’ll need to factor in which type of investments make sense for you and your personality. They basically fall into the categories of hands-on or hands-off models of property investing.
Hands – on models:
Residential speculative property investing
With this model, you’ll be acquiring a house with the express purpose of fixing up (be it a small cosmetic job or wholesale rehab gutting renovation job – with or without/additions). You’ll then be placing the house on the market for sale and market it until it sells. You’ll then move on to your next project (or, you can do more than one project at a time).
As an example, I have done rental property investing, and did not feel well-suited for the interactions with tenants – or even property managers. I like to be creative, and I like seeing a project through from start to finish. I also enjoy change. So investing in single family homes was more my style. I also like wearing all the hats – from general contractor to finance person, and everything in between : salesperson, locator, negotiator, designer, and even pseudo-architect (it’s amazing how a few years of high school mechanical drafting can give you an eye for basic architectural design – and changes that can be accomplished inexpensively).
Residential rental property acquisition and management
Others may enjoy building a mini-real estate empire. Acquiring a rental property, then another, and another at specific time intervals. Over time, you can build up a nice cash flow nest egg…This investment strategy model will require the most patience and fortitude – since you’ll certainly be investing for the long haul here (over a period of many years). You’ll need to be comfortable with holding onto illiquid assets for a long period of time, as well as be exceedingly comfortable with handling debt.
Since it’s the leverage of mortgage financing of multiple properties for a long time interval that will be helping to provide you with income streams over this long haul, you must be able to feel right at home with a heavy debt load. In fact, the greater the debt load, the greater the potential for leverage, and thus higher financial gains. Someone who was not used to handling personal debt in a regular, business-like manner would obviously not be a good candidate for this particular investment model.
Commercial rental property investing
Like residential rental property, many of the same issues apply in this model. The key difference here, of course, is the types of tenants you’ll be dealing with. Overall, there is more stability in commercial renting, be it retail, office or manufacturing building, relative to residential building tenants. However, initial acquisition costs are usually much greater than residential properties.
Treat real estate investing as a bystander, and let the pros do the heavy lifting for you.
Of course, if you’re more comfortable with letting professional real estate managers handle your investments, and you’re OK with not having any say in the operations of those investments, then this model is for you. Like stock investing, you’ll simply be purchasing shares (usually in Real Estate Investment Trusts), and the REIT management team will make all the acquisition, management and selling decisions on their portfolio of properties, be they commercial and/or residential real estate.
This model is great for anyone that is shy about the illiquid nature of real estate investing. By investing in shares of REIT’s, you can buy and sell the shares at any time, just like shares of stocks or commodities. So if liquidity is imperative to you, this model makes the most sense.
Whatever model you decide upon, make sure it fits with your honest assessment of your comfort levels. You should take into account the vagaries inherent in each distinct model, as well as how well they mesh to your personality.
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