High-risk real estate speculating and investing is like walking a tightrope. It’s not for everyone. If you are a risk-averse person and investor, here are some guidelines to keep you on a more conservative path:
- Avoid highly volatile real estate. Don’t be lured into recession-prone properties such as hotels, senior housing, and oil/gas properties.
- Don’t take on too much debt. It’s tempting to borrow against real estate holdings and frequently done to minimize equity investment while loading up properties. But while there are benefits to leverage, there is also risk from leverage.
- Diversify. instead of one large commercial property, why not 12 different smaller properties. While diversification does not guarantee profits or protection against losses, it’s just as prudent to diversify real estate portfolios as it is to diversify stock portfolios.
- Invest with like-minded risk-takers. By pooling resources and talent, you can expand your investment capability while minimizing risk. Look for investors with similar goals and appetites for risk. It’s not mutually exclusive to be a private equity real estate investor and a co-investor.
To be sure, all investments carry risk, be they stocks, bonds or hard assets like real estate. It’s important for you to determine just how much risk you can tolerate based on your finances and personality.
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Key Takeaway
You don't have to choose between your financial goals. Start by taking advantage of available employer benefits, then balance your remaining savings between short-term priorities and long-term financial growth. Keep money needed in the near term in an appropriate low-risk option, and consider the tax implications before using long-term savings.
