In order to determine which type of investment is right for you, you want to decide how long you want to be invested and how much risk you feel comfortable taking.
Before you decide to invest in real estate or any other asset class (stocks, bonds, etc.) you need to be comfortable with the investment time horizon. While stocks can be very liquid, real estate is a more illiquid investment. While some real estate investments could be as short as a few months, others could last from 5-10 years or longer. The shortest investments are typically called “flips” while a longer term investment strategy is “buy-and-hold.”
Similar to being comfortable with the investment time horizon for an investment, you need to understand and be comfortable with the risks of the investment. First and foremost, no investment is ever guaranteed – be it in the real estate markets, the bond markets, the stock market, or any other crowd funding market. Most often, the riskier an investment, the higher the annual return, as the investor should be compensated for taking on increased risk.
Some risks that can occur in real estate are vacancies – not enough tenants to fill all the space in the property - unexpected maintenance - such as the need for a new roof or new plumbing, - or a decline in property values – similar to what happened in the Great Recession.
...Stay tuned for "Which Investment is Right for Me, Part II"...