3 People,2 Years, 1 Question
Back in 2011, three of us were sitting around the table ready to jump into the real estate investment arena together. Some of us already had some experience in the field, but we wanted to join forces and get something done together.
What’s the best Real Estate investment vehicle?
For us, the “best” would mean:
- Low Risk
- High Return
- Passive
But what does “low” mean? And what are “high” returns? We wanted to be able to quantify it and compare it. So we took a step back and decided to start an endeavor to scientifically gather as much data as possible on all the real estate investment approaches out there, compare them, and let the data tell us which one was the best for us.
We settled on Mobile Home Parks. For you, it might be something different, or maybe you’ll like Mobile Home Parks just as much as we did. Either way you might benefit from a detailed analysis of all the options out there. Here’s the process we followed.
Find what’s best for YOU
There’s no way of knowing ahead of time what will work best for you without doing proper due diligence and research. To make your life a little simpler, here’s a short list of options that might help you in your quest.
Do you want active or passive?
A passive investment is one that you don’t have to do a whole lot for. For example, if you buy a piece of land, and plan to hold it hoping it will go up in value, it’s your ultimate passive investment.
If, instead, you plan on building apartments on it, and become a landlord, and manage the tenants, it can become active (if you manage it yourself) or semi-passive (if you hand it to somebody else).
What do you like?
Do you prefer to have ownership of the physical assets, or you just like knowing that your money is stored in a vehicle backed by real estate?
REITS are common passive options of real estate ownership. Many people chose them, but we didn’t like the returns or the fact that we had no control over the assets themselves.
Home “flipping” is another popular approach if you like to be handy and get your hands into your own assets. For us, one of the reasons it didn’t work is because we wanted a larger scale approach.
How long do you want to hold it?
If you are flipping homes, for example, you are going to hold the asset only long enough to get it to appreciate, and then sell it. On the other side, if you are renting homes, you are looking to hold the asset for a long time, and your profit will come from a combination of the long term appreciation and the rental income.
Do your research!
The questions above are just a short sample of what you should be able to analyze before you jump into the market. Gather data. The internet is your friend. Go to seminars, visit the markets. Talk to people in the industry.
For us, it was a two year effort. We spent thousands of dollars in travel across the country, visited several states, took on line and in-person classes, analyzed hundreds of scenarios both real and simulated through software tools.
If you can do it yourself, it will help you and educate you. For us it was easy because we have business, scientific and technical background that allowed us to do a scientific research. If you don’t have access to all those resources, to the best you can to KNOW what you are getting into.
