Investing in Real Estate: Safe or Risky?

The answer depends on you.

I've seen great deals turn into complete messes and deals with low odds turn into triumphant successes. Investing in real estate can be a tremendous way to build wealth and there are ways to increase your chances for success, but like anything else is there are no guarantees.

Here's a short list of some of the bigger risks (red flags) in the real estate game:

Investing mainly for property gains.

If your investing strategy is primarily based around the market going up it's only a matter of time before you learn what happens when (not if) it goes down.

Basing your strategy around timing the market.

It's impossible to predict where the market will be in 5 months... let alone 5 years. If you try to pick the "perfect time" when to buy or sell you will be disappointed.

Investing in markets where 1 employer or industry reigns supreme.

Plenty of people have made money in markets with one major employer or industry. Many have lost a bundle there too. There's ways to mitigate this risk but it is a major risk regardless.

Now just like there are themes to real estate investments that can end up on the riskier end - there are patterns that successful real estate investors follow too:

Investing in positive cash flow producing real estate.

Land and development plays are great ways to build wealth but come with a whole host of different risks. Generally speaking - the closer the property is to producing positive cash flow, the less risky it may be.

Invest to recoup your initial investment asap.

Investing in cash flow producing properties that you can refinance (and pull out your initial investment) in the near to midterm is one of the most effective ways to compound your wealth.

Surround yourself with excellence.

Show me a deal that fell apart and I'll show you a management team that couldn't hold it together. Newer real estate investors focus on the deal first - seasoned investors focus on the team first.

Marcin Drozdz

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