You might be wondering, “Is my money guaranteed if I invest in real estate the way that you are describing?”. The simple, honest, and correct answer is: “No”. Investments, in general, are not guaranteed and there is always the chance that you might lose some or all of your money. However, there are quite a few things about passively investing in real estate (and multifamily real estate, in particular) that can relieve a few fears.
- You should make sure that you are investing with a professional company that knows what they are doing. No company has really “done it all”, but you need to do what you can to make sure that the company you choose to invest with has prepared themselves for the investment in question. This, while not a guarantee, helps improve the chances that you will do OK.
- Real Estate has traditionally been a solid investment over time. It certainly can lose value over the short term, but history has shown that it continues to appreciate in value. One of the things that probably helps with that is related to what Will Rogers said about one particular type of real estate: “Land — they ain’t makin’ it anymore.” –Will Rogers.
- The value of multifamily real estate is determined by one thing, and one thing only, and that is how much income the property is making after all of the expenses have been paid. What this means is that your investment isn’t determined by the “sale price of the home down the street”. A good, competent asset manager will do what they can to keep to keep rents up and expenses down. If the property NOI (which stands for Net Operating Income, and basically means: income minus expenses) starts falling it will “start” falling and isn’t likely to go into a wild, crazy spiral down to nothingness.
- Purchasing investment real estate is leveraged. This means that the amount required for the investment is far below the actual price of the property. This helps to limit the total losses. Having said that, the bank requires a down payment, and the down payment money (what is invested) “goes first”, but a responsible investment/asset manager will keep track of the property closely and do what they can to prevent this.
- Fire? Flood? Tornado? That’s what property insurance is for. Bad tenants that like to mess things up? That’s what tenant security deposits are for.
With any investment there are some risks involved and this is certainly one of those investments. There is a possibility that bad things can happen, but any responsible asset/investment manager will do everything they can to prevent it and will keep the investor informed regardless.