Most people realize that they need to have investments to create future security for themselves. (The rest will realize it eventually). Some people know that investments can be used to create income now, as well as later. We agree completely with both strategies. We want everyone to invest responsibly, though. This breaks down into a couple of main points:
- We think that everyone should always have a safety cushion, financially speaking. If you have a certain amount of money available, it probably isn’t wise to invest ALL of it. Each person needs to figure out how much money they should keep “available” and only invest money above and beyond that number. For instance, if you have $100,000 available, you should probably keep some of it.. $20,000… $40,000… $60,000.. available in the event that something happens in your life that will cause you to need this money. If you are a “W2 wage earner” (aka a working person) and you lost your job tomorrow, would you have enough to live comfortably until you found replacement employment? Everyone needs to think about these things and decide how much they have available. Different financial experts will tell you to keep 3 months of living expenses, 6 months, 9 months, etc. You will have to decide what works for you.
- We are strong fans of diversification. Diversification is easily explained by a very simple saying that everyone has heard: “Don’t put all of your eggs in one basket.” Diversify! The same thing goes for investing. It’s best to not have all of your money invested in one thing. Let’s take the above example. Let’s say that you’ve decided to keep $20,000 in reserve in the event of a problem. That leaves you with $80,000 to invest. While SEC regulations say we can’t talk about any estimated returns here on our website, let’s randomly say that you have a couple of different opportunities for investing. One of them is, in theory, expected to return 15%. The other is expected to return 10%, but has less risk. Where do you put the $80,000? You could put all if it in the 15%, or all of it in the 10%, or split it at some ratio. (Risk tolerance is an entirely different topic that we’ll discuss in another post). Diversification says you’d be better of putting part of it each of the investment opportunities. That way, even if one has problems, the other hopefully won’t, and overall you’ll be ok. Among the different types of real estate in which we could invest, we practice the diversification that we preach by investing in multifamily properties. One big advantage of them is that you have many housing units per property (“Diversification” of tenants). Even if one unit has problems, the others help negate the effect of the problem unit. We haven’t even talked about diversification across different investment types. You could invest in real estate, precious metals, the stock market, and a ton of other options. Do you think it would be wise to put all of your money into one type of investment? You could split it up across a couple of different investment types, which would hopefully increase your chances of weathering any downturns in a specific market type. We’ll say it again: We are strong fans of diversification. In fact, you’ll also notice it after you fill out the Accredited Investor Form and we subsequently discuss your goals. We’ll ask you, “How much are looking to diversify into real estate?”. Not simply, “How much do you want to invest?”
Are these points good for us, as investment managers? Well, if “getting money” was all we cared about, we would definitely not mention these considerations. But we like to treat others the way we would want to be treated, and it is important for everyone to make decisions that work best for them! We think that, after you learn the facts, that investing in real estate can be a great component to your overall investment plan.