Are you thinking about investing in real estate in 2020? If so, you’re making a smart choice. Thanks to historically low mortgage interest rates and stock market volatility, now is a great time for every investor to move from investing in the stock market to the real estate market.
By investing in real estate like residential and commercial rental properties, you can expect predictable income and stable portolio growth that will last even during these trying economic times.
How to Not Lose Money in Real Estate
Moderate, Long-Term Leverage
Putting high leverage on a deal is the fastest way to lose your money. In a situation where market values are impaired and you have an otherwise appealing asset, your main risk will come when refinancing the loan.
If you start at an 80 percent LTV, it doesn’t take much in the way of rent declines or cap rate increases to put you in a position where you’ll soon be giving the keys to the bank. Resist the urge to use short-term debt at high leverage points.
Avoid Bad Real Estate Deals
A widow-maker is a real estate deal where there is a component of the deal that can completely wipe you out. An example here would be a high-cap rate, retail net lease deal. It may provide great cash flow for a few years, but if you lose the tenant, the likelihood that you can replace the rents, especially without paying through the nose for tenant improvement (TI), is very low.
This kind of deal can wipe you out. You’re counting on one event—a lease renewal—to make or break the investment.
Investing in high-quality residential or commercial real estate locations with a bright future is even more important than usual right now. Any buildings that feel an out sized negative impact will be the marginal ones.
A well-located apartment building near employment centers, transportation networks, and entertainment options will likely suffer far less than their less optimal competitors.
Source – Bigger Pockets
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