One of the things that needs to be stated with certainty is that there is some risk in investing in real estate or even real estate notes. I recall the statement where someone said “that there are two things are certain in this world: death and taxes”. There is no certainty that your investment will appreciate in value or not lose value whether you are talking about investing in the stock market or real estate or notes.
There are some things, however, that you can reduce the risk when you invest in real estate or real estate notes. Here are a few actions that you can do:
- Diversify- Like the old saying goes, “Don’t put all your eggs in one basket.” Diversify in your real estate investments and real estate note investments. You can do that in several ways. One of the ways that you can do that is by the amount of money you invest in one real estate note or one piece of real estate. For example, I think it better to have ten real estate properties that are worth an average of $100,000 each than one real estate note or real estate property that is worth one million dollars.
- Investment to value, Loan to value- Investment to value in real estate properties or real estate notes is often known as the ITV. Loan to value in real estate properties or real estate notes is known as the LTV. Work to keep your ITV and LTV low in your real estate purchases and your note purchases. If you can be wise in that, you will not only have some equity in the note and real estate, but you will have a “cushion”.
- Due Diligence: Trust but Verify- As I have said before, trust but verify the facts about a real estate property and a real estate note. There are too many times when I made short cuts in my note or real estate purchases and did not verify the facts and it cost me money. It pays great dividends to “measure twice but cut once” as my Uncle used to say.
Best wishes in all your real estate pursuits.- R.L. Wall