What Type Of Property Should I Own?
When I work with a client, I try to match the type of property to the individual investors portfolio and personality.
Personality??? I never want a client to worry about their property or their investment portfolio. Real Estate investment should be exciting as well as profitable. So matching the type of property with an individual is very important. A first time investor should not purchase a fixer property in a marginal area. This type of investor would better be served with a small multi-family or even a single family home in a very good area.
On the other side a general contractor that is very strong financially could handle a fixer-upper multi-family in a marginal area.
There are no bad properties, just properties wrong for different investors.
Rules I Have for My Clients
No one should own commercial property unless they have at least $1,000,000 net worth exclusive of their primary residence. Commercial property is just too risky for most investors, in my opinion.
No one should own only one large property. With your entire investment in a single property, it’s possible to lose it all in an earthquake or fire. Also, you will not be able to refinance easily, and if you need to sell for some reason, all your capital gains are triggered for the tax man.
Owning more than 17 properties sometimes creates borrowing properties in that some lenders have a problem with this many owned properties. Once you get to 10 properties, it’s okay to start looking at combining equities into larger properties.
Owners should always have cash reserves either in the form of cash, or a credit line to handle an unexpected situation. Check out “Horror Stories in Real Estate” for examples.