Risk tolerance for real estate investor
The risk tolerance for real estate investing is different depending on which kind of investor you are. At Cannon Real Estate Carlsbad property management we always advise when buying property as a non owner investor to having the ability to putting a large down payment so you will have cash flow from the get go.
The First time investor
If you are just starting out in the investment area you are probably no willing to take a big risk. The smaller the risk you take the smaller the return. the first time investor generally is more interested in a high demand area like Carlsbad, California for example. The first time investor needs to be patient but if an opportunity pops up then this investor needs to act fast. Possible considerations for the first time investor would be bank owned properties, short sales or HUD properties that just need minor cosmetic work.
The move up investor
This investor is moving out of a primary residence that he is either selling or renting to purchase another investment property to live in fix-up and then convert to a rental property. This investor will get more favorable financing and there will be less risk at first because he is living in the property while he is adding value and preparing to rent the property down the road. This investor has more options available to him including different re-hab financing options like the FHA-20K loan. This investor will also be looking at Bank properties, short sales or HUD properties however this investor may be interested in properties that need more work.
The portfolio Investor
purchases a property every 1 to 3 years and always has his eye out for a good deal. this investor is willing to take a little more risk and also willing to be more work harder to find his property and also looking at different options than the other investors. For example this investor will look more to distress properties including buying at auctions and also for sale by owner opportunities. Buying at auctions comes with higher risk factor and when you buy at court house auction then all cash is also required and you do not have time after the fact to inspect property and cancel.
The performance Investor.
This investor buys at least one new property each year to hold and this investor might be willing to take a little more risk with regard to area and property condition.
The Rehab and Resell investor.
This investor is taking the most risk because he needs to resell property to get return of capital. The best case would be if this investor has a back-up plan that includes renting the property out and converting property to long term investment. This investor needs to purchase property that after all repairs has a 30% equity in the property. This investor many times utilizes hard money loans for the financing plus adds own funds.
Cannon Real Estate Carlsbad property management will work with the investor to understand rental rates, Vacancy rates and holding costs. Cannon Real Estate can also refer contractors to help with your investments. We will also help you understand Cap rate the rate at which an investment earns money.