INVESTORS’ CORNER: Don’t Invest in Something You Don’t Understand

There are thousands of brilliant ideas for making money out there, but can you execute all of them? Often the simple, understandable plan, well executed, works the best.

For our own real estate investment plan, my business partner and I love single family houses and small multi-units (duplexes, triplexes, 4-plexes).

Why do we love these simple little residential properties? For at least 5 reasons …

1. Familiarity: We understand these property types because we’ve lived in them.  We’ve been in the shoes of our primary customer, a renter, at some point in our life. This knowledge is powerful as we acquire and market properties.

2. Easy to Rent: Small residential rentals are consistently in demand.  Just compare them to a commercial building.  If I have a rental house in a decent neighborhood stay vacant for longer than 30 days, I know something is wrong.  A commercial building may sit vacant for years without producing any income.

3. Finance-ability:  Government loan programs like FHA and mega-loan institutions like Fannie Mae are focused on single family houses and small multi-families (they don’t loan on anything bigger than 4-plexes). This low-interest, long-term financing is consistently and widely available for these properties.

Even in a tight lending market, we can still find buyers for our single family houses.  This means we can cash-out in a reasonable time for near retail price, which is a hallmark of a safe investment.

4. Availability:  Single family houses in particular are everywhere.  Yes, we have to hunt for deals, but every town has houses.  Wherever people need places to live and have jobs (or something to trade you for rent), you can be in the single family house business.

5. Ease of Management: While we own houses, apartments, and mobile homes, single family houses in median price ranges are the easiest for us to manage.  Tenants are more responsible, more likely to do minor repairs, and in general less transient.  This makes for a more pleasurable and hands off management system.

Does that mean our simple plan is the best for you? Maybe, maybe not. But I would encourage you to find investments that you understand.

Chad Carson is a member of Metrolina REIA (metrolinareia.org), which provides education, networking, and networking for real estate investing in the Charlotte region.  Chad also writes a newsletter about real estate, money, and life at coachcarson.com