One of the most frequent questions I am asked is, “What area of real estate should I invest in that will have the lowest acquisition cost and pay the highest returns?”
That’s a question I’d love to be able to answer! If I had that crystal ball, I’d spend a lot MORE time making memories with friends and family, volunteering and traveling and a lot LESS time in the office! That’s the real estate investor’s ultimate goal – steady passive income that supports their lifestyle while still growing their net worth.
Don’t get me wrong. I can discuss historic and current CAP rates by product class, current market conditions by market segment, income tax treatment of different asset classes, market factors that may positively or negatively impact a product class, financing alternatives and their impact on acquisition and holding costs, etc. But that is NOT the same as a crystal ball.
A developer builds a new, amenity-packed apartment building right next to yours.
The anchor tenant in your retail center defaults on their lease.
The City builds a new median limiting access to your land site.
Tax laws change that limit your ability to depreciate your asset.
A tornado touches down directly on top of your office building.
In other words, there are no guarantees, regardless of what type of real estate you acquire.
The next question? “Knowing that there are no guarantees, which is the most guaranteed / safest with the highest cash flow?”
That depends on you.
Every investor has different goals, resources, preferences, timelines, fears, objections, and risk tolerances. One asset that works perfectly for one investor will be rejected by another investor because of a perceived higher risk. That investor is willing to get a lower return in exchange for less risk. So, that’s the safest asset class for them.
The other investor is comfortable with more risk, so their focus is on the highest cash flow. You got it! That’s the safest asset class for them!
Every investor is on their own investment journey, and needs a customized investment path.
If it’s time to determine what your first or next “most guaranteed / safest” asset should be, a commercial real estate broker can guide you through the process and determine the “stuff” that really matters to you.