I recently had a conversation that started like this…
My friend and I, want to go out and purchase a rental property, or is it safer,” This is the keyword safer, “To purchase an apartment block with many investors, and have a management team?” The truth is, real estate, by no means, is safe. It’s a business, and you have to know how to run a business.
If you know how to run a business, real estate can be perfect for you. If you’re not of the business mind, if you’re somebody who is looking for safer, this might be a tough thing for you. That’s the word, here, they’re using, is safer. Here’s the pros and cons. With a small house, you can afford to pay for your problems. What’s good about that … My very first deal I ever did was a small, two bed, one bath house. I had tenants go into that house, and smash it up. It cost 6 grand. I had to get out my wallet, and my credit card, and pay 6 grand and get it fixed up. It wasn’t that bad.
Had that been a hundred times bigger, let’s say, a hundred unit apartment block, and if I had a similar thing happening, the same size, or the same scale, I would’ve been in the hole 600 grand. Can you just pull out your credit card, and pay 600 grand? No. At the end of the day, the safer option is probably the house, because, worse case scenario, you can roll up your sleeves, and you can go fix it, and you can get some experience. You can pay for your problems on your credit card, or with your job. If you get an apartment block, and you have a huge catastrophe that happens to that apartment block, you can go bankrupt, or even worse. Maybe, personal bankruptcy, which could totally happen.
For anyone asking me this question, my guess, is you should probably go with the small house to start. After you do some small houses, and if you like it, if you like managing small houses, you can move up to an apartment block, but I don’t think that this is a question of safer. Real estate is not a place where you put your money to be safe. It’s a place where you put your money for growth. If you look at a financial adviser’s list of investments, real estate is usually not on the safe list.
It’s usually on the more volatile risk, which means you can make more money, which is good, but, at the same time, if you’re using the word safer, I think you want to stick with the smaller deal, because you can try this out and figure out if you like it. If you like it, keep going. You can go to the bigger stuff later. If you don’t like it, you can get out. Wash your hands of it. You’re finish
I’m Stefan Aarnio. Respect the grind. If you have a question about investing in real estate, feel free to post that question in the comments below. As always, share this blog post if you got value out of it.