What is the Best Real Estate Investment?

By Mark Hulsey

A couple of months ago, a Facebook post from a residential agent asked a very open-ended question: What is the best real estate investment?

There’s a loaded question if I’ve ever heard one. What I found most curious were the replies given by real estate agents.

Like all Facebook replies, everyone knew their answer was the best answer: single family homes! townhomes! apartment buildings! duplexes!

It was clear each had their own biased answer. Rightly so. It’s what they know. Probably where they found some level of comfort or success. However, that does not make it the “right” answer – except for them.

The Real Pros

A few years ago, Kaplan Professional Schools asked me to develop a continuing education course titled, Today’s Best Commercial Real Estate Investments. The course attracted many of the smartest real estate brokers & investors in the Twin Cities. Each time it was a bit daunting to stand before such an accomplished group for a half day and try to provide some insights on such a hot topic.

Many of the real estate pros coming to my course were looking for the answer to the question: What is today’s best commercial real estate investment? Don’t you think the industrial guy sitting in the back with a mega portfolio was pretty sure industrial buildings were the way to go? Or, the lady who owned 500 apartment units had the answer? What about the happy guy in front with his 9 duplexes all paid off who was living the good life? Maybe he had it figured out – right?

This course taught me a lot and I was the instructor! Thank goodness I went into the course with the right approach. Over 4 hours, I was able to make my point as I laid it all out for them. I shared my brokerage & investing experience with many more practical real-world insights than the simple answer to the question.

What’s Good For You Is Good For Me?

Do you think the husband & wife with 4 single family homes and 2 duplexes in an average neighborhood are a good fit to own a 7 unit retail storefront building in a prime high-end metro location? Or vice versa? How about the owner of 3 hotels who thinks owning some office space is a good idea? Do you think the Net Lease (NNN) investor has much interest in the 4 plex fixer-upper down the block?

One of the key things I’ve learned in business, is the same thing you’ve heard over and over. Stick to what you know. In real estate investing, this is fundamental for many highly successful and accomplished investors. The investors who attended my course made this crystal clear to me. Whether you’re the small investor with a handful of residential properties or an asset manager of a REIT with a portfolio of Class A stand-alone retail buildings – the same principal holds true. Stick to what you know.

Bigger is not always better. It’s another important lesson I learned from teaching the course, as well as from being an investor & broker. It’s crazy to me that so many people still believe that more is always better – that bigger is always better. It’s true that economies of scale can be valid for some real estate investment scenarios. However, I’ve seen some incredibly successful (and happy) real estate investors with very modest portfolios.

Measuring Success

What defines success in real estate investing? If it’s not just about having the largest portfolio or biggest cash flow, then what is it? In my simple opinion, it’s the same as a successful financial plan or family. If it works great for you, then it’s a success. If you’re looking for cash flow and you get it – good for you. If you need depreciation to offset income, fantastic. If it’s all about equity and net worth, then watch it grow. Many just love real estate thanks to leverage and using OPM (other people’s money) to create long-term residual income.

The Answer

You got it figured out by now, right? There is not a “best” real estate investment. Not for residential or commercial. Sure, there are absolutely strategies that work and many that don’t. But to get to the right answer for you, you need to ask the right questions:

• Investment goals: cash flow, appreciation, depreciation, or legacy?
• What is your capital position?
• Diversifying your overall financial portfolio?
• What kind of lifestyle do you live – do you want to be hands-on?
• Young or old – family, kids, or single?
• What do you know and are comfortable with?

It is not about what is the best real estate investment. It’s about what is the best real estate investment for you – for your family. How does real estate investing integrate with your other financial goals in life? Real estate investing is personal. Sure, I know all of the arguments for owning the 20 unit apartment building instead of a bunch of duplexes and four-plexes. Or, a portfolio of NNN assets instead of dealing with tenants, toilets & trash. But if you can’t afford a NNN asset, then tenants, toilets, & trash might be in your future.

Successful real estate investing requires knowing answers to many personal & professional questions. No one should tell you there’s just one road to the pot of gold. Yours may look very different than mine and that’s perfect.

Remember, in real estate investing just like we teach our kids, avoid the really big mistakes and everything should be just fine. Happy Investing!

tags: commercial real estate investing, commercial real estate investment, mn commercial, commercial for sale,  mn commercial agent,  real estate blog, commercial coach, commercial investor, real estate investor, investment real estate, real estate speaker, commercial trainer, real estate investment, real estate investor, mark hulsey

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