Risk Management Vs. Return on Investment

[Chris Clothier]

What is more important to you as an investor today when buying a property for long-term buy & hold?

We are finding more and more investors with our company who understand they can get double digit net returns on almost any investment property, even when buying turn-key - they come to us because their real concern is managing risk & preserving capitol.

Hence the question, in today's environment where there are multiple opportunities - what is more important, the chance for higher ROI or Managing the Risk?

Chris

[Jeff S.]

For me the comparison isn't about risk it is about work. Higher return properties will probably require more work with more turnover, repairs and stress.

Higher demand properties with lower returns have less turnover and consequently less stress.

Personally I cannot do anymore work so some other option has to exist for people like me to invest.

Preserving capital isn't a term I'd associate with RE.

[Bryan Hancock]

I am currently erring on the side of managing risk. Leverage cuts both ways and we levered up to grow. Now we are working on shoring up our balance sheet some to set up a new round of growth in the future.

Higher return properties certainly are more volatile and require more work. Your time should be accounted for in both scenarios. My personal investing style going forward will be to identify lower-return properties and projects that are easier to manage. Our wealth has growth a ton in the last several years and chasing the last bit of yield isn't worth as much of my time as it used to be.

[Rob Gillespie]

The risk is low if you know what the heck you are doin! LOL! What is risky for one, is a walk in the park for another. I play nickle slots at a casino, so I am after the sure bet! Controled risk. :mrgreen:

[Rich Weese]

I think the key to your question is in your first sentence- If this is truly for buy and hold, I assume a couple things.
1. You're young.
2. You have time on your side and not looking for the quick $$.
3. You have adaquate annual income and don't need ghetto, higher cash flow properties.

If this is true, I'd have zero interest in the higher risk/time required properties. Go with the better properties. They won't fall down, less maint and much easier mgmt. Rich

[Ali Shah]

I agree with rich,

at the end of the day the trophy properties so call blue chip of real estate will do you better in a long term unlike the quick cash, more demand and time requires for management properties.

[Chris Clothier]

Thanks for the responses - Good stuff so far and it is what i expected form most seasoned investors who like not only making, but also keeping money.

Jeff - Preserving capital wasn't a term I associated with RE either until I started dealing with investors who had A LOT of capital! Their idea of preserving capital meant purchasing hard assets that would pay monthly dividends and they could sell at any future point without risking capital (not having to dump to sell). So many see the market as high risk for their capital and other safer investments as risk because of low returns. They want a balance.

Brian & Rob - You nailed it with the responses of looking for risk management. Winners can be found in every market and attraction to really high returns, but higher risk is a stretch most investors do not have to make today (IMO).

Rich - Great points and what many investors young and old are realizing (i think) is that when investing in real estate, they can use a balanced approach and find quality properties where their investment is safe and the returns are well above other "traditional safe" investments and yet just enough risk to provide a good return.

Ali - I call it shiny object syndrome. Being attracted to high risk high reward is a plan best used by those that have a lot of room for losses. They will usually win big enough to cover. Sticking to lower risk, good return properties is a solid strategy for long-term investing.