Active investors who have reached the “accredited investor” status are deemed to be a bit more educated as it relates to investments, understands risk and has the assets to soften the blow of a bad pick. That said, any investor has the ability to peruse mutual funds or pick stocks but when investmentsinvesting in real estate is simple such as asset-backed securities or collateralized debt obligations appear on the list of investment possibilities, these and other complex securities can make a lot of heads spin and most individual investors stay away from them, leaving the institutional types to explore such prospects.

The bottom line for investors of all skill levels is to be able to fully understand what is being acquired, the risks involved and what happens if the asset falls to a value of zero. In one of Warren Buffet’s many declarations as it relates to understanding investment options, it’s clear that Buffet followed the very same advice. During the “dot com” boom he stayed on the sidelines. He couldn’t understand why people were investing in anything that had yet to provide a return with no clear path on how to do so. Simply put, Buffet said he didn’t want to get involved in the dot com arena because he didn’t understand it. The people that did understand it and tossed millions upon millions betting on the future then lost it all and more.

Investing in real estate is simple yet provides solid returns and long term appreciation. Identify an undervalued property, determine whether or not the property will cash flow and review past valuations and expectations of future value. There are no confusing terms or structured investments that need explaining. For investors of all levels, the due diligence process is essentially the same regardless of the property’s value and type of real estate involved.