There is an old saying on Wall Street that anyone who thinks an investment is risk free, or perfect, does not understand it.  The same is true with real estate investing.  While real estate investing is not perfect, it has proven itself against the most demanding test of all, that of time, to be superior for individuals seeking to create wealth.


This is demonstrated by the fact the real estate investing has produced about 90% of the world's millionaires over the last 90 years. Many forms of real estate have contributed to the creating the 1%.  Investors can choose from small apartment buildings, turnkey real estate, small apartment buildings, or even flipping properties.  What makes these types of real estate as close to perfect as possible is being a passive investor with a long term approach.  By doing that, a high level of risk management is produced.

Mistakes are made when investors try to profit in the short term.  That is virtually impossible with real estate or any asset class.  The greatest fortunes are always made over the long term.  Warren Buffett, considered by many to be the greatest investor in history and worth over $50 billion, likes to say that for him, the perfect holding time is "forever."

Obviously, that is not true for flipping properties.

But flipping properties can be made to be much more appealing.  Flipping properties that are held in a retirement account results in the capital gains being tax free.  In addition, to add more risk management, properties bought to be flipped should be able to be rented out to cover mortgage if a buyer cannot be found.  Here the rental income component performs the risk management function for the investor.  Another way to profit from flipping properties is to finance these transactions for others through private mortgage notes, which add diversity; and another layer of protection.

Private mortgage notes are loans made by investors to another party to buy property.  The investment income is often in double digits.  A private mortgage can be provided by an individual or a consortium of investors.  It is far better to join with others in a pool of investors providing private mortgages to a wide range of properties.  The diversity in holdings here offers risk management to the investors.

Turnkey properties can also be ideal, not perfect but very appealing real estate investments.

A turnkey property is when a seasoned real estate professional buys a property, fixes it up, rents it out to a suitable tenant, and then manages it for the new owners.  The buyer is benefiting from the experience of the turnkey property professional.  Jerry Cohen, President and founder of EquityBuild, a real estate investment firm active in turnkey properties, has been a principal in more than 1000 transactions since 1984.

It is the wide range of options for high yield real estate investing that makes it so attractive.  No investment will ever be perfect, or risk free, but there is much than can be done in terms of risk management to protect the asset from adverse market conditions.  Being able to be rented to pay the mortgage and other expenses is a useful form of risk management for real estate.  So is diversifying investments in funding private mortgage notes.  Most important of all, however, is to be a passive real estate investor with a long term approach: that prevents many costly mistakes!