Right now we’re continuing our three part series on risk reduction.
Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: We’ve been talking about the reality of risk, and as an investor you’ve got to accept some level of risk. Let’s talk about how you can reduce the risk and keep the return as positive as possible. Last program we talked to sticking to what you understand. That is, what breed of real estate do you feel most confident in and where are you going to start? And if you don’t have a great wisdom in that arena, make sure you’re next to someone who does.
Bob Nelson: That’s so important. Stick with what you understand. If you don’t understand an investment and somebody says it’s really great, you’re really hoping that they are right, and they could be as wrong as they are right. Don’t bet your money on that type of a situation. In my opinion, you should all … Even if you’re solidly invested and you like everything that you’ve got, always be shopping. Have a shopper’s mentality. What that suggests is, what’s available on the market? What type of yields is it purported to produce? What is the cap rate? What’s price per square foot, price per unit, or per doors it’s referred to? Be aware of where the market is and the best thing you can do is act as a buyer at all times, whether you’re buying or not.
Marcia Edwards: Be a student in the market trends. You may find an opportunity where you can switch out what you have to something that’s much better return and lower risk, so you want to be aware. I would encourage you, consider getting an assessment of the property you own currently, whether it’s your personal residence or investment property. Just do it annually. Who doesn’t take a look at their investments annually? You get the reports from your Morgan Stanley broker or whoever. Let’s do the same thing in real estate. Make sure you understand where you stand and then make sure you’re getting a good feed and read over time, whether your opportunity’s optimized by the choices you have made for investment property today.
Bob Nelson: One thing I would also suggest is when you’re doing your due diligence, when you’re assessing what is really there, do not buy off of a seller’s proforma operating statement. Proforma means it’s the seller’s forecast of what things might do if everything went exceptionally well. It might include next year’s income and some portion of last year’s expenses. That is designed to cause you to think this property is more productive than it actually could be or will be.
Marcia Edwards: That’s when you need to have Bob Nelson next to you. He knows what the normal trends, what’s usual, what’s typical, what’s appropriate for the rents and the expenses, and will make sure that all the expenses are on the proforma that you do use for your own assessment and due diligence.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.
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