Should I invest in Real Estate or Markets?

Dear friends, I am writing this article to help all those that struggle with this question. My home town is full of entrepreneurs that like to invest in Real Estate, especially rental properties. Here are two questions that you need to ask yourself first:

1.    Cash Flow: Do I have a stable cash flow to support all my loans in case there was no rental income for 6-12 months?   For example, if you have 2 rental properties and both of them are earning $6000 per month, however, you are just breaking even with that rental income after paying for outstanding mortgages, taxes and utilities. In this case you should have either a saving of $72,000 put away or have an income that support this cash flow otherwise you may run into trouble. I witnessed a client who sold two of his properties trying to generate cash for way less than what they were worth to make payments on the other.

2.    Liquidity:  I always recommend that we should have a liquidity ratio of 60/40, for every 60% of the property value, have 40% as liquid portfolio. To understand this better, if we own investment properties worth $600K in value, we should have at least $400,000 in a portfolio of investments (based on your risk profile). Rationale behind this strategy is to compensate for situation that may arise from owning these properties or otherwise. Many people think they could sell properties to pay for their kid’s education/ to start a business/ to fund retirement. Yes you may be able to but you never want to rush and sell for less.

In conclusion, I would like to remind everyone that property or market, take risk that is calculated and assures long term planning.  Meet with a financial planner to assist with your risk profile discovery. All the best!