How do you compare investments?
I'm in the middle of final push to raise funds to purchase a large commercial office/industrial campus in Colorado.
One of the things I am seeing is that most people haven't been given the tools to accurately identify what is their personal investing criteria and from that criteria how to compare options as to which investment is best.
Over the next month I'll be coming back to this key theme.
Today I just wanted to start with the key lesson: You have to compare within RISK CLASSES or your comparison is meaningless.
There are three main risk classes:
Low risk: this ranges from very low risk money market funds/accounts (earning 1-2%) to CD's (earning 3-5%) to high grade commercial real estate with GREAT tenants in place, ideally on triple net leases, or high quality apartment complexes in strong areas (if no leverage over long term they return at 6-8%, if purchased well, they can generateMUCH higher returns). Also at this end of hte low risk spectrum is high quality bonds from AAA rated companies.
Medium Risk: ranges from low end things like blue chip stocks to higher end of aggressive growth stocks. I would also put in this catagory many real estate deals where the property isn't on autopilot. For example, I'm working with a group of investors to purchase a large commercial complex (office and industrial space) outside of Denver. The property is currently empty, hence it puts the deal into the medium risk catagory, in my opinion in teh range of an aggressive growth mutual fund. However, once the deal progresses and we lease up the property, it progressively moves further and further DOWN the risk scale and becomes safer and safer of an investment.
High Risk: Range from raw land development deals to gas and oil leases . These types of investments offer HIGH returns, but with a lot of risk.
Remember, when you look at investment options you have to choose within risk catagories. Otherwise you are comparing apples to oranges.
I'll come back to this topic again and again this month and build on this theme.
Good investing to you!
David
One of the things I am seeing is that most people haven't been given the tools to accurately identify what is their personal investing criteria and from that criteria how to compare options as to which investment is best.
Over the next month I'll be coming back to this key theme.
Today I just wanted to start with the key lesson: You have to compare within RISK CLASSES or your comparison is meaningless.
There are three main risk classes:
Low risk: this ranges from very low risk money market funds/accounts (earning 1-2%) to CD's (earning 3-5%) to high grade commercial real estate with GREAT tenants in place, ideally on triple net leases, or high quality apartment complexes in strong areas (if no leverage over long term they return at 6-8%, if purchased well, they can generateMUCH higher returns). Also at this end of hte low risk spectrum is high quality bonds from AAA rated companies.
Medium Risk: ranges from low end things like blue chip stocks to higher end of aggressive growth stocks. I would also put in this catagory many real estate deals where the property isn't on autopilot. For example, I'm working with a group of investors to purchase a large commercial complex (office and industrial space) outside of Denver. The property is currently empty, hence it puts the deal into the medium risk catagory, in my opinion in teh range of an aggressive growth mutual fund. However, once the deal progresses and we lease up the property, it progressively moves further and further DOWN the risk scale and becomes safer and safer of an investment.
High Risk: Range from raw land development deals to gas and oil leases . These types of investments offer HIGH returns, but with a lot of risk.
Remember, when you look at investment options you have to choose within risk catagories. Otherwise you are comparing apples to oranges.
I'll come back to this topic again and again this month and build on this theme.
Good investing to you!
David
posted by David Finkel at 2:08 PM
3 Comments:
David:
I just finished your book and I'm really excited to start the workshops you have available online. I'm confident I can make this work. I'm 28 and have one rental in my portfolio---I plan to use your teachings in order to accumulate many more!
I read in your book that the state forms you use would be on the website, but I cannot seem to find them. I'd like to start reviewing those forms while I learn more about real estate terms and vocabulary from your online workshop.
I'm probably just looking in the wrong location on your website. Would you please point me to the proper location where I can find these forms?
Thanks for what you are doing, David. It is my hope to one day be in a position such as yourself---helping others achieve financial success---you are helping me achieve that goal.
Vr,
Jason
I read your book and you say there will be forms located on the Resource Tab. I have gone to the Resource Tab, but has found no forms. Could you please let me know where to find them.
Thank you
r4jenkins@talkamerica.net
David:
I'm finishing up your workshops but I'm running into problems with workshop number 10. The link doesn't seem to be working properly. Any suggestions? I hope to hear back from you or someone on your staff in the near future. Along with this issue, I still have not heard back from anyone on my earlier post about the state forms---posted ~1 week ago.
Thanks,
Jason
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