Risks and Benefits of Denver Real Estate Investing
If you are planning to invest in Denver real estate, there are several markets available to you and each comes with unique risks and benefits. Before you buy anything, it’s important to gather as much information as possible. Below, check out some of the risks and benefits of Denver real estate investing.
Individual Direct Ownership
This is the type of investment that most investors think of when they consider Denver real estate investing. In an individual direct ownership, you buy properties on your own and you handle everything related to operating the property. This includes maintenance, leasing and management of the property, unless you hire a property manager to do this work for you.
Risks – In an individual direct ownership, you face the risk of bad tenants or other management problems, which can make a property a poor investment. Not only will you lose money on the sale, you also assume full liability past insurance coverage.
Benefits – Because it is a solo venture, unless you go in with your spouse, you get to make all of the decisions, earn all of the profits and you have direct control of the asset.
Partnerships With Well-Known Associates
You might consider investing with family, close friends or a small group of like-minded investors when you purchase real estate. When you enter into partnerships, it’s best to know your partner’s current financial situation, their work ethic and their motivation for investing. You always want to have a written agreement between the two parties with one party being responsible for managing the property and being paid to manage the property.
Risks – When you enter a partnership, you run the risk of investing with people who don’t share the same vision or strategies for renting, managing and/or improving the property. You also might find yourself with partners who do not have the financial means to cover any major problems or issues that may arise. You have all of these risks in addition to the risks associated with individual direct ownership.
Benefits – You would have somebody to share decision making and profits, and all partners have direct control of the asset.
General or Limited Partnerships
General or limited partnerships include tenant-in-common and private real estate investment trusts (REITs). In these types of investment, you are trusting someone else completely (the “sponsor”) to handle a huge portion of your net wealth. The most common problem with general or limited partnerships is that most investors do absolutely no research on who their sponsor is. Failing to get a sponsor’s credit report, a detailed history of past investments and tax returns on past deals can lead to problems.
Risks – You have no control and could be dealing with unscrupulous sponsors, personal guarantees and liability, low return on investment and/or loss of your investment.
Benefits – You may find that you get a fair return on investment for the risk. Additionally, you do not have to deal with management hassles and your sponsor will most likely have more investment experience than you do.
Publicly Traded Real Estate Investment Trusts
This is really an investment in a large company that is in the business of buying and generally owning properties. A REIT buyer is investing in the ability of management to make good decision on behalf of the shareholders. Before you invest with an REIT, you would want to take a look at a company’s results and dividends. There are many well-known REITs that have long-term successful operating histories and audited financial statements.
Risks – You may lose your total investment. Your shares and company value are subject to regional, national and stock market influences and risks, which can lower share value despite the company being strong and well-managed.
Benefits – You would have absolutely no management responsibility, no liability past your initial investment in addition to experienced management investing your money and liquidity in selling the shares.
Denver real estate investing can be incredibly lucrative, but you need to take all of the risks and benefits associated into account. It’s always wise to arm yourself with as much information as possible so you can minimize your risks. Speak with experienced investors and turn to experts for advice before you sign any checks.