Category Archives: Finance

High Risk, Moderate Risk and Low Risk Investments

For those looking to invest, you should know that many investments can be categorized as being high risk, moderate risk and low risk. Investing is not difficult, but you should always put lots of thought and planning into it. It is also extremely important to educate yourself about the many different investments available to you so you can find those that fit best with your specific situation and lifestyle. Here are some tips regarding the three categories of investing.

Low Risk Investments

While low risk investments are usually very low key and rarely are extremely glitzy or publicized, they do offer conservative investors a way to save money for the short or long term without the risk involved that you find in other forms of investing. Low risk investments usually pay the lowest yields, but are far less volatile than many other types of investments. Low risk investments include money market funds, certificate of deposits and some types of bonds. Low risk investments are perfect for those that want to make sure there money remains safe and secure. While low risk investments don’t offer high returns, they do offer stability and security for those that can’t afford to lose money or would just like to avoid as much risk as possible. Expect low risk investments to pay out yields of 1% to 5% annually.

Moderate Risk Investments

Moderate risk investments are perfect for those that are interested in investing for the long term and would like to earn moderate yields. Moderate risk investments are usually certain kinds of stocks, bonds and mutual funds that pay handsomely over the long term. While generally riskier than saving money in a bank, for those that are looking to invest for the long term, historically speaking you will grow your money quite nicely. Moderate risk investments usually use the power of compound interest and time to create a nest egg from 10 to 40 years with regular savings. For instance, saving 1K per year at an interest rate of 10% for 30 years can return close to 200K. Moderate risk investments usually return yields of 5% to 12%.

High Risk Investments

High risk investments are those investments that if you are lucky can return huge yields, however the downturn is that they can be extremely volatile and in many cases instead of getting rich off your investment, you find yourself losing some or all of it. High risk investments include penny stocks, international stocks, some types of Forex trades, etc. The sky is the limit for returns, but many high risk investments- if considered a winner should return yields that range from 10% to 30%++.

The Challenges of Wholesaling Owner Financed Properties

Investors wholesaling homes have been prompted to search for owner financing deals from the beginning, but while potentially highly profitable, can also come with their own unique sets of challenges and dangers, especially in the current housing market.

Wholesaling seller financed homes, lease options, rent-to-own deals and properties with owner carry back mortgages or other types of assumable financing can open many doors for real estate investors. Owner financing means not having to obtain new bank financing to make acquisitions or flip houses, and even if simply flipping real estate contracts can make the resale side far easier.

Today these deals can be incredibly valuable and attractive to new wholesalers getting started with limited resources and little or no cash of their own or credit. Similarly they can also help veteran investors to take full advantage of current market conditions and ramp up their volume to make even more money.

These strategies have come around full circle to being very popular again due to tight mortgage credit and the roller coaster ride home values have been on over the last seven years. However, while seller financing deals may appear to be a dream come true and offer the ability to turn around homes faster and easier with little to no money down there are potential kinks that can trip up investors causing them to lose money and time, and see their reputations bruised if they aren’t aware of them.

So what’s wrong with wholesaling lease options or homes with seller financing?

Many see these as being zero risk deals as little or no new money is injected and normally nothing reflects on personal credit. However, there are two main threats in the current market that real estate wholesalers should be aware of.

1. Ability to Resell

Whether wholesaling lease options or owner financed contracts investors need to complete thorough due diligence to ensure that properties can be flipped, and on the terms promised. Today the marketplace is ridden with underwater homes and properties with a large variety of liens on them. This can prevent resale or refinancing, or at least soak up so much equity that it isn’t feasible or profitable. So make sure you know exactly what issues may affect title prior to signing.

2. Ability to Refinance

Many of those wholesaling lease options or properties with seller held private mortgages don’t give a second thought to the ability of end buyers to refinance down the road. They are in, out and paid well before then. However, if end renters or buyers aren’t on a plan to fix their credit and are carefully documenting their payments they could find it impossible to refinance into a long term loan before a private mortgage balloons or lease option expires.

This may not immediately and directly affect your own wallet, but it can affect long term performance. The more you do to educate and help both sides make it a smooth, profitable transaction, even when you are out of it the more they will share you and send you referrals.