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February 2, 2013

Real Estate for the Little Guy

In a recent MarketWatch article, Brett Arends lists 5 of the most unpopular investments for 2013. The logic of such a list is that a savvy investor can make a move now to get in on the ground floor of something big. Coming in at number four on the list is the only non-stock asset: Sunbelt real estate. This includes properties in areas like Miami Beach, Phoenix, and other similar locales. The prices in those areas have not yet recovered, and are ripe for the plucking. It certainly sounds good. All of the factors the savvy real estate investor would look for - depressed prices, recovering housing market, lowering unemployment rates - are ready and present. So why not? In order to answer that, we have to ask another question. Who is actually a truly savvy investor? You know for sure that your Uncle Dexter is not. Amidst much proclamations to the contrary, you know that Dexter wouldn’t recognize savvy if it walked right up to him and sprayed graffiti on his slightly used Trump brand tie. Not that you could ever tell him. You already learned that lesson when you were caught giving an honest opinion about your sister’s culinary capability.However, that being the case, how do you know that you have it what it takes to make a major real estate deal? Let’s take a look at a somewhat common scenario. Rachel is a nurse who works at a large regional hospital. She has managed to put together 200k in a retirement fund, but she’s unhappy with her plan administrator, the topsy turvy market, and the constant fees that are badgering her bottom line. She hears about a way she can invest in real estate, and it sounds like investment shangri-la. Obviously, commercial real estate is the real money maker, so she starts looking for ways that she can get into the game. Fact check: Rachel is making a mistake. She knows nothing about commercial real estate, has no idea what makes a property viable, and is clueless about the questions she should be asking. And to top it all off, the amount of money that she is bringing to the table is nowhere near enough to make her a player in the commercial market. The one thing that she is right about is that she is very unhappy with her current situation. So what can she do? Rachel’s path to real estate success comes in a two step plan. First, she has to readjust her outlook on real estate. The big deals are not yet within her grasp, and she will have to start off small. The second thing Rachel has to do is get educated. Surfing the web can give her some info, but there is so much out there, that in the end she’ll most probably be more confused than when she began. The best thing to do would be to find a mentor. Somebody who has bought a small investment property and has worked it successfully. There are plenty of “small” investors out there who would be happy to give her the benefit of their experience. Chances are that she even has one or two in her extended family. If she does these two things, then she is 99% of the way there. In an upcoming blog we’ll get more specific, and talk about the details of the property that Rachel will be examining. See you then.

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