Executive Summary
A key to successful long-term investing is to ensure you’re getting compensated for the risk you’re taking on. Otherwise, the inherent risk will occasionally materialize and eat up your returns.
Investors must understand the long-term cash flows of a potential investment and compare those cash flows to the price of the asset to develop a long-term return model. This applies to stocks, real estate or any other asset class. I’ve done that analysis with stocks before, but today we’re talking about real estate.
Then the investor must determine if the projected return adequately compensates for the inherent risks as well as, in the case of real estate, the time and effort required.
With short-term treasury yields now between 4.4% to 5.4%, the hurdle rate for a real estate project is much higher than it’s been over the last fifteen years. After all, we can throw $1,000,000 into short-term government bonds and get over $50,000 per year in safe, effortless income. Continue reading “Current and Potential Real Estate Investors Need to Read This”