A Risk-Averse Approach to Real Estate Investing You can invest in income property in a decidedly defensive way. Here are four conservative strategies to minimize risk while you pursue income and appreciation from investment real estate.
By Dwight Kay, CEO & Founder, Kay Properties and Investments, LLC
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he highest profile professional real estate developers and investors are typically those who have won big or lost big — they made their names taking oversized risks that in some cases paid off handsomely and in other cases crashed and burned. But real estate investing isn’t just for highfliers with nothing to lose. In fact, quite the opposite is true. Investors can take a decidedly defensive approach to building wealth through real estate investing, especially given the favorable tax treatment that rewards many aspects of real estate investment. (Consult your tax adviser to learn more.) To be sure, all investments carry risk, be they stocks, bonds or hard assets like real estate, but some investment strategies are less risky than others. 66
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I’ve taken a generally conservative approach to real estate investing with much success. These strategies are hallmarks of my approach. They’ve helped mitigate the risks of real estate ownership and investment while maximizing the potential to achieve income (positive cash flow), shelter income from tax, and realize asset-value appreciation. Tip #1: Avoid recession-prone, highly volatile real estate asset classes
Some asset types have demonstrated that they are much higher risk and recession-prone than others. These include hotel and lodging properties, senior housing in most of its forms, and real estate used in the production of oil and gas. Avoid these properties. Hospitality, for example, has been hit hard by all three recessions since 2000. In 2010, following the Great
Recession, U.S. hotels considered distressed by Real Capital Analytics approached 2,500 properties with total debt of $40 billion. Many investors in these properties never recovered even their principal — they lost everything. More recently, we’ve seen historic disruptions by the COVID-19 pandemic as travel both for business and leisure ground to a halt. (Marriott, as one example, had the worst quarter of its entire company history during the pandemic.) Senior care is another sore spot, with senior housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk and stability of owning and operating them. And that was even before the pandemic layered onto these types of properties the challenges of a particularly vulnerable population during a catastrophic public health crisis.
