How to Choose the "Right" Investment Property

Choosing the right investment property is very much like starting a business. In fact, once you've closed on your new property, you've basically purchased a "business". So ask yourself, "How would I decide what business is "right" for me?

First, you've got to be in a field that interests you and one that you would enjoy working in, right? What kinds of properties would you enjoy owning? If you're the out-doorsey, adventurous type, a hunting ranch or rustic, yet tasteful, hospitality property may be included in the list. If you're an architect and like the city perhaps a high-rise office building would best suit your tastes.

Second, you must consider your risk tolerance. As is the case in any investment, the higher the risk, the greater chance you have for a higher return on investment (ROI). Conversely, the lower the risk, the lower the ROI. Investment properties with higher risk most often require more management than their lower risk counterparts. An example of a low-risk property would be a multi-suite building with strong credit tenants each with a long-term "triple-net" (NNN) lease. An example of a higher risk investment would be a multi-family high-rise with upscale suites (rented by the night, week or month) and 10 retail suites on the lower level. Keep in mind, your knowledge of your "business" helps to lower your risk.

Third, consider your involvement in the investment. Do you want a pure, passive investment where you simply collect a payment each month or would you be willing to be involved to a certain degree? Involvement can range from coordinating with a management company to supervising the construction of a new commercial real estate development.

After answering some of these basic questions, find a commercial real estate broker in your area who will listen to your ideas and help you find the "right" investment property.