Determining ROI - Balancing Risk and Reward

Published: June 13, 2010, 6 p.m.

What's a reasonable return on investment in today\u2019s market?\xa0 As you might expect, the answer is, \u201cIt depends!\u201d\xa0 Every investor must accept risk in order to attain reward.\xa0 Even doing nothing is a risk with its own reward.\xa0 The obvious goal is to achieve maximum reward with minimum risk.\xa0 Duh.\xa0 But what are the risks and how do you assess them?\xa0 What are the potential returns?\xa0 What\u2019s about the not-so-obvious risks?\xa0 And what\u2019s reasonable to expect in today\u2019s economy? Tough questions!Balancing in our chairs behind The Real Estate Guys\u2122 golden microphones (actually, they\u2019re black with smelly foam that prevents our P's from popping too profusely), to talk through all of these perplexities are your Host and mental gymnast, Robert Helms; Co-host and floor tumbler, Russell Gray; and Chief spotter, the Godfather of Real Estate, Bob Helms.Real estate is as much an art as it is a science. There are so many different markets, sub-markets, product types and deal structures to choose from.\xa0 Beyond that, there are variations in economic conditions, seller motivations, tax laws, interest rates and on and on and on.\xa0 The types of returns which can be attained in a real estate investment range from bankruptcy (on the VERY negative side) to infinite returns (profit on nothing invested). We like the latter better, don't you?Recognizing that real estate investing is \u201cnon-traditional\u201d when compared to the conventional approach of "work hard, pay taxes, live below your means and buy stocks, bond and mutual funds for the long haul" - we talk about the ranges of returns which are reasonable to expect when investing in certain kinds of real estate.\xa0 We also talk about how certain deal structures can really improve your ROI.Another topic of discussion is the risks of investing versus those of NOT investing.\xa0 There is an adage which says that the more risk you take, the more return you should demand.\xa0 We agree with that one. Of course, it presupposes that you understand the risks and can factor them into your decisions.There is another adage which says that higher returns mean more risk.\xa0 NOT NECESSARILY!\xa0 There are actually deal structures which REDUCE risk while INCREASING return.\xa0 So of course, we talk about those things because they are among our favorite benefits of real estate investing!After this broadcast, we slipped off our leotards (sorry, bad visual) and headed for the showers (worse visual!), pleased with our performance.\xa0 Now we\u2019re waiting for the judges (that\u2019s you) to put our scores.\xa0 We only ask that not take into consideration what we look like in our leotards.\xa0 And, that you remember to take us to the gym because, as you probably already know after the leotard visual, we REALLY need the workout!Want more?\xa0 Sign up for The Real Estate Guys\u2122 free newsletter at http://realestateguysradio.com/newsletter-sig