Build a Well-Rounded Portfolio

All real estate is not created equal. Real estate, like other investments, can vary in a number of important financial factors that need to be considered when building a portfolio.
IRAs, 401Ks, Mutual Funds, and stocks are all great components of a diversified portfolio. It is important that you balance your real estate portfolio similarly to how you would balance your risk in your stock/retirement portfolio. Here are 3.3 factors to consider in your real estate portfolio:

1. Cash Flow
Turn on your TV any night at 2 AM and you will see at least one "Real Estate Investor" trying to sell you his secrets to success. Cash flow, Cash flow, Cash flow...it's all over Rich Dad Poor Dad...it's everywhere. To some people, it's everything. Cash flow can be a wonderful thing that can make investing profitable on a monthly income level. Having properties with cash flow will allow a self-sustaining portfolio in which no outside money is needed to maintain. These properties can usually pay themselves off earlier than scheduled if you are careful too. The major danger of these properties that cash flow large quantities of money is that they tend to have stagnant property values over the short-term (3-5 years) and are more suited for long-term investment.

2. Appreciation
Purchasing a home that doubles in value over a short period of time is great for the portfolio and for the wallet. Homes in areas of high appreciation (10%+) tend to be more expensive and often carry higher risk, more capital investment, and require subsidization. Homes in highly appreciating area will usually have negative cash-flow unless you are skillful or lucky enough to time your purchase right. Having homes in appreciating areas can build your wealth quickly. The major danger of these properties is that they tend to not be self-supporting on a monthly basis.

3. Break-Even
Having properties that just break-even provide a portfolio with stability. Homes that just break-even usually tend to be hold the average appreciation rates and are great for the long-term investors who want to hold for 20-30 years and pay down the mortgage. Homes that fit this profile should be low-maintenance properties that can hold tenants for periods of time greater than 1 year.

3.3 Your Goals
Building a portfolio that is congruent with your financial goals is the most important aspect of investing. If your goal is the build wealth over the short-term and your risk tolerance is high, then a focus on appreciating neighborhoods would likely be your strategy. If your goals are more long-term, then you might want to focus on more break-even and some cash flowing properties. Knowing your goals is the most important aspect to real estate investing and should be the foundation and guiding light of all your decisions.