Great Harvest: An investment into real estate where the rents provide an annual return less than the amount that would be needed to cover a typical mortgage. Properties in this category are typically found in quality neighborhoods that are in high demand due to school district, proximity to shopping, or employment centers. Temporary losses can be tolerated due to the anticipated high future value of the property. Example: An investment into a condo in a thriving part of the city that is appreciating at 10% a year but requires a $500 investment each month to cover the mortgage.

Homestead Investment: An investment into real estate with marginal rent and a poor potential for future value. Time frame for investment in this type of property would be much longer than an investor might prefer. The value of a homestead investment is realized once the mortgage is paid off and the cash flow provides steady income. Investors like these investments when the goal is residual income in the future. Example: An investment in a rural property or a duplex in a stagnant neighborhood that covers the mortgage but isn’t going up or down in value.

Cash Machine: An investment into property that provides adequate cash flow but is seeing a flat to falling value. These investments can typically be found in areas that have not experienced much growth but have demand for housing. Rents can provide 20%+ annual return but require frequent turnover in tenants. Typically, the investments provide desirable cash flow but can also require investment into the property for repairs. Example: An investment in a $40,000 house that rents for $800/mo but requires new tenants on average every 10 months.

Pillow Investment: An investment into real estate that provides strong cash flows with huge potential for future value. Although rare, these investments are available. In many cases, assets must undergo a repositioning to convert them to high cash flow with high future value. Typically, the repositioning process is costly and requires professional knowledge and skill to maximize returns.

Defining what type of investor you want to be is based largely on the goals you set for the future. If can define your goals, the search of properties will be much easier and you are more likely to be satisfied and successful with your venture.