Is a High Risk High Reward Minneapolis Duplex Right for You?

My dad used to talk about the risk-return tradeoff principle. He didn’t call it that. And he certainly didn’t say it that way. An experienced real estate investor himself, he said, “The higher the risk, the higher the reward.”

I often think of that when working with first-time real estate investors. Many have attended countless real estate investment seminars, listened to hours and hours of real estate investor podcasts, and become familiar with all the terminology and principles. What they’re lacking, however, is real world application.

For example, many first-time investors want a double-digit cash-on-cash return in the most popular and affluent city neighborhoods. The trouble is the low risk of a popular area means more people are willing to own it. Therefore, the property will have a higher purchase price and lower return. Think of it like a bond, or a savings account. Because it’s safe and almost guaranteed, the risk-return tradeoff is low.

Of course, if the highest possible cash flow is paramount, there is risk involved. In other words, if it were easy, everybody else would be investing in that area too. In my observation, these duplexes often tend to need extensive and expensive amounts of repair or require seasoned, hands-on property management.

That doesn’t make either of them bad investments. Just different. Some people are more risk-tolerant than others. So high risk and reward may be the right move for them. Others are simply looking for a way to diversify their investment portfolio.

As long as the numbers and facts about any given property are on the table before deciding whether or not to move forward, a buyer can make the best possible decision for them and their lives.

The key is simply knowing what feels most comfortable for you and your life, then acting accordingly.