In some ways, long-term real estate investment is less challenging than short term, because landlords are less subject to the fluctuations inherent in a real estate market. They also have time to recover expenses and watch the property appreciate, which can bail them out if their initial investment goes over budget.

That said, there are still plenty of pitfalls for landlords and other long term investors. Lawsuits are a serious concern, since the exposure is so much longer, and tenants just love to sue their landlords, who they assume are rich (see Landlord Legal Protection - How to Protect Your Rental Assets). Maintaining cash flow is another issue, but one we'll discuss more thoroughly in the third and final installment of this series. Finally, speculation on real estate market trends is a double-edged sword; it's impossible to know that next week the state will announce a major interstate being built in your backyard, or that a drug cartel will take ahold of the neighborhood next year.

So how do you find a solid long term real estate investment?

First and foremost, determine your risk tolerance. Investors who favor low risk and low returns are well advised to invest in stable, middle class neighborhoods that are well established. Those who are not averse to risk might favor lower end neighborhoods that have a higher potential to shoot upward quickly, but also breed crime and may only worsen (for an irreverent, humorous look at slum landlording, see Diary of a Slumlord: A Lighter Look at the Darker Side of Real Estate).

The Safe Road: Take a close look at the local school systems of the neighborhoods you're considering for investment, as they prove to be a consistent indicator of the quality of the neighborhood. Also review the stability of the job market in that community, and the average age of the residents (families and seniors are your best bet). Most parents would rather have their children in a better school than cut their commute by twenty minutes, and families are usually longer-term tenants than young professionals.

The Riskier Route: Speculation on low-end neighborhoods is tricky, because you are effectively trying to predict future markets. When urban neighborhoods do turn the proverbial corner, the first to move in are generally the young professionals who are less worried about crime than parents with young children. Young professionals typically like having access to the following: nightlife (restaurants, bars, clubs), water (rivers, bays, harbors), artistic institutions (museums, galleries), sports arenas/stadiums, and subways/metro stations (but NOT bus stops). Speculators should pay close attention to any municipal plans involving any of these additions to a given area (or bad news like a highway cutting through a neighborhood, etc.), but bear in mind that there are thousands of other investors listening just as attentively, so sometimes there's an initial burst of enthusiasm that subsequently dies off, allowing for a better entry price.

One last word of advice for speculators: avoid over-improving low-end investment properties. The slum you're watching may well leap up in price four years from now, but between now and then, you still have to rent to people who can't afford to pay extra for a jacuzzi or rooftop deck, so wait until the demanding yuppies move in.

There is much to be said about the art and curse of being a landlord, and it would fill an encyclopedia. For starters, nascent landlords might glance over some of the following articles: Landlord's Guide: How to Screen Tenants, Database of Real Estate Investing Articles.

Keep in mind the good news for long term real estate investors: real estate tends to appreciate over time as populations (read: demand) grow, and if you have the patience (and the funding) to wait it out, you can reap an excellent return on your initial investment.