One of the greatest things about real estate investing is that there are so many ways in which you can be involved. Whether you're wanting short term strategies, long term rentals, passive involvement, fix & flip, wholesaling or buying notes or tax liens, there's a strategy for you. Let's take a big picture look at what we should be thinking about when we're entering into a real estate investment. Really, the major consideration, no matter which strategy, is how long you plan to stay in the investment.
Short Term End-to-End
A number of investment strategies are by nature designed to move to completion in days, weeks or a few months. This doesn't mean that you do not need a plan, and it should have entry, process and exit pieces. It's a bit easier with short term strategies, as they are more focused on short fast-developing end-to-end profit generation.
In wholesaling you're operating with a buyer list and locating homes that you can buy or lock up at prices that will allow you to profit in the very short term when you deliver them to another investor buyer. You do have the three main bubbles in our image:
You must understand your function in the deal, what you bring to the table and the value you add. This allows you to negotiate on both ends with confidence, as you know you're providing a service that you should profit from.
It's not a supermarket out there with great deals on shelves ready for you to pick them up and take to the register. You must market at both ends. You continuously market and network for buyers, as you should know who your buyer will be and what they're willing to pay. On the other end, you are marketing to get distressed homeowners to contact you in enough numbers that you can end up with a few profitable deals.
We just mentioned our customers on both ends in the Marketing paragraph. Before your first investment, you should know who you will want for selling customers, their motivations, and how you can work with them. On the other end, you really must know the type of investors who you'll be selling to, their investment goals and how to approach them with deals.
Have all of these pieces in the right place and your short term real estate investment strategy will come together for profit.
Long Term End-to-End
Actually, everything we discussed above applies here. Where it becomes a bit more challenging in rental property investing is the longer time frame you'll have to work with in predicting the performance of your investment. So, keeping all of the above in mind, what are we adding here?
You'll do your due diligence and get the numbers right for what to pay and what you can charge for rent ... NOW. However, your strategy must take a longer term look at the area, neighborhood and economy. It doesn't matter how great the cash flow is today if in a couple of years a major dominant employer leaves and rents crash. No, you aren't a fortune teller, but at least try to get a comfortable feeling that the most important demographics are going to be stable for a while.
Just like in the short term strategies, you are selling at some point. However, it's well into the future. In your due diligence you should look at home value appreciation in the area historically, and project that forward conservatively. Profit at sale is a factor in your overall return on investment. If at some point your rents soften, it's not going to be as damaging if your value is doing well, as the ROI at the end will be acceptable. Also, if your plan is to take an intermediate hold approach and roll properties into others using a 1031 Exchange, that value appreciation estimate is even more important.
Just have an end-to-end plan and follow it to the profits.
Have you found success in real estate investing by implementing different approaches? Have you struggled to take that first step? Let me know what you think by leaving a comment below, or by finding me on social media: