How to Choose a Perfect-Fit Real Estate Investment Strategy
What’s your real estate strategy?
With so many forums and data on the web, how do you know which one is best for you?
I get asked this question a lot and it’s a great question. The answer depends on what your end goal is as well as your timeline to achieve that goal. The first two things you need to determine are:
Do you need a bag full of cash fast? Or,
Do you want to build wealth slow and steady over time?
If you are trying to build a passive source of income to supplement your current income and possibly retire early, slow and steady will win that race. If you need money now or you have little cash to invest but want to get started investing, you’ll need a different strategy that allows a faster buildup of equity.
Slow and steady wins the race
Creating cash flow and building wealth in a deliberate, purposeful way can be achieved by purchasing real estate investments that provide housing for the rental population. You may have heard other investors talk about a buy-and-hold strategy using value-add properties. This is the best way, in my opinion, to create wealth over time. The value-add component means that you add value by making improvements in in a modest way so that you can increase rents and decrease your expenses over time. The result is that your net cash flow will grow and accumulate with each additional unit you add to your portfolio.
In addition, you’re creating appreciation on the building which you can borrow against for future purchases. It only takes one building to create a steady stream of cash flow to open up the flood gates of opportunity for future purchases.
Using your equity position to subsequently purchase more value-add properties is the secret to building wealth and making your assets work for you.
Quick cash injection
There are two specific ways to create quick cash. However, these are definitely not strategies for the faint of heart. Have you ever heard the term high-risk, high-reward? That’s what these strategies are. You can wholesale deals or buy, fix and flip properties. Each will create a pile of cash relatively fast, however, the risk factor and the requirement of your time may be more than you desire.
A wholesale deal requires you to be great at sourcing deals. You are the liaison between the seller and the end purchaser or buyer. To be successful, you need to be able to locate deals at very deep discounts and then you need to find a buyer willing to pay a higher price for the property. The amount in between is your profit.
For example, let’s say you buy a home for $50K and you find a buyer willing to pay $100K. The $50K difference is your profit, less the costs to procure both deals. In this instance, you don’t necessarily need to own the home, however, your timelines needs to be spot-on or you could end up buying a property without the benefit of the end user.
The buy, fix and flip method can also create an abundance of cash and may require less of your time, assuming you have a great general contractor or property manager to oversee the project. On average, a buy, fix and flip can take six-to-nine months to complete and sell depending on the amount of construction required. The risk you have here is in the valuations. Can the work get done within the budget you set? Can you really sell the property for the profit you originally predicted? Flipping a home is not easy, and, more times than not, something unexpected comes up. However, flipping a home can be a successful option as long as you have the right team to create a lump sum of cash to start investing in larger properties.
Determining which strategy will work best should be based on your financial situation, personal investing goals and how much time you have to dedicate to cultivating the investment. Consider these factors together to make a thoughtful and informed decision and you’ll have better success achieving your investing goals.
Grow your passive income now
Opportunities abound in today’s market for real estate investments that grow passive income and build wealth. If you’re ready to take the first step, let’s talk about how I can help you start or improve your real estate investment portfolio and property management. Book a free consult with me here: