By William Bronchick & Frank Pulley
As an experienced real estate investor, from time to time you have to give some thought and effort as to what types of investing strategies you will likely employ in your investing business in order to be most successful. As a beginning investor, you may not yet have developed a “feel” for what types of investments best suit you and your current situation.
To confuse the issue, even more, there are a ton of potential types of investment opportunities one can pursue from wholesaling, lease options, rehabs, buying and holding rentals and more. In addition, there is the issue of financing, whether it be hard money, conventional, FHA (or other types of govt. loan) seller financing or something outside the box. And finally, the consideration of what “area” you will be working in from single family homes, multi-family, commercial or other!!
As far as what type of investing to practice, there is no right or wrong answer on this and the answer may just be, “It depends.” That being said, let’s try to at least make some sense out of it because there are a few things that one should take into consideration when considering an investment strategy, whether it is your first or your one hundred and first!
Here are 7 considerations to take into account when deciding on an investment strategy (or strategies) that might best suit you and your investing business:
1. The Current Real Estate Market. Knowing whether the current market is on an upward or downward trend, or just plain flat is important as there are certain types of strategies that work better in one type of market than they do in another. For example, Lease Options tend to work especially well when the market is trending upwards. Rehabs and wholesales work in either market, but in a down market, it’s easy to find deals but more difficult to sell them. It’s just the opposite with rehabs and wholesales in an upmarket. When interest rates are low, people tend to buy rather than rent, so vacancy rates tend to go up. That being said, this current real estate market doesn’t reflect that trend as interest rates are low, rents are rising, and vacancy rates are also low in many areas of the country. Whatever the market, know the trends and what is currently working- or not.
2. Your Knowledge and Experience Level. It is important to take into consideration your level of knowledge and areas of expertise when determining your preferred investment strategies. There may be strategies that are working well in your current market and it behooves you to embrace those as long as you have the knowledge, skills, and team to make them happen. However, one must be cautious when taking on a new strategy, especially something that can have some complexities such as a wrap, short sale and other strategies with a lot of “moving parts.” This is where a mentor or trusted advisor can be invaluable!
3. Your Financial and Other Business Goals. You also have to throw what it is you wish to accomplish into the mix – and that comes from your goals. What do you hope to accomplish in the next year, 3 years and 5 years? How much income do you want to make for your efforts and why? Why is a big question and if you can answer “why” you want to accomplish your goals that will provide a solid sense of direction when your business is sailing some rough waters. No matter how well you run your business there will be times of challenge.
4. Are You Going to Invest Full Time or Part Time? The beautiful part about real estate investing is that one can do it either full or part-time! If you have a great job but want some part-time extra income to have a few nice “extras” for your loved ones or build a portfolio of rental properties for your retirement; you can do that! If you decide that full-time investing is what you want to do, then that can be accomplished too! Many of us started out as part-time investors and finally did well enough that we graduated to doing it full time. Full-time investors will likely derive their most if not all of their income from their real estate business, so it’s imperative that they are at the top of their game most of the time, at least until they get their business up and running.
5. How Well-Connected Are You? Real estate investing is pretty much impossible to do solely on your own. Surrounding yourself with a team of experts like an attorney, investor savvy realtor, contractor, lender and more can make a huge difference in your success! Great team members will help move your business forward, help keep you out of trouble and can provide advice on areas that you may be new to and thus can provide expertise. Team members may be able to help you obtain leads from referrals. They can also recommend other team members. The best way to meet team members is to network, network, network!
6. Your Motivation and Work Ethic. If you listen to the late night real estate guys on TV, you might think that anyone can do it with little effort. Nothing can be further from the truth; real estate is a business and must be treated as such. It takes time, commitment, focus, work ethic, attention to detail, time management and more. However, the rewards can be beyond your wildest dreams, if you work for it and stick to your goals and dreams.
7. Assets and Access to Funds and Financing. It is true that real estate can be purchased with little or no money down – actually, that isn’t that difficult. However. at some point, you have to have some reserve funds in case something unexpected comes up. Having some assets makes the process a lot easier as does having some available cash; or at least access to it. If you don’t have assets or cash then see if there is anyone within your “circle” that can provide it if the right deal comes up. As you progress with your business, make sure one of your goals is to build assets in the form of cash reserves and equity in your properties. Holding rental properties is a great way to do all of the above and enjoy some passive income along the way. No matter what your investing strategies, you should ultimately try to end up in a place where passive income is coming into your business and whether you keep working or not, the income stream keeps flowing.
That’s it! Here are a few final suggestions. Have more than one investing strategy, but don’t get too diluted, chase every deal under the sun and end up nowhere. Always keep learning because markets, laws, and techniques change. Remember you can make money in any real estate market, as long as you have the knowledge of what is currently working, a team of people around you including a mentor, and treat your investing as a business.
Here is to your success!