Strategy

With the stock market as turbulent as it is it’s no wonder that more and more people are looking to real estate investing as a means of securing a real economic future for themselves. When you first start out, the business side of real estate may seem overwhelming and complicated, but remember the basic purpose of the industry and everything should become clear:

  • As a real estate investor, your job is to earn a profit by providing quality housing for renters and buyers.

When you think of it like that, it becomes very easy to keep a clear head and make sense of the whole business. It’s easy to get frustrated with the process of taking out loans, getting remodelling permits and going through all the red tape of buying, selling and renting property, but if you keep your end goals clear in mind, it should always be easy to know what your next move is going to be.

Developing Your Strategy

Investing needs to start with a strategy, and preferably a simple one. There are a million ways to put either strategy into action, but there are essentially only two strategies to choose from: Cash flow properties and growth properties.

Cash Flow Properties

A cash flow property is something like an apartment building, a rental house or an office building. This is best if you need to start making a return right away.

Pros

  • Immediate return on your investment.
  • Typically cheaper upfront investment.
  • It’s easier to find renters than it is to find buyers.

Cons

  • Slower return on total investment.
  • Being a landlord is a full time job.
  • You are always on the lookout for new tenants.

Choosing to Rent

A cash flow property can be a great opportunity for somebody who doesn’t mind staying actively involved in the day to day process of running a rental property. If you hire a property manager to take a commission or a salary from the rent money you can cut down on your own responsibilities but you lose out on some income, too.

Many rental property owners are happy to simply run their property themselves until they have a few rental properties in hand and actually need the extra help. In any event, it’s a good way to stay active and get out of the house if you’re a retiree or are making a living solely on your investment properties, as it’s very easy to get into the habit of staying cooped up when you don’t have a day job.

Then of course you have:

Growth Properties

These include houses, condos, ranches and other homes and properties that people are more likely to buy than rent. Growth properties are perfect for people who are patient enough to play the waiting game.

Pros

  • Bigger payoff.
  • One time sale, no responsibilities to the new residents.

Cons

  • Longer investment time.
  • Larger investment cost.

Choosing to Sell

A growth property, requires a lot money, a lot of time and a lot of effort up front as you take out investment loans, remodel the home and make it more attractive to buyers. You may even wind up sitting on the home for a number of years as you wait for the market to match your investment. However, the ultimate payoff can be much more rewarding.

When you sell a home that you’ve remodelled, that is worth more than you paid for it even including the fixer-upper costs, you’re generally looking at a very large payoff. Many people who make a living buying and selling growth properties might only move a small handful of homes in their life but earn enough to retire on just five or six sales.

From here, your overall strategy branches off in two more directions:

Cheap and Expensive Homes

Here, again, there are two different strategies to choose from. You can take a small home or a cheap apartment building, make it presentable and rent or sell it at a competitive rate in order to make a smaller profit on a smaller investment, or you can take a large home, a mansion, a condo or a luxury apartment building on the coast and make a big profit on a big investment. Again, we have our pros and cons:

Cheap Property

You may be able to buy a cheap property by dipping into your own savings without even having to worry about taking out a loan, so right away there’s a pro: Lower investment cost.

If you can turn over a cheap property and improve its value then you’re doing a good thing for the community, you’re earning a fast and respectable profit and you’re providing quality housing to people who might not otherwise be able to afford it. There is absolutely nothing wrong with buying and selling or renting inexpensive property.

Pricey Property

Pricey property is attractive, in part, because of its price. There are people who hate the beach but want a home on the beach simply because it’s a status symbol that they’ve arrived, that they’re successful. In recent years, moving expensive property has become increasingly tricky due to the recession, but there’s still a market for whom money is no object.

The upside to buying and selling expensive properties is that you are earning a very generous payoff. The downside is that it can be prohibitively expensive. If you’re not an experienced real estate investor, if you don’t have a lot of investment partners or if you’re not already a major success yourself, you could wind up taking a million dollar bath trying to sell homes to CEOs and movie stars.

Making Your Choice

Investing in property is a big decision. A stock that crashes might cost you a few hundred, but a property that won’t sell at the price you thought it would may cost you thousands.

It’s a good idea to do a lot of research and know your market as intimately as possible before making any purchases. When investing in real estate, knowledge really is power. Play it safe, but don’t be afraid to make a big investment if the right opportunity comes along.