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"A Real Estate Investment Strategy Can Take Many Forms…"


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...But only 1 real estate investment strategy clearly stands out in today's market as being the best and safest for "small time" investors like you and me (and no, this is not a sales pitch...just free, unadulterated investment property advice).      


PILLAR #1: LONG-TERM STRATEGY


The overarching goal of your real estate investment strategy should be to build up savings over time. Your strategy should not seek monthly income. Your strategy should not seek short-term profits. Unless you really like risk, a long-term investment plan is the only way to go.

Your real estate investment strategy should focus on building long-term (free) equity by renting out 2-4 unit multifamily income properties that you acquire with very little out-of-pocket cash. Whether you are a new or part-time investor, buying and holding for at least 10 years is the best way to optimize the power of leverage, free equity, rental tax deductions, and price appreciation.

The bottom line is that unless you have access to a lot of capital (i.e., cash on-hand, or an on-call private lender), you'll find it difficult to execute a profitable short-term strategy. Want to do some flipping? Get a job at Burger King.

In today's market, straight-out flipping simply makes no sense for small timers like you and me. The only viable short-term strategy is to buy a fixer-upper, make the cosmetic improvements, and resell for a profit. But even a strategy focused on fixer-upper homes has challenges, and it too is more likely to succeed if you have a long-term view.  


PILLAR #2: DETERMINE YOUR GOAL


Ok, so now you know that rental property investing or any of the other real estate investment strategies work best as a long-term endeavor. But how long? Well, that depends on your specific goals.

If your goal is to fund college for your kids, and the oldest one is 5, then your minimum time horizon is about 13 years. If on the other hand your goal is to help fund your retirement, then subtract your age from 55 (or 60, or 65, or...) to figure out how long to hold your rental properties.    


PILLAR #3: TARGETED LOCATION & PROPERTY TYPE

 

Aside from your goals and time horizon, the final pillars in your real estate investment strategy are what and where to buy. As I've already mentioned, you should target 2-4 unit multifamily rental properties. Regarding location, you’ll want to target a lower income, geographically narrow area – like a single town or county – within a 30-minute drive from your home. Trust me, it helps!  



SUMMARY


Ok, so there you go. That's all there is to it. To sum up, the overall framework of your real estate investment strategy is as follows:
  • Determine your goal, and then how many multifamily rental properties you must acquire to achieve it.  
  • Pick a lower-income town or county no more than 30 minutes from your home.  
  • Look for 2-4 unit, non-owner occupied, older rental properties with cosmetic deficiencies.  
  • Minimize out of pocket expenses by using leverage to the max.  
  • Plan to hold and rent out each rental property for at least 10 years.
  •  



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16 Responses to A Real Estate Investment Strategy Can Take Many Forms…

  1. enrique says:

    I totally agree that a long term strategy is the way to go. Very smart indeed.

  2. Ayesha says:

    Thanks very much for your blog, I am thinking about getting into the multi-family property investment market and your website has been really helpful in understanding all the issues and steps involved.

    After reading your advice, I’m actually inclined not to invest right now. Not because of your content, but because my individual and the market sitution in my area. You have grounded me in reality in that while this may be a good investment opportunity, it is also a lot of work and not insignificant time commitment, not just upfront but also on an ongoing basis. The numbers aren’t supremely compelling in my area since New York City is quite expensive and requires fairly high downpayments amongst lenders. I think I might be better off in the stock market or if I decide to put real estate into my portfolio, maybe a REIT.

    However, I’m still somewhat on the fence. I am a long term investor and I feel like the type of investment you describe can be a great long-term, stable, income generating investment. I’ve started to view some properties and I am starting to get a little more comfort when I see that the current tenants seem to be very nice and stable. I guess I’ll have to see plenty more before I will get comfortable in taking this step.

    many thanks
    Ayesha

  3. juicy jen says:

    Hi Ayesha – I read your comments and felt compelled to reply. I too was on the fence before I jumped in. But like anything, there can be no ROI without putting the work in. Keep looking at properties and sooner or later you’ll find one that seems like a no-brainer. And, I hear ya about NYC. You might wanna check the stats on nearby areas that aren’t so urbanized….because I would assume that better deals can be had in these types of areas. Good luck!

  4. Jose says:

    Why do you recommend multifamily homes as opposed to single family homes. I am considering purchasing 3-4 room single family homes near a University for rental income. What are your thoughts? Thanks!

    • alank856 says:

      Hi Jose,

      Thanks for your comment. Yes I’m a big fan of 2-4 unit properties. The main reason is that this type of property maximizes cash flow, and also reduces risk because if one of the units becomes vacant, at least you’ll have the income streams still coming in from the other units. Conversely, with a single family home, a vacancy means zero income for the month. Additionally, on a per-unit basis, multifamily properties generally cost less than a single family home.

      That said, the market dynamics might be different in a college town. I’ve never invested in student housing so I can’t give you any first hand advice on it. I would recommend asking this same question to someone who already invests in college housing so you can get an opinion from a first-hand source. Good luck!

      Alan

  5. Doug says:

    I recenty tried flipping property and I wound up taking a loss (boo!). Does anyone have any comments on how (or if) it is possible to earn good money flipping property at the moment?

  6. kelly says:

    I am in the process of purchasing a REO with some business partners, I understand that the best way to protect our investment is with a llc, my question is, is there one state that is preferred over another when it comes to setting up a llc. We are CA residents purchasing investment property within the state. I’ve heard people mention Delaware or possibly Nevada.

    • alank856 says:

      My LLC is based in Delaware even though I am located in NJ. Yes either DE or NV would be the best states of incorporation because they are the most “business-friendly” states. Good luck on your project.

  7. me2pk says:

    Thanks for the great article. Where else may just anybody get that kind of information in such a perfect way of writing!

  8. gail says:

    I am trying to get into the investment in mult family. My problem is that I want to invest in NY. should I invest in the areas that are not the best neighborhoods and hope they will improve in years to come? this happened all over NY. Is it too risky? the prices of investment properties are outragish in NY

    • alank856 says:

      Hello – thanks for reading! If you are just starting out, you will probably need to go with a ‘cheap’ property, which will likely be located in a less-than-desirable area. This is ok though, and it’s actually how I got started. Yes managing a triplex in the ‘hood was not much fun, but I sold it a year later and upgraded to better areas. In a sense, I had to pay my dues for a year in order to get in a position to buy better properties in better areas. So if you’re like me you will probably have to start at the bottom. Just be careful with the neighborhoods and do not buy into the lowest of the low.

  9. charles says:

    I purchased a small office building about 10 years ago and branched out my business a trade school. however, each state has different agencies which make student referrals. I was forced to a degree to shut down. Finally after years and numerous prospective tenants viewing my property, we landed a long term tenant with a reputable business o lease the property. Buyer be aware, real estate taxes climb rapidly in New Jersey, this hurt me for along time with out of pocket taxs to pay with no income from the property. However, the area was changing from bad to urban improvment, this has been on my side. I would like to purchase other investment properties however, in N.Y where I live it is obvious properties are high priced regardless of local . Is there a REIT that you would recommend.

    Thank You

  10. Kay says:

    Hello,

    Can you provide a little bit more guidance on setting up an LLC in Delaware while living and purchasing property in NJ.

    Thanks

    • alank856 says:

      Hi – yes you can incorporate in any state irrespective of the physical location of the business’ operations. Delaware and Nevada are said to be the most “corporation-friendly” states in the US.

  11. Ally says:

    Why would you recommend against owner occupied?

  12. Terry says:

    I am a RE Investor in both single and multi-family properties. I make a higher profit on the single family property but I’ve also owned it for 16 yrs. Market rents have risen since then, needless to say. The Multi-family property I have was an owner occupied (me) for 10 years while I worked in NJ. It was definitely a fixer and I knew that. I also knew there were things I could do eventually, 1 or 2 that needed immediate attention. I worked on the property and the front house (there were 2) after work and on some weekends when I stayed there. I usually went home to my primary residence on the weekends. I can tell you that it was both hard work, frustruating at times dealing with tenants, but overall I believe it will pay off when I go to retire regardless of what the market has done in the last 4-5 years. I no longer live on that property so it is fully rented and I am FINALLY making a small profit. I’m not covering the 20%. Right now its more like 8%, but that will change with new Tenants.

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