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