intelligent, thoughtful, deliberate investment strategies

Successful Real Estate Investment Strategies

In this chapter of the intelligent, thoughtful, deliberate series, I will discuss the guiding principles of successful real estate investment strategies.

Profitable investments in real estate is a core baseline to financial success. Whether it’s buying your first single family rental or adding a 400-unit multifamily development to your portfolio – the basic goals of real estate investing are the same: to create passive income, generate a stable cash flow, benefit from real estate tax advantages and to establish leverage and future value through asset appreciation.

While real estate investing is always a popular subject and seems to be a “no-brainer” to seemingly everyone, the reality is that it usually takes hard work and a lot of brain power to do it successfully.

We’ve all heard the stories of a family member or co-worker who bought “X” property at a steal and they made 3x what they paid for it practically overnight. These stories get the endorphins pumping and set the imagination to work. It’s true, at times you can score big and catch the market just right, but for the majority of investors a more deliberate and cerebral approach provides a steady and highly profitable model that exponentially grows over the time.

Here are a few key thought patterns and principles that can help you be successful in the exciting world of real estate investing:

1- Find properties that are not being used to their highest and best value.

“Found value”. This is a favorite term of those who are prolific at real estate investing. Whether it’s a vacant lot, an aging office building or an abandoned warehouse – the key here is to find a way to change the current use to another that will generate value and profit. ie – converting an old warehouse to luxury loft apartments.

2- Look for patterns of revitalization and market growth

It’s easy to say after the fact: “I always knew this was going to happen in this location” But how do you quantify that and confidently predict future growth and appreciation? While our gut can help us at times, there are metrics and patterns that you can train yourself to look for to catch the edge of the wave of progress .

3- Buy for the future and not today 

If you only rely on trailing revenue and past metrics, it’s like trying to drive into the future while looking only through the rear mirror. Yes the past is important and it can tell you much, but it is even more important to think about future trends, future demographics, future business growth etc if you want to be really successful in your real estate investments. Think about it – if the deal was simply as easy as reading a proforma and assigning a cap rate, wouldn’t everyone already have done it?

4- Never be afraid to take a profit

“You can’t go broke taking a profit”. Those truly are words to live by. While you always want to be reaching for the ceiling, remember that real estate is a dynamic market that is constantly changing. It’s not always the singular goal of each investment to extract every penny out. If selling something here at a reasonable profit can help you leverage up to an asset there with a higher upside – do it and don’t look back. Remember to keep your whole portfolio and big picture goals in front of you at all times.

5- Network with those who know

We talked earlier about looking for patterns, one of the biggest sources of “patterns” is the business and development community. Many times, they create the waves of progress that ripple through neighborhoods. Ever wonder what’s going to happen to that land with the fence around it? That renovation around the corner, what company is going into that building? Why is that surveyor out measuring that parking lot? Network with the people that know, find those answers and craft your investment strategy accordingly.

6- Create an analysis model you understand and trust

We can’t all be mental calculators like Rain Man. While back of napkin calculations are helpful, you need to have a working financial risk calculator that helps you work through the complex analysis needed to make sound investment decisions. There are many apps and programs available for download and these are great starting points. Customizing and creating your own tool over time that is easy for you to use and that displays the metrics most important to you will allow quick and accurate decisions. This in turn saves you time, money and prevents great deals from slipping away due to indecision.

7- Creative and critical thinking

Creative and independent thought – perhaps the most elusive investment tool of all. There are millions of real estate investors who have access to the same information, analysis tools and similar capital. So why are some extremely successful while others also seem to be a step or two behind? A great investor once told me, “I have a job because people have a memory.” The ability to think critically so as to remove previous biases and mental anchor points is the ultimate skill. Where others might remember what used to be, you see what can and should be. When others only remember why something failed, you think of how to make it succeed. This takes self discipline and deep thought, but is extremely rewarding.

Real estate investing can be intimidating, especially at first! But with these powerful tools in hand along with a skilled broker partner, you are ready to build and grow your investment portfolio.

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