Selecting Your Real Estate Investing Strategy
If you haven’t plugged the trigger on your first investment, the chances are that you haven’t firmed up your targets or strategies. Take a deep dive into one of them — buy and hold, BRRRR, short-term rentals, flips, etc. See what feels right.
- Pick a strategy.
- Find examples of deals. Does it make sense to you?
- Figure out what your targets need to be for something to be a deal. Is the metric cash-on-cash returns, return on investment or the cap rate?
- How much money will you need to pull the trigger on this type of investment? How will you get the funds together to make a purchase — savings, partnerships, borrowing from relatives, doing a HELOC, etc.?
- If you hit any roadblocks, seek out a forum, community, meetup group or local Real Estate Investment Association and talk to others about their experiences. People love to share their stories and offer help on their area of expertise.
Last week’s post provided a lot of resources to help you start your research. If you aren’t leaning toward any particular strategy, just pick one and let it take you down the rabbit hole. Let that choice be as trivial as you really like the shade of blue on J. Scott’s book on flipping houses or the topic of last episode of the BiggerPocket’s Real Estate podcast (long-distance investing).
Examine yourself while you are doing research, reading about real estate and tinkering with numbers. What excites you? What strategies do you like learning more about? Do you cringe at the thought of living through a renovation (live-in flip)? Does house hacking appeal to you and get your wheels turning? Follow your instincts and then focus the ones that you like learning about.
Once you’ve worked your way through the steps, develop your plan to execute. If the numbers make sense, the strategy excites you and you’ve got that itch to go out and buy something, then you know you’re on the right track. If your conscience is nagging you, you can’t put some of the pieces together, or in general, something doesn’t feel right, move on to another strategy until you can see yourself executing the strategy. For us, we originally started looking at wholesaling, but something about it didn’t sit well with me. Then we moved on to looking at short-term rentals and tested it out by buying two units with partners. After that experience (and COVID), we now focus on using the BRRRR strategy to buy and holds single family homes out-of-state.
Don’t let stumbling points stop you from learning more or seeking help. If you’re struggling with a deal calculator or spreadsheet, get on the forums and talk to folks about some of the sticking points. Without actual experience, it’s difficult to figure out what rent you should charge or how much to hold for capital expenditures, etc. People love to talk about themselves, their experiences and expertise. Tap that knowledge. It’s really what the internet is for.
Investing, or really anything in life, becomes easier when you have clearly defined goals, targets and expectations. Put your research on paper (or in the cloud) to create a reference point to remind you of your plans. If a lot is coming at you (deals, life, opportunities), you’ll have a guide to remind you of your criteria. It will keep you from going astray, leaping at opportunities that may not be the right fit and reflect on your choices.
“It is true that when with folded arms we weigh the pros and cons we are no less a credit to our species.”
– Vladimir in Waiting for GodotPlay by Samuel Beckett
Don’t be Vladimir. Eventually, you need to do more than just analyze and actually take action. Educating yourself can only take you so far. Experience truly is the best teacher.