Before You Start, Understand Your Goals

"If you don't know where you are going, you might wind up someplace else." ...Yogi Berra

Many people choose to invest in real estate for the many advantages it offers. But not all have defined what they want to achieve, their available resources, or their time frame. This article will cover the most common goals people have based on the time frame

Short Term

Sort term is usually one year or less. The only short-term option is flipping. While a popular topic, every month, we see flipping failures. These properties make me sad; a lot of hard-earned cash is lost. If you are going to flip successfully, you need:

  • Access to capital and credit
  • Extensive knowledge of the market
  • Know how to identify good properties and know the maximun price you can pay. You also need the fortitude to walk away if the numbers do not work.
  • Only select properties with low risk or cosmetic issues.
  • The ability to determine what to rehab (hard for many people) and the will power not to redecorate it to their personal taste.
  • Access to cost effective and reliable trades people
  • Expertise managing renovation projects and the ability to be on site almost every day.

When people ask me if they should flip, It'll them, "If you have to ask whether you should flip houses, the answer is no." Flipping is a very high risk venture unless you really know what you are doing and the market is in the right state.

Medium Term

This is usually in the 3 to 5 year range. The property selection priority is cash flow first and appreciation second. To be successful you need:

  • The skill to select an investment location that is doing well today and should continue to do so for the foreseeable future.
  • The skills to select a tenant pool that will: stay employed, pay all the rent on schedule, take care of the property and stay for several years.
  • The ability to select properties which your target tenant pool is willing and able to rent.
  • Credit and cash for the down payment, renovation cost, and general start up costs plus a reserve fund for the unexpected.
  • The right investment team

Long Term

Long term is usually five or more years.

If you want to maximize a future income stream, start by focusing on appreciation, not cash flow. Cash flow is taxed; appreciation is not. As the properties increase in value, refinance them and buy more properties. Using this method, you can accumulate multiple properties over time. These properties will also generate significant cash flow because properties prices lead rental rates by 2 to 10 years. The properties that are rapidly appreciating will also have rapidly increasing rents and thus cash flow.

Also like medium term investing, with the right investment team in place, very little personal time is required.

In Conclusion

You do not need a detailed plan. By writing down your resources (cash and credit), goals and time frame, you will know the best method for you. Then it becomes a matter of execution.