The Three Phases of Real Estate Investing
[Image generated with Dall-E]
Welcome to 2024. The investment market in Las Vegas has become fast-paced and intense. We're seeing a significant rise in investment interest, and desirable properties are going under contract within just 1-3 days. I will delve deeper into the market conditions in our annual investor outlook, due later this month.
This is also the first weekly blog post from our new platform. If it ended up in your spam or junk folder, please move it to your primary folder to ensure our newsletters continue to arrive in your inbox.
Real Estate Investing Lifecycle
Over the past few months, we’ve gained many new subscribers, many of whom are just beginning their journey in real estate investment. This prompted me to share my thoughts on the real estate investing lifecycle.
There are three distinct phases in the real estate investing lifecycle.
- Starting phase - Getting everything ready to buy your first property.
- Growth Phase - Grow your portfolio with the least capital using appreciation and cash-out refinance.
- Cash Flow Phase - Portfolio cash flow optimization, which may involve replacing underperforming properties with those that have higher cash flow potential.
Starting Phase
The starting phase is primarily about getting everything in place so you are ready to buy your first property. The major components are listed below, not in any specific order.
- Define your goals: The first step is to write down your goals, making sure they are specific and realistic. Putting them in writing makes your goals more tangible.
- Action plan: Goals without an action plan are merely dreams. Begin with your ultimate goal and work backward to your present situation. It could take several steps to bridge the gap between your current state and your goal. With a robust action plan in place, achieving your goal hinges on consistent execution rather than hoping things will "somehow" fall into place.
- Cash and credit: Before starting your property search, ensure you have the necessary cash and credit. You can determine this by applying for an investment loan. You may discover that you need to do some credit repair or increase your cash. Remember that you will need more cash than just the down payment. You will need additional cash for renovation and more.
- Learn real-world investing: Everything you learn from books, seminars, websites, and podcasts is general knowledge. You will buy a specific property in a specific location, subject to specific local rules and regulations. Thus, it's crucial to work with an experienced local investment team. They can provide the real-world investing knowledge, processes, experience, and local resources you require. Think of it as a personalized master class.
Growth Phase
To replace your current income, you'll need income from multiple properties. The total capital you require depends on the appreciation rate in your investment area. If you choose a city with rapid appreciation, you can reinvest the increasing equity through cash-out refinance. This approach greatly reduces the total capital required.
Cash Flow Phase
The focus shifts from appreciation to generating sufficient, reliable cash flow that outpaces inflation. You may also need to align with additional goals like retirement planning. The properties you acquired in the growth phase should provide a reliable rental income that outpaces inflation, enabling you to maintain your current lifestyle throughout your life. This, of course, is dependent on where these properties are located. If there are any underperforming properties, you may want to use a 1031 exchange to replace them.
Conclusion
Many “gurus” make the process of achieving financial freedom through real estate a mysterious and complex endeavor, depending on finding the right guru or secret. However, real estate is straightforward; there are no secrets. Successful investing is the disciplined execution of proven processes. Millions have already achieved financial freedom through real estate investing, including some of our clients, and you can, too.
