Real estate is widely recognized as the best asset class for investors to create passive income, to establish portfolio diversity/security, and to watch their assets continuously appreciate as time goes by. Let’s talk about how we can make sure that we only get into deals sure to put cash in your pocket.
Run the Numbers
When we mention “cash flow” we aren't just talking about that rent check that comes in every month (hopefully). Cash flow in real estate refers to your net income, the money we are left with after our mortgage, taxes, insurance or any other operating expenses. A perfect deal will offer cash flow and appreciation potential; if you invest into the right area and property you can secure both. As an investor we want to avoid areas which are already saturated and overly expensive (in respect to home prices, taxes etc.) and especially areas which lack potential for growth. Although you may love a small town and the deals you may find there, if families are migrating overtime to areas with more opportunity and more to do, the areas potential for growth is likely trending downwards. Run the numbers, learn about the market/area you want to invest in, and do enough research to understand whether or not you’re going to be getting a deal you really want.
I've been using the BiggerPockets.com rent calculator to underwrite the single family investments I make. https://www.biggerpockets.com/rental-property-calculator if you need help running the numbers on your next investment.
Value Add Deals
Throughout your property search, assuming you’re looking at properties seemingly priced below their market value, you will come across properties that are beat up, older or have been neglected. These homes which need work done, sweat equity, are what I refer to as “value add” deals; fixer uppers, or a buy and flip deal. Scoring a deal on a home which needs renovations and repairs can add immense complication to your investments, but this can also bring immense gains on your initial investment.
The way I see this approach is simple. Avoid investments that will require “big” renovations UNLESS: You have experience working with renovations or construction and will know what you’re doing/ what to look for, OR if you have enough time on your hands to deal with any complications as well as enough time to do your share of research before you dive into a project like this. I don’t want to scare you off, flipping a home or adding value to your investment through renovations is one of the best ways to make gains on your properties, but the last thing we want is for you to be stuck with a project you can’t complete.
Identify and Stick to your Strategy
There are countless ways to structure your real estate investments which leads many of us to commit to way too many different strategies, before we even master one. You can use a lot of leverage, you can buy in cash, you can buy fix & flips, you can buy and hold, you can AirBnb, you can do so many different things with your assets but do not let this fluster you. Avoid trying to go from deal to deal, attempting to pursue completely different strategies that you lack knowledge and experience trying.
There’s plenty of advice seasoned investors throw out for us to absorb, but my all time favorite and arguably the most important piece of advice is simply to “just do it”! Educate yourself and be smart about where you put your money, but just do it. The reality is you will have to break your comfort zone at first, but this is better than letting your fear and hesitation keep you away from potential great deals!
If you have any questions about making your investment, reach out! We love helping aspiring investors around Orlando and Central Florida begin their path towards financial freedom.
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