The 5 “Secret Sauce” Ingredients of Successful Real Estate Investors
Successful real estate investors know one thing. If you want to survive and thrive in any given real estate market, you need to know what works at the present and where is the market heading to.
I always say that one of the reasons I love real estate is because it is an ever evolving business. Not at all boring, Very dynamic in nature. Successful real estate investors adapt to the business and are not afraid to move away from something familiar, which does not work any longer, and embrace new strategies.
In this post I want to share with you what I call the 5 “Secret Sauce” ingredients, which I believe are paving the new way of real estate investing and are definitely on the radar of successful real estate investors.
The 5 “Secret Sauce” Ingredients
1. Investing with others
The old saying of “not putting all your eggs in one basket” goes very well with real estate investing as well.
When it comes to investing in real estate, especially if you don’t have much funds and also are looking for a better than average periodic return (ROI,) you can check out new real estate platforms like Fundrise. Fundrise has a minimum investment of $500, they have a good range of investment properties to choose from, and you don’t have to be an accredited investor to invest.
When it comes to funding, why use your own funds? You can also grow much faster as an investor if you can leverage OPM (Other People’s Money.) Working together with other individuals with money has always been one of my favorite ways to purchase properties and grow your business the fastest way. I share all about it, in the Private Money Made Easy training.
2. Buying Rental Property
Passive income – a lot of investors are attracted to that aspect of real estate investing.
Cash flow is key here. You have to purchase a property where after all combined monthly expenses, you have a positive residual left from the rental income.
The success of the “Buy and Hold Strategy” is a combination of knowing which properties to buy (in the right areas, based on demand and price to rent ratio,) and a solid management system in place.
There is a new way to buy rental properties with Roofstock.. You can buy single family rental properties (that already have tenants and cash flow) easily online.
3. Fixing and Flipping
This strategy has become more mainstream in the last few years, thanks to popular shows on TV showing stories and case studies of homes being fixed and flipped, and the wider availability of private funding. It is definitely a great strategy, and one of my favorite, but you have to know what you are doing.
Finding the right properties, estimating the right budget for the rehab, and keeping control of costs and contractors are crucial elements if you want to be successful as a flipper.
One of the main things I have pointed out lately when it comes to “fix and flip,” is to find the sweet spot for your area, which considers location, price range and risk versus stability.
4. Real Estate Investment Trust (REIT)
REITs have been around a long time, but they are definitely having a revival in the investment world.
90% of the world’s wealth comes from real estate. However the majority of the most wealthy investors do not actively manage or involve themselves with the day to day operations of real estate. They invest in REITs. REIT is a fund that is set up to invest in mortgage instruments, bonds, and stocks in the real estate niche. Basically the investors get paid back from the interest borrowers are paying on their mortgages.
Some of the more popular REITs include American Capital Agency, Annaly and Realty Income.
You can invest in a REIT through your financial advisor or broker.
In today’s society, there is definitely a trend towards shared economy: Uber, Turo and Airbnb are just a few of the most popular examples.
Vacation rentals have gained a lot of popularity in the last few years. You can get a whole apartment or house for the price of a hotel room, with more room and privacy.
Real estate investors have capitalized on this trend. Landlords have favored vacation rentals over regular rentals, because of being able to get more rent/income per property, and since the tenants are transient, a lot of the common issues with tenants are avoided.
It is a great strategy, but I would recommend using caution and see how it is going to survive the test of time. Is this just a trend or is it a strategy here to stay? A lot of communities and organizations frown upon vacation rentals (taking business away from hotels, not proper screening of transient tenants are a couple of the most common complaints.) That means that as a landlord I recommend you purchase the property still using the worst case scenario of “what if” is going to be a regular rental with regular rents instead of a vacation rental.
One of the great things about real estate investing is the diversification and the choice of investing strategies.
Since real estate is a dynamic business, things change in the industry, the economy, and people’s views and perceptions.
At the end of the day, the best course of action is to figure out what’s most important to you and decide the best way to invest accordingly.