Why are you interested in the creative real estate business? What is it you are trying to accomplish? These are two questions we all need to answer for ourselves. The bottom line is to recognize that you are in the property investment business and treat it that way. It requires planning, discipline, and execution or else it can be a dangerous and unproductive hobby.
We have been property investors long enough to experience ups and downs, a market boom and bust, changes in target markets, even changes in our own strategy. We have fine-tuned our investment strategies, focused on target markets, built our team and systems and have a pretty good handle on things. Honestly, this is a good start, but we still have to ask ourselves, “What does our business represent and deliver?”
To answer this last question we started by defining what we do and then identifying our goals. We buy properties below market value or with excellent terms in order to produce positive cash flow. We constantly seek to improve operations resulting in greater effectiveness, efficiency and value. We generate profits from rents or the sale of the property.
While this is what we do it isn’t the entire story. There are still more questions to answer. So what are our goals? How do we do what we do? What is the result? What is our real estate investment philosophy? What are the most important things that lead to our success? How will we continue to succeed long into the future? What are the fundamentals that we live by?
These are the kinds of questions that help us get closer to answering the grand question about what our creative real estate business stands for. Here is what we came up with:
1. Minimize risk and maximize annualized return – This is our goal. We first understand and minimize the risk. This includes making sure worst case scenarios are not so bad. We focus on maximizing annualized return instead of your one time return. A 10% return is great. A 5% return in one month is twice the annualized return as 15% in 6 months. That’s a big difference especially when you compound it over the long term.
2. Control and manage our success – We do not speculate, as the market is out of our control. We buy based on solid fundamentals. Appreciation is an extra bonus. The numbers must make sense on every investment.
3. Stick to our criteria – We stick to our criteria of properties with 50-70% LTV, strong cash flow and a decent area. We also seek to upgrade our portfolio by periodically purging weaker properties and replacing them with better performers.
4. Strong and multiple exit strategies – We only do deals with tremendous equity and tremendous cash flow, which results in strong multiple exit strategies. This supports our goal to minimize risk and maximize annualized return.
5. Make informed business decisions – We do not make decisions based on hype, emotion, excitement or by following what everyone else is doing. We justify our decisions with thorough due diligence, thereby making the best informed business decisions.
These 5 keys are the foundation of our business and they help position us to be successful in any market for as long as we are actively investing.
So, if I had to say what our creative real estate investing business represents and delivers in a few sentences it is this, We represent creative real estate investing done the right way. We control and manage our success, stick to our criteria, ensure strong multiple exit strategies and make informed decisions that allow us to achieve our goals of minimizing risk and maximizing annualized return.
Whether you are a beginner or an experienced professional, you should go through this exercise as well. Doing so could establish the foundation for a long and successful creative real estate investing career.
Learn how to jump-start your investing business at www.quickstart.pactprosperity.com
Who wants to start a new real-estate business at the moment though?
How is the market in the US? Is it improving at all? Here in Spain it’s all but disappeared! I’ve been in real-estate here for eight years and have never seen it so bad. The crisis made a huge dent in it but things are not getting any better here.
Nice roundup here. I’m currently looking into investing in property rather than continuing with my pension scheme as I don’t have much faith in somebody else choosing where to invest my money. I know that in your second point you say we can’t control the market, but at least if I make a mistake it’s on my head!
As investors we spend much of our time dealing with prospects by phone this can be a very impersonal medium of communication. It adds a significant level of complexity to our effort to establish rapport. When i can’t see you, i am unable to read your non verbal cues and you won’t be able to read mine either. Thanks.
I’m not familiar with the real estate laws in Spain, but here in the US, the economic crises has actually created opportunity for educated private investors because they know more ways to financing property acquisitions with something other than bank financing. I know Marbella is a vacation paradise on the Coast del Sol. We’re eyeing a lot of activity from British buyers in the FLorida market as well as interest coming up from South America.
Creative real estate investing is alive and well here in the US. Does seller financing represent an opportunity in your market? What about private financing from individuals seeking better returns than they can get on bank deposits? Lease options or wrap mortgages also may present an opportunity to help you move properties and generate commissions.
Good luck!
Augie
This is a great post summarizing the keys to building a real estate investment business in the US. How have you found new mortgage-debt rules to have affected your ability to fund your investments?
The new mortgage debt rules are designed for owner occupants and banks. Our focus is on investment property and we work effectively with private lenders as well as sellers who are willing to accept their equity in installments. Both are excellent ways to fund investment property acquisitions.
Where you said “Minimize risk and maximize annualized return” you made an excellent point. Here in Australia we have additional factors, such as our ‘Capital Gains Tax’ which will more often than not whack short-term gains before they’re realised; so many investors simply look at the ‘big picture’ without focusing on the short-term. By consistently having excellent growth in the short-term and compounding it you can heavily improve on annual profits.
Well said. Taxes differ so much form country to country and can be a significant factor. Here in the U.S. they change state to state as well. Additionally, there are both income taxes as well as transfer taxes. All should be considered in relation to your financial goals as well as your exit strategies for a given property. Regardless of the tax situation learning the ways to work within the tax codes combined with a little planning can create very desirable results. My CPA is worth his weight in gold!
To your success…
Augie
Real estate investing has definitely changed over the past several years but still offers a wealth of opportunity if done correctly. Taking the time to research and pick the right type of property, its location and what returns it will generate can still offer investors a substantial return. Long gone are the days when anyone can just purchase and renovate it by changing the appliances out and carpet and then flipping it in a matter of weeks.
Amen brother. It will be interesting to see how the hedge funds fare over the next few years. They appear to be the new speculators. While we’re not yet seeing major run ups in pricing, some markets are moving much faster than others. Buying solely for price appreciation is more like a casino game than an investment strategy. Flipping only works when you can buy right, regardless of market conditions.
Thanks for your post!
Happy investing!!
In order to accomplish this, you need to make some smart choices upfront when buying investment property. Your goal should be to strive to get as close as possible on as many of these optimal scenarios as possible: