Private Mortgage Lender

Adhering to Your Investment Strategy

One of the biggest mistakes new investors make is to jump feet first into real estate investing without first devising an overall strategy to get from point A to point B. It's a bit like wandering aimlessly through Death Valley: you might eventually reach Las Vegas and hit your jackpot, but the trip is a lot more pleasant if you just plan ahead and take a flight from Fresno.

The other thing that happens too frequently when new investors get started without any sort of strategy in mind is that they become like children in a candy store. They might begin with a simple single family residential rental. Not long after, they buy a similar property in the same neighborhood when they see it pop up for sale. Those are both going so well that when they hear about a sweet deal on the other side of town, they jump at it. Then their cousin's brother-in-law twice removed tells them about an apartment complex in an entirely different city. With their eyes growing by the minute and visions of becoming real estate moguls dancing in their heads, they dive in.

But then a few weeks after they've closed on house number three and begun spearheading renovations with the intention of flipping it, there's a problem discovered with the foundation and some dangerous electrical wiring problems revealed during demolition. As they finally get around to some market analysis of the neighborhood, they realize market activity is drastically different from the neighborhood they are used to. 

Meanwhile, the tenants renting house number one have given notice of their intent to break their lease because of a new job offer out-of-state, and the tenants in house number two have filed for divorce and are several days late on rent. A few days later, the repair estimates start rolling in for the apartment complex outside Cincinnati and they're way higher than anticipated. Return on investment is stretching far beyond the horizon.

Is it possible to be successful in real estate investment without a strategy or at least some clear goals in mind? Of course, anything's possible. But is it likely? Not by a long shot. Besides, without any goals at the start, what are you using to measure your success or failure?

Before considering an investment in real estate, sit down and ask yourself some questions:

1.  What are my longterm financial goals and is real estate investment the most likely avenue for getting me there? Do I have the patience and knowhow to make informed decisions on real estate investments?

2.  How much of my own cash can I afford to invest? How much would I hope to receive by way of outside financing, such as private mortgage lending? Are my other finances in order? What is the maximum price I can pay for a property and still feel comfortable financially? 

3.  Have I studied real estate market information or do I know someone I can trust to help me analyze the market? What neighborhoods are currently offering best returns for short-term and long-term real estate investments?

4. Should I consider a long-term real estate investment in a residential rental or should I opt for a short-term investment in a flip? If I opt for the latter, do I have the background and expertise to oversee any rehab?

5. What sort of time resources do I have available for putting toward my real estate investment activities?

Your responses to these questions and others like them will help you to come up with an overall investment strategy. Write this strategy down, even if it consists of a simple bulleted list. Then, try to stay as true to your master strategy as possible. 

Investment in real estate is seldom a bad idea. That's why I say the best time to invest in real estate is now. Sometimes, the pay offs are a bit more challenging to achieve than other times, but it is a sound investment regardless. As with many things in life, real estate investing is best approached with some basic goals and guidelines in mind, along with the will power not to stray from the plan.

—JM