Unfortunately, there are no cookie-cutter strategies, which will work for all investors in every single real estate market nationwide. And that’s exactly why, when you’re starting out in this business, you must take your time and carefully analyze a real estate investment strategy and take into account, the:
1. Temperament, knowledge, skill and experience needed to implement the strategy.
2. Amount of cash and credit needed to finance the strategy.
3. Amount of time and energy needed to complete the strategy from start to finish.
4. Potential risks and pitfalls associated with the strategy.
5. Segment of the local real estate market where the strategy will work best.
6. Barriers to entering the real estate market where the strategy will work best.
7. Level of competition from other individual investors using the same strategy.
8. Transaction costs associated with the strategy.
9. Exit plans for the strategy.
10. Tax efficiency of the investment strategy.
Learn to Trust Your Gut Instinct When Choosing Investment Strategies
Another factor that you must not overlook, when choosing investment strategies, is your gut instinct. I’ve learned the hard way, not to ignore that little voice that we all have in the back of our head, which occasionally screams out to warns us, when we are about to do something really stupid, which deep down in our gut, we know is wrong. In other words, don’t let anyone talk you into using a real estate investment strategy, that’s outside of your comfort zone. For example, if you consider yourself to be a type B personality, who’s pretty laid-back and easy going, you may have a real hard time dealing with tenants and feel very uncomfortable in the role of landlord. And investing in residential rental properties probably wouldn’t be a good investment strategy for you to pursue.
Know Your Tolerance Level for Risk and Don’t Exceed it
When it comes to risk, the world is made up of two types of people: Those who are risk-takers, and those who are risk-adverse. At one extreme, there are high risk-takers such as dare devils and thrill seekers, who seem to have no qualms whatsoever, about laying their life on the line, when performing death defying type stunts. And at the other extreme, there are the severely risk-adverse, who seem to be petrified of taking any chances at all, and want everything they attempt to do, to somehow have guaranteed results. But I’ve found that most people have a tolerance for risk, that falls somewhere in the middle of both extremes. The trick, to achieving mental peace of mind as a real estate investor, is to stay within your tolerance level for risk.
Best to Include a Worst-Case Scenario When Analyzing Investment Strategies
I consider myself to be a pragmatic realist. And I fully understand that there’s always a fifty-fifty chance, that something “bad” could happen when using any investment strategy, which could take the wind out of my sails and knock me for a loop, financially. So, when I am analyzing a real estate investment strategy, to determine if it’s suitable for me to use, the very first question that I always ask myself, is this: What is the absolute worst thing that could go wrong, when I am using this investment strategy, and could I survive it? And if I come up with a financially devastating worst-case scenario, that has a much better than fifty-fifty chance of occurring, I take a pass, on using the strategy.
Why You Must Have More Than One Investment Strategy in Your Repertoire
In spite of what the real estate fairytale authors and slick seminar promoters are constantly telling a very gullible public, it’s hard to be a successful real estate investor, when you’re a one-trick pony, who’s limited to a single investment strategy. In order to maximize your chances of being successful in this business, you must be able to take advantage of various types of investment opportunities, the moment they become available. And to do this, you’re going to have to master more than a single investment strategy. As an example, I use four basic investment strategies, I buy:
1. Properties directly from owners in foreclosure.
2. Small mismanaged residential rental properties.
3. Properties with correctable problems.
4. Options on undervalued properties with immediate resale profit potential.
Real Estate is a Multifaceted Business with Numerous Opportunities for Investors
Real estate is a multifaceted business, that’s comprised of the following five types of properties, which provide savvy investors with numerous investment opportunities nationwide:
1. Residential.
2. Commercial.
3. Office.
4. Industrial
5. Land
Your Real Estate Investment Strategies Must be Goal-Oriented
The one thing, that all successful real estate investors have in common, is that they write down their investment goals, and develop a detailed step-by-step plan of action for achieving them. In the immortal words of the father of time management, Alan Lakein: “Failing to plan is planning to fail.” And as far as I am concerned, newbie investors, who fail to establish goals as part of their overall real estate investment strategy, are setting themselves up for failure. Lately, I’ve noticed that many wannabe investors, who consider themselves to be members of the hip “just-do-it” crowd, pooh-pooh goal setting as being old-fashioned and a waste of time, and somehow below their exalted status as MIMS or millionaires in the making. The “just-do-it” mindset may be hunky-dory for people, who are contemplating whether they should order Mountain Oysters in a swank restaurant, but for would-be real estate mavens, this kind of careless spontaneity can end in financial ruin. And unless you want to spend your time as a real estate investor, running around in circles, like a chicken with its head cutoff, your investment strategies must be based on achieving financial goals, which are clearly spelled out and include a:
1. Beginning date.
2. Detailed plan of action for accomplishing the goal.
3. Financial objective stated in a specific dollar amount.
4. Completion date.
5. Exit plan.
Why You Must Prepare a Written Plan of Action for Achieving Your Goals
To me, if you’re not willing to put pen to paper and write a detailed step-by-step plan of action, which outlines exactly how you’re going to accomplish your investment goals, you might as well not bother setting any goals in the first place. After all, what good are goals, if you have no idea about how you’re going to turn them into reality? A well-written plan of action is to a successful real estate investor, what a:
1. Blueprint is to a carpenter.
2. Roadmap is to a truck driver.
3. Flight plan is to a pilot.
4. Lesson plan is to a teacher.
Copyright © Thomas J. Lucier
About the author:
Thomas Lucier has written seven books on real estate investing and property management and, as an author, is proud that hundreds, if not thousdands of real estate investors worldwide have used his advice to earn millions of dollars collectively. His website, AvoidBadRealtors.com, provides, in his Thomas’s own words, “Reliable Information and Practical No-Bullshit Advice form a Seasoned Real Estate Professional and Best Selling Author.”
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