Creating a Real Estate Investment Plan

Two Common Investment Strategies

Many real estate investors adopt one of two common strategies – the dynamic or the planned. Both offer success but one tends to deliver higher profit in the longer term. New investors are often assume that "It's a numbers game – win some, lose some" or "If it's a good price buy it, if it isn't the right "buy-and-hold" property, you can always sell it." This can be profitable but often not as profitable as the less dynamic forward-planned approach.

Have a Clear End Goal and Know the Trends

The foundation for forward-planning is to set an ultimate End Goal, clarify a process, and build a trusted team. By basing all decisions on the End Goal, every investment opportunity can be tested, the process followed, and results delivered by the team.

Current and future market trends support the decision to invest in, or to pass on, a particular investment property. Each market – local and general - is affected by economic forces, current and possible future mortgage interest rates, age-range of potential buyers and tenants moving into or out of the area, and overall affordability, to take some examples.

Fix-and-flip or buy-and-hold decisions are affected by these trends in slightly different ways. Keeping your eye on the "market trends ball" and the End Goal enables the right "buy it," "hold it" or "pass it by" decision to be made.

An End Goal of $X,000 in pure equity, $Y,000 in monthly income, etc. means an investor will know when to buy-and-flip or buy-and-hold or hold-then-sell. Getting it right demands making decisions several transactions in advance. How many transactions is guided by the market and the End Goal.

An Example of Forward-Planning

A neighborhood shows signs of improvement – infrastructure, greater retail and other commercial investment, etc. – and has some repossessed properties or older, unimproved properties for sale. An investor can buy and renovate two, then rent them out. As more potential tenants move into the neighborhood and new investors who want to buy appear, one or both investments could be sold – with good sitting tenants in place. This enables a bigger investment in, say, a multi-family property that will both provide high rental income, lower management costs, higher profitability, and faster equity growth.

The monthly rental profit from that multi-family property will enable, say, a fix-and-flip investment to generate future profit and thus enable another buy-and-hold investment in a year's time. In this way, the investor builds both equity and monthly profit.

Each decision takes both current market trends and the End Goal into account rather than treating each investment separately as part of the "numbers game."

Final Comment

Long term, maximum success for investors means integrating goal, process and teamwork – and making current decisions that support future decisions.