Real Estate Investing Tactics

There are generally two ways to generate profits from your real estate investing. Your holdings either generate cash now, this and every month, or you expect them to generate cash at some point in the future. Future profits can come from appreciation, but unless it if forced appreciation, you are really just breaking even over the long term. Forced appreciation is the increase in value due to an improvement in the cash flow the property generates. A simple example is you buy an apartment building, make some changes and improvements and are then able to raise the rents and resulting profits. That increase in profits directly translates to an increase in the intrinsic value of that apartment building.

But, in my opinion, your real estate investments should be cash generators. Each month they should be generating a net positive impact on your spendable cash in your bank account. If they aren't you are wasting your time.

The biggest advantage of real estate is your ability to control cash producing assets through leverage. That leverage means instead of needing $1,000,000 to realize the income a $1,000,000 apartment building can generate, you would only need $200,000 - $300,000 and that could come from one or more partners.

The test I use is simple, every dollar I invest in real estate must generate at least 3% in real spendable cash each and every month before taxes.

I know what you are asking, why am I requiring a 36% yearly ROI on cash I put into real estate? Because that is the minimum I generate using various option strategies in the stock market.

Yes, even in THIS market.

If I can generate 3-5% per month for each dollar invested in the stock market, why in the world would I invest in real estate?

I am glad you asked that question.

One of the biggest reasons is, you can't get a 75-80% loan to buy stocks, but you can to buy real estate. You can't get a partner to cover most or all of that remaining 25% to buy stocks, but you can to buy real estate. I can also buy real estate at a discount based on any number of situations unique to the seller. I can also directly impact the value of real estate I buy by taking action. I can improve the property, add amenities and increase the rents as the market will allow. This increases the value of the real estate I bought at a discount.

However, the correction we are working through now highlights the fact that long term profits from real estate don't always materialize. There are a number of people who have lost everything they thought they were building with the downturn. However, had they structured their real estate holdings during those good times to generate cash each month instead of trying to bet on the increase in value, they would not be in a situation of panic and desperation now.

So, you might notice a pattern with me. It is all about the cash flow an investment generates each month.

Yeah, I'm kind of selfish that way, and you should be too.