Skip to main content

Investing in real estate properties: Successful startup and growth strategies


Visit our website

In general, those who embark on life endeavors with a good strategy have the odds stacked in their favor to succeed. When starting off as a real estate investor (full time or as a side hustle), a good strategy or road map is outlined below:
Stage 1: Startup 
Stage 2: Growth
Stage 3: Financial Freedom

Stage 1: Startup

You can start with your personal savings or with a loan. Note that you need to be careful about starting a business or real estate investment with loans. Discuss with your financial planner/adviser before making the decision to invest a loan on rental property.
There are 3 options for stage 1:
a.  Purchase a piece of land and resell for a profit. Reinvest the original capital and profit. Search for good deals on land/property purchases (buy at a price below current “fair market value”), this way, you make some profit on the day you close-out the real estate purchase.
b.  Purchase a piece of land and build. Sell the house you built and make a profit.  Reinvest the original capital plus the profit.
c.  Buy a real estate property and renovate, then sell for a profit (flipping houses). Reinvest the original capital plus the profit.

Stage 2: Growth

There are 3 phases in the growth stage. In this stage you need to be disciplined and ensure proper due diligence in your investments because you now have more money or capital at your disposal , therefore you are exposed to more real estate investment opportunities, some of which might be risky or bad investments.
Phase 1 - As you keep re-investing your capital plus profit from stage 1, your portfolio becomes larger. Your cue to add rental properties to the mix is when you have enough capital to continue stage 1 strategy (buy, build and sell or house flipping) and still have access to more money/capital to acquire at least one rental property.  A good rental property will in some years generate rental earnings that will equal the total cost of acquiring the building or property (buying or building). It is very important to consider how many years this will be when evaluating the returns on investments (ROI) for any rental property.
Rental ROI = (Total cost of property / yearly rental incomes) 
Tip: A rental ROI of 10 to 13 is good

Phase 2 - Know when to either do major upgrade/renovation or sell (for profit) your rental property /properties. 
-   It is a wise strategy to get a periodic valuation for your property (every few years) then compare it with a market survey of current prices of similar properties in the neighborhood. This is to enable you evaluate the potential for your property to still gain value or if the value growth rate is flat (plateau stage). This way, an informed decision can be made whether to sell the rental property and use the proceeds to develop/buy another rental property with potentials for value appreciation and better returns (consider ROI as explained above). The other option is to do a major renovation of the rental property and make it more structurally strong and modern (more attractive, energy efficient and comfortable). This will cut down future maintenance expenses and insurance cost while you earn better rental rates as compared to newer/modern rental properties in the area.
-    In some cases, the property value may have significantly increased while the rental value did not increase at a comparable rate. Such cases of non-commensurate increase in property value vs. rental value may be due to a saturated or matured neighborhood where there is scarcity of new land for property development, but no improvements in social infrastructure and lower security/comfort due to congestion in the neighborhood. It is wise to sell such rental properties and invest in other areas where land and houses may be a lot cheaper, social infrastructures and security/comfort levels are better and the rental rate is commensurate to property value i.e. better percentage of returns on investment (rental ROI).

Phase 3 – Acquire more rental properties as you gain access to more money/capital. This is where you experience the true meaning and miracle of compounding rental income. Your flow of rental income (passive income) continues to increase.

Stage 3: Financial Freedom

This is the stage where you are generating enough rental income to sustain your full living expenses and have some extra money to save without the need to continue actively working, flipping houses or developing new properties to sell. Note that building or renovating to sell (flipping houses) is considered working to earn income (i.e. active income) because there is a continuous input of significant personal time, efforts and money to generate income. On the other hand owning a rental properly requires negligible personal time and effort to continue generating income. At this stage, the extra savings from passive rental income can be accumulated to continue buying/acquiring more rental properties.

In conclusion, a real estate investor need not be in a hurry to make money and achieve financial freedom, it takes time, consistent efforts, money/capital , discipline and good investment strategies to get there.



Disclaimer
Any views or opinions represented in this blog belong solely to the blog writer/owner and do not represent those of people, institutions or organizations that the writer/owner may or may not be associated with in professional or personal capacity, unless explicitly stated.
Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. All content provided on this blog is for informational purposes only. The writer/owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.
The writer/owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
Comments are welcome. However, the blog writer/owner reserves the right to edit or delete any comments submitted to this blog without notice due to:
- Comments deemed to be spam or questionable spam.
- Comments including profanity.
- Comments containing language or concepts that could be deemed offensive.
- Comments containing hate speech, credible threats, or direct attacks on an individual or group.
The blog owner is not responsible for the content in comments.
This blog disclaimer is subject to change at any time.





Comments

Post a Comment

Other interesting posts

Return on Investment (ROI) vs. Property Appreciation

  Visit Our Website  Real estate investment has long been a popular choice for those seeking to grow their wealth. However, real estate investment strategies can differ significantly depending on the investor's goals. Two of the most common metrics used to evaluate the success of a real estate investment are Return on Investment (ROI) and Property Appreciation. While both are crucial for understanding the profitability of real estate, they represent different aspects of investment performance. This article will explore the differences between ROI and property appreciation, how they are calculated, and the factors influencing each.   Return on Investment (ROI) is a measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. In real estate, ROI specifically measures the return an investor earns on a property relative to the property's cost or total investment cost(down payment, closing cost, or cash).   How to Ca...
Post a Comment
Read more

Real Estate as a Store of Value

Visit Our Website Store of value is a function of an asset that can be saved, retrieved and exchanged at a later time without any risk of losing it and also retains its purchasing power into the future. Wealth is the total of all stores of value monetary and non-monetary assets. The most common store of value in modern viewpoint has been currency, precious metal (Gold, silver etc.) and real estate. The underlying reason for using this storing medium is that it has a better way of managing the risk associated with it. Most people would say money is one of the best ways to store value because of the ease of exchanging it for other goods and services without time wastage, but it can quickly be affected by hyperinflation mostly in developing world. However, real estate is a better means of storing value for investors if the property is strategically located in choice areas, well-built (architecturally and structurally) and free from any form of disaster. A good house will gain ...
8 comments
Read more

Liquidity of Real Estate and What You Should Consider

Visit our Website It is very important for an investor to consider expected yield and liquidity before investing in a real estate asset (land, buildings and estates). Any asset that can be ex-changed for money has a certain level of liquidity. During your ownership of real estate, the yield (rent) creates revenue and cash flow. However, your ability to sell your real estate at a reasonable price and in a timely manner is determined by liquidity. So what is liquidity? Liquidity describes the ease at which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Money or cash is considered the most liquid asset because of the ease of exchanging it for other goods or services, while real estate, securities, fine art and collectibles are all relatively illiquid. Typical order of asset liquidity are currency, securities (stocks, bonds and treasury bills),Precious metals (Gold, Silver, Palladium, platinum etc.), real estate and A...
2 comments
Read more

Merits and Demerits of Building a House from Scratch

Visit Our Website Building a house from scratch for rental purposes or outright sale has its merits and demerits as compared to renovating an existing building.    Merits You can have an input on the architectural design of the house. You can decide how the external view and the interior of the house should look like. Creating an area with good and easy to move around living space can make the apartment appealing to tenants. You can decide the budget for the project. Based on your estimated selling price for the proposed property, you can decide on the budget you want to put into the investment to give you a reasonable profit margin. You can decide the number of bedrooms for each apartment. Most times with a good survey of the vicinity you will be able to tell what kind of apartment will rent faster and give higher returns. Example the difference between 1-bedroom apartment and 2- bedroom apartment or 2- bedroom apartment and 3- bedroom apartment may not be ...
5 comments
Read more

Cleanliness in Rental Properties

    Visit Our Website  Cleanliness in rental properties is a fundamental aspect that significantly impacts the well-being of tenants. A clean living environment not only enhances the aesthetic appeal of the property but also contributes to the physical and mental health of the residents. If sanitation is not well coordinated and enforced could lead to tenants not taking responsibility to ensure a clean environment. In this write-up, we will explore the importance of cleanliness in rental properties, its impact on tenants, and the responsibilities of both landlords and tenants in maintaining a clean living space. Health and Hygiene: Clean living spaces promote good health and hygiene among tenants. Regular cleaning and maintenance prevent the accumulation of dust, mold, and pests, reducing the risk of allergies and respiratory problems. A clean environment also decreases the likelihood of diseases spreading, creating a safe and healthy atmosphere for all residents. Psychol...
Post a Comment
Read more