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Investing in real estate properties: Successful startup and growth strategies


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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.



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