Having a real estate business strategy is just as important as having a business plan. Without strategy, you subject yourself to slow decision making, lost contracts, and a severely lacking sense of accomplishment.
These five parts of a sustainable business strategy could easily be the difference between endless frustration and wild real estate investing success.
Every investor needs a real estate business strategy. Without it, you’ll be stumped by a slew of endless frustrations.
For example, it’s incredibly difficult to make all the decisions real estate investing demands of you on the fly. Your decision process will either be flawed or much too slow, causing you to lose out on deals. You’ll doubt yourself constantly with questions like, “Is this a deal or isn’t it?” “Should I evaluate by the amount of equity?” “How much equity is enough?” “Should I evaluate by the ROI?” or, “What makes a good ROI?”
Even if you’re working hard, it’s nearly impossible to see the light at the end of the tunnel without strategy. You’ll make money here and there, noticing the correlation between your efforts and the amount of money you make, but it will feel an awful lot like being on a hamster wheel – no end in sight.
Perhaps even worse, you will constantly second-guess your market. When you’re not sure what you’re looking for, the grass always appears greener on the other side. You’ll end up with a confused mind, and a confused mind does nothing.
What most people want – what YOU want – is to confidently decide whether deals are worthy of your time. You want to make quick decisions to beat your competition to getting contracts signed and to feel that your hard work is really getting your closer to your freedom goal.
While you recognize that this will take some effort and you’re not afraid to roll up your sleeves, you’d rather not work hard forever. Eventually, you want to take your foot off the gas – preferably sooner rather than later.
You want a market with plenty of opportunity – one that will support you, your family, your dreams, and your life vision.
Ultimately, you aspire to have a reliable real estate business strategy that you can confidently build a business around.
Five Parts to a Sustainable Real Estate Business Strategy
To create your own solid real estate business strategy, you’ll need to make five important choices. Once you have these in order, you can solidify your strategy and put it to work for you.
1. Cash or Cash Flow?
Your very first decision is, cash or cash flow?
To clarify, cash is probably what you’re familiar with – a lump sum of money dumped directly in your pocket, all at one time. Cash flow is positive streams of income that regularly hit your bank account over a long period of time.
If you get this part wrong, you’ll work hard for good money, but the freedom that real estate investing promises will forever elude you.
If you get it right, however, financial independence will be yours – while you’re still young enough to enjoy it.
A 26-Year-Old’s Financial Independence
One of my students, Parker, is only 26 years old with just a couple years of full-time investing under his belt.
Although he’s nowhere close to being done, he has already achieved financial independence. In other words, he’s receiving enough monthly income from his rental properties to cover he and his wife’s monthly expenses. They’ve moved across the country to spend the winter months in Colorado, living off their passive income while running their real estate investing business virtually.
How did he do it? He listened to my podcast and took every word to heart. In particular, he heeded my advice to shift his focus from making piles of money to making streams of money.
Just 12 months later, he succeeded. His monthly stream of income surpassed his monthly expenses. Now, he focuses on creating his pile of cash.
The Backwards Ways of the World
The rest of the world does this backwards. Everyone goes to work to create a giant pile of money before anything else.
Flip the script! Flip the formula! Turn it backwards and create the stream BEFORE the pile. Make it your intent with every good deal to hold it for cash flow.
Of course, if you analyze a deal for the amount of cash flow it can create and it isn’t a good fit for your portfolio, you can always choose cash for that particular deal, but choose cash flow whenever possible. The speed to financial freedom is ten times faster this way.
2. Which Market Should You Invest In?
Deciding on your market is an important step. If you get this part wrong, you’ll end up thinking and working much, much harder than you need to. You’ll delay your gratification – assuming you ever reach your goals at all.
But if you get this right, you’ll never be short on opportunity. You’ll consistently make a profit with every deal, and your business will grow.
So, how do you choose the ideal market?
The best market – the very, very best market – for you is the market you’re actually going to work.
I’m not being facetious or flippant. If you’re just getting started, I strongly suggest you work as close to your primary residence as possible because if you’re learning to invest AND invest virtually, you’ll be learning those two things simultaneously, effectively taking on two brand new skill sets at once.
Mackenzie Kelly, another one of my students, proved that learning investing AND virtual investing both at once is possible, and it gave her strong and established business experience. I give her experience the credit for her ability to succeed as quickly as she did.
However, if you do what she did, you will probably have to adjust your expectations. Learning those two new skills simultaneously will result in a larger learning curve, and that means an increased amount of time before you’ll start to see results.
The “Easy” Market (that’s never your own)
As you dig deeper into your real estate investing, you’ll invariably bump into “the grass is always greener” syndrome. It’s always going to appear as if the other guy or girl has it much easier in their market.
Probably the most common question I get is, “Where should I get started?” Once the investor makes the decision, they will inevitably hear someone else’s story and all of a sudden, they’re attracted to that other market because it sounds easier than their own.
The problem is, whether the easy-sounding market has easier access to responsive marketing lists, more solid help from property managers, or it’s an easier city to get records and permits from, there is an unseen side to this “easier” market.
Often, in the “easy” market, it is difficult to get property sold or rented due to a lack of desirability for the area. It can be hard to find adequate profit margins. You’d have to do more deals and work harder to make the same money as neighboring markets.
Even with all that aside, there are countless other factors to consider too, such as:
- Is the market sustainable?
- Is the timing right?
- Which market has the biggest upside?
- Where is the appreciation happening?
- Are there jobs there?
- Are people moving in or out?
- How does the local government support the area?
Accepting Your Lawn Once and for All
Here’s the rub: It’s very rare that you’ll find the best of all these key market factors working in unison. There’s good and bad in every market.
Investors, beware: You can kill your whole business with analysis paralysis before you ever get started.
To avoid “grass is always greener” syndrome, you just need to understand one thing: If there are people in your market and they live under roofs, there’s opportunity there.
In every market, there’s a relative low price of purchasing and a relative high price of selling. The objective of a real estate investor is to buy low or sell high, and you can do that in any market.
How? Because it’s all relative. It all moves up and down together.
How to Choose Your Market
Now that we’ve covered all the “don’ts” of market selection, let’s cover the “dos.”
Your Ideal Beginner’s Market
First, look for the closest blue collar neighborhood to your primary residence OR where first-time buyers are attracted. It’s in these neighborhoods where you’ll find the most buying and selling going on. Lots of people move into these areas, and as soon as they move in, they can’t wait to move out. You’ll find an ample amount of opportunity in these types of markets regardless of which side of the transaction you’re on.
If you happen to live in such a neighborhood, that’s perfect! Start there and go deep for a while. The more experience you get under your belt, the more you’ll learn which market factors are most important to you in reaching your financial goals. You’ll be able to make educated and experienced adjustments down the road accordingly.
Resist the temptation to get everything right before you take the first step. You can’t steer a parked car, after all.
If you start with a market, the wheels on the car start going. You start getting some fuels and momentum. You’ll start to put some money in your pocket and earn some experience. From there, you can steer.
One of my Epic Pro Academy members, Richard Haynes, did just this. He started investing in the inner cities of Los Angeles even though he lived on the Westside. He drove all the way to the inner cities to do his business, and that’s where he learned the business and made some good money, both in piles and streams.
Gradually, he moved west, back toward where he was living. Now, he does fix n’ flips on the Westside valuing over $2,000,000. He just turned 30 years old.
The ideal market is where you actually get started and work. The sooner you get started, the sooner you will get working. Just get out there, find that type of market (or the closest market you can that fits those parameters), and get going.
3. What Property Type Should You Invest In?
The next step to creating your real estate business strategy is to ask yourself what type of properties you want to invest in. Just a few of your options are:
- Single family homes
- Multifamily homes
- Mobile home parks
- Commercial properties
Getting this part wrong could mean jumping from one property type to the next, never really getting a strong foothold in one type of property or asset class. You’d end up building a very volatile, unstable business – if you built any real business at all.
But if you get this part right, you’ll join the most successful and wealthy real estate investors in the world.
Deep Before Wide
For every “thing” you do in your business, go deep before you go wide. In other words, make sure you’re solid and efficient at the “thing” before venturing on to the next “thing.”
These “things” could be your market, team members, marketing, property type, or asset class.
As far as property types are concerned, you may be fooled into thinking that going from a single family residence to a 12-unit apartment building isn’t a big jump. If you see the difference between these two types of properties as just a few extra doors, you may think of this as an easy transition.
Both of these properties are real estate, but they’re each accompanied by their own nuances that determine whether or not they become a good or bad investment class for you and, ultimately, whether or not they are the right property type for you.
The Best Beginner Property Types
For those just starting out, I recommend beginning with single family homes. They’re easy to understand, about as simple as it gets, and everything is smaller. They’re easier to manage, provide a great education, and are a fantastic living. They’re a great way to get that initial experience under your belt before moving on to something else.
If you’ve been investing for a while, I recommend looking at whatever you’ve had the most success with – or even what you’ve enjoyed the most – and getting better at it. Get more efficient at managing it or more efficient with the system you use to acquire, fix, and sell.
Even Greener Grass
Just like choosing the right market, choosing the right investment class or property type may bring on “the grass is always greener” syndrome.
You might start with single family homes and go to some sort of event on mobile home parks that has a really sexy appeal to it. You’ll say, “Wow, I think I’d rather do that!”
Then, you’ll start doing it and, after a while, realize, “Oh, wow. This is work.”
You’ll go to the next event or read another book or listen to another podcast, and this time, they’ll be talking about multifamily properties. It’ll have a really sexy appeal to it and you’ll say, “I think I want to do that instead!”
So you’ll switch yet again to multifamily properties, get into it for a while, and then realize, “Wow, I have to water and fertilize this grass, too. This is also a lot of work.”
Dips and Cash
Understand that there will be a place and process in every property type where there will be a dip, and it will get tough.
(Regarding the “dip,” I highly suggest you read The Dip by Seth Godin. It’s a really fast read and I require it of all my Follow Through Crew members.)
Also understand that all property types work. There is a way to make money on all of them – a LOT of money.
With all that said, be sure to diversify your portfolio. Don’t limit yourself to one property type forever. Start with one, go deep, get good at it, and then take on the next type.
Deep Before Wide: A Survivor’s Tale
Speaking from experience, I myself started with single family properties. Since we were crushing it, I jumped into multifamilies about four years ago.
I went from having no multifamily properties to having 14-unit, 50-unit, 44-unit, 8-unit, and 10-unit buildings. They all needed fixing up, but people were practically giving them away, so I took them all.
Clearly, I went way too fast and much too wide. I ended up having to back out of them, losing a significant amount of money in the process.
Up until that point, I hadn’t lost a penny in real estate because I was so good at single family properties.
Unfortunately, I made the costly mistake of thinking that the acquisition and management of single and multifamily properties would be the same, or at least very similar. I saw multifamilies as “just a few more doors.”
I also didn’t invest in my multifamily education like I did with single family properties. Not only did I make a bunch of mistakes with multifamilies as a result, but if I had properly educated myself ahead of time, I probably would have discovered it to be an asset class I didn’t want to get into at the time.
Since then, I’ve learned from that lesson. I got educated and invested in notes, then seller financing, and now land as I prepare to add it to my portfolio in 2018. I have gone deep before wide in each of these property types, and it’s made all the difference in my financial successes.
4. What’s Your Definition of a Deal?
My inbox used to constantly be full of messages from people saying, “Can you look at this deal and tell me if it’s good or not?”
In order to give truly accurate responses to these people, I would have had to do quite a bit of research to figure out if any deal was “good” in the given circumstances. There is no straightforward answer.
The only way to find out which deals are “good” deals is to establish your own definition of what a good deal is to you. This will depend on many different factors, like equity or ROI.
A badass investor knows their definition of a deal forwards and backwards. They are a shopper of deals, measuring up each opportunity to their own minimum deal standards. If a deal doesn’t get over that bar, boom! They don’t do it. They’re shopping for ONLY the deals that meet their standards.
If you don’t know your minimum deal standards, you aren’t a shopper anymore. You’re a buyer. And you need to be a shopper – all the best investors are.
Your Own Definition
For a property to be a deal to you, it should:
- Be in your market
- Be your property type
- Produce cash or cash flow to your liking
For example: If you’re going to flip a property, what is the least amount of money you’d be willing to accept for the amount of work it’s going to take?
There’s no right or wrong answer here. Numbers will fluctuate to markets and price points.
If you can flip a property quickly without having to do much more than shuffle some paperwork around, $5,000 might be an acceptable profit to you.
But if it’s a flip for $4,000 and $5,000 is the least you’d settle for, there’s no deal. You should either negotiate the extra $1,000 to meet your minimum standards or just move on to the next deal.
For a property you’d want to hold onto instead of flip, you might not accept anything less than a 15% cash-on-cash return, or you might define your hold standards to nothing less than $300 per month of positive cash flows.
Base It on Your Returns
Your definition of a deal should be factored on the return your money is currently generating. This is particularly true if you’re trying to build cash flow.
For instance, let’s say you’re just getting started and your money is sitting in the bank, barely squeaking out a 1% return. If you found a property to buy and hold at 5%, that’d be five times better. But if you had a portfolio averaging 10%, accepting anything at 5% would be moving backwards.
Once again, it’s all relative. Your definition of a deal is relative to the current return your money and/or investments are producing.
You should have these numbers in your head as you evaluate deals. If a property doesn’t meet your standards or someone gives you a free property, even if it does produce a profit, there’s still a price to pay – your time. It could cause you to miss out on a property that IS worth your time and efforts.
Two Standards for Quick Deal Decision-Making
Your standards should improve the more you invest, but establish minimum deal standards for yourself in two categories:
- If you’re going to flip a property, what’s the minimum amount you’re willing to take?
- If you’re going to hold onto it, what’s the minimum amount you’re willing to receive?
Measure every single deal against these standards and be a shopper. Having these standards determined ahead of time is how you will enable yourself to make quick decisions in the future.
5. How Do You Find Deals?
The last step of creating your real estate business strategy is figuring out how to find deals.
This might sound obvious, but finding deals is where most people fall short, getting sidetracked on every other part of the business. They read books, attend seminars, and start and restart their businesses based off of what it looks like to do deals.
At your REA Club or with any other group of investors, you’ll hear over and over again, “I do short sales,” “I do multifamily,” “I’m a wholesaler,” or, “I buy mobile park homes.”
They all know how to do deals, but the truth will come to light when you share a deal you did. You will have a captive audience filled with puppy-dog eyes staring up at you, hanging on every word, because they will be so amazed that you actually did a deal.
The truth is, these people know how to do deals, but all of their focus is on the doing of the deal. They completely fail to learn how to find deals.
The Epic Importance of Finding Deals
If you can’t find deals, real estate business strategy does you no good at all. I don’t care what your asset class is. I don’t care how many gurus, mentors, speakers, and coaches you’ve listened to – they all fall short on this step. None of your education or strategy matters if you can’t find deals.
Knowing this, it should come as no surprise that finding the deal is the most valuable and lucrative skill of a real estate investor. It should be an integral part of your real estate business strategy.
If you don’t have the skill, you will pay too much for real estate. If you do have it, people will pay you too much for real estate.
Some people may argue that people skills or skills to raise private money are more important. But if you can find deals, people skills aren’t so important anymore – everyone will find you and want to be your friend. THEY will be trying to sharpen THEIR people skills so they can get your deal. And raising private money is important, but when you find deals, people with private money will find you, not the other way around.
What Does Successful Strategy Look Like?
The first time I had a conversation with my student Nathan Price, he wanted to build a business in his higher-end market in Washington that would afford him to quit his full-time job as a nurse. He worked the graveyard shirt and slept all day while his family was awake. Understandably, he craved more time with his family during the day. In general, he wanted to take control of his life and live on his terms.
After a little less than a year of focusing on these five points of real estate business strategy, Nathan finally built his stream of passive income while stacking his paper, building a solid business backed by a sound strategy.
The last I talked to Nathan, he was posting pictures of checks everywhere I could find him. He even gave us a nice video for the last Epic Intensive on the creative real estate business strategy he’s used. He’s crushing it!
To meet more people like Nathan who have built and implemented a successful real estate business strategy with me, Matt Theriault, go to epiccasestudies.com.