Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing the Best Real Estate Investing Strategy.
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Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing what is the best real estate investing strategy. So in order to distill the best real estate investing strategy is important. First of Hein, what your goals are as an investor, is it quick money long-term cashflow appreciation mainly or appreciation and cashflow, which is our goal next? What is your target return for us? A cash on cash return of 7%, 10% and higher for smaller properties is what we shoot for in our underwriting. And that has to be defined by you before you start. So, you know, what type of properties and what type of deals will work for you. So first off speculation, solely appreciation. And this is really like buying properties and hoping that they go up in value one way or another, and a higher than average chance of losing your initial investment and wildly volatile returns.
If there’s a pullback, you run the risk of losing a portion of your investment. Next is flipping houses. So you’re purchasing distressed properties, renovating and reselling you’re building value in the property, but the financing is expensive and very short term, you need to be able to manage people and it’s very transactional. So what this means is that you have a very short window when you’re flipping houses to make a profit, most flippers that are professionals, try to have it gone within a hundred days of the time that they’re buying it, having it sold within a hundred days. I think it’s more acceptable really to think of a three to six month timeframe to sell it. But when you’re doing your underwriting, you’re hoping that the market’s going to be the same on day one, as it is on day 180 when you’re trying to sell it.
So that’s very risky because you don’t know what’s going to happen. And if you start holding the property over that 180 days, you run the risk of really building up a lot of expenses between all the holding costs, but mainly the financing will eat you alive with most hard money lending. Next is wholesaling properties. And it’s not really investing. I mean, you need to be a great marketer and you may need to be licensed, but it’s very transactional. And you’re, you’re finding distressed properties, putting under contract and selling and or signing the contracts. And this is a way a lot of people get in because there’s minimal money required. There’s a ton of negative, just negative publicity around wholesaling because of how people do it. And I think that people don’t know what they’re really doing when they’re doing it. And that’s why it’s going to push.
And I think in years to come, you will need to be licensed real estate agent to do wholesaling longer-term investments. So real estate investment trusts and there’s diversification. There’s low valuations, consistent rental yields, all can be obtained by allocating capital into a small basket firms that own and manage investment properties for the sole purpose of generating profits. You know, these reeds can be purchased just like any other stock fee in an investment account and it’s completely passive. And it’s a great way for you to get involved in real estate investing with a little money and the return REITs have outperformed the S and P 500 over the past 20 years and 30 year periods of respectively. So real estate, investment partnerships, syndications, and joint ventures. And this is what we do. And a real estate investment partnership is made up of individual investors who pool their money together to invest in real estate.
The operators are general partners and the investors, our limited partners, AKA passive investors, a syndication has active and passive investors in joint ventures have only active investors. Now that’s very important because if you want to have passive investors, that means people that aren’t making decisions in the deal. You need to do a syndication, no matter how large or small the deal is, joint ventures need to have all everybody being active investors. So you can’t have passive investors in joint ventures, and you need to perform due diligence, just like with any other investment, but it can be completely passive if you are a passive investor in one of the deals pass investments that I have, I spend probably an hour a year reviewing those deals. And obviously if there’s an issue, I’m going to reach out to the operator, but if there’s not, I just collect my quarterly returns.
So what are you looking at when you are, when you’re venting a operator? Well, what has been the historical annual return of the operators properties? Remember when reviewing past returns, they are not a prediction, a prediction of future performance. And that’s very important, especially where we are right now in this market cycle, because people will show you all these great returns, but you also have to know that there’s been a huge market increase where we are in this part of the market cycle. So you have to really split the returns and figure out what portion of that is because this person’s a great operator. And what portion of this is because of the market. And it’s good that they’re in these great markets, but it’s also important to know that when there’s a pullback returns will be generated by good operators, they’re not just going to be generated by a great market.
So make sure that you take that into consideration. Another thing too is inflation with inflation. You have to work that into your investments and figuring out what the true return is on your money. Next is real estate crowdfunding platforms while a relatively newer phenomenon real estate crowdfunding has been around since 2012 after the jobs act was passed. That allowed crowdfunding to be used as a way for private companies and private investment projects to raise money from the public and also completely passive now returns returns. So for example, fund rise has those, livered a compound annual rate of return of 11.49%. Thanks to a a financial samurai.com that gave us that return across all their deals since 2013. This is good, but I have earned more than twice this in passive syndication investments I’ve made over the same period. So it’s very important that you, when you’re looking at these investments, just because we’re on one of these platforms, you want to make sure you’re comparing apples to apples, oranges, oranges, and you want to make sure that for the risk you’re taking on that, the return meets that, but you’re not getting over your head with the, with the risk that you’re where you’re accepting for these deals.
You know, lots of these deals will have very high returns, but they might require a, a huge renovation or a huge as we call it heavy lift. And that’s something that you probably don’t want to take on as your first investment, especially as an active investor, but also as a passive investor, because it’s very risky, active, longterm investing. So purchasing many single family and multi-family properties on your own active investing, but it’s possible to be semi passive investing. And what I mean by that is when you’re with these properties, if you have property managers that are helping you along the way, and they’re, they’re yielding a lot of fielding, a lot of the calls that are coming in, that’s going to be making it more semi-passive and that’s kind of how you want to do it. There’s a lot of people that buy active long-term investments, properties, and then they are full-time managing it, which doesn’t make sense to me, but I’ve done it myself when I was younger.
I would never do it again. But it’s something that your goal is when you’re buying these properties to make sure that your end game is having a professional third-party manager, manage them, or you have her own team that’s managing them. So you can really step away from it because that’s what we’re here for is cashflow and freedom. Next is turnkey investing for properties that have already been renovated and then just need to be rented out. This is a great way of this is a great way of investing for a first time investor caveat. I’ve never invested in turnkey investing. And I’ll tell you right now, because the money’s already been made, the value has already been generated. You’re buying a property that’s ready to be rented out, or has been rented out, say for a hundred thousand dollars. And they are you’re going to rent there in there.
That’s paying you nine 50 to 1100, let’s say a month. And you know, they might have bought that your turnkey operator at 4 65 and they could have probably put 15 or $20,000 into it. They’ve already made their return on that. And they’re sending a property for you. That’s already there, which is fine. Your first investments, make sure that they’re very, very light if any renovations, right. Very light lifts, because there’s going to be a lot of unknowns. And it’s best to start with something very light and then move on to heavy renovation once you know what you’re doing within the renovation space. And that’s for everything. If you’re flipping properties, same thing, don’t start with properties that need, you know, you’re moving walls and, you know, punching out doors and all this stuff. I mean, you want to have something that’s pretty straightforward that you can do that you can sell.
They can get some proof of concept before moving onto a larger, as we call it heavy lifts. Next is value-add investing for an investor who wants to do work, but wants to build the value equity initially, and it’s risk versus reward investing. And this is what we do as well, both little and with our investments occasions, and with value, add investing. What you’re doing is that you’re going to be finding properties where there might be some parts of the deal that can be more efficient. Okay. So number one is that there might be a similar property next door. That’s getting another a hundred, $200 a month in rent. If you got your property to that level such as condition wise. So that’s something that you can shoot for. The main thing we’re looking for is we’re looking for efficiencies on the expenses side, because when you cut expenses, you can do that up down sideways market doesn’t matter an adds to the NOI.
And that’s the best way I feel of safely investing when you’re getting those rent premiums and the rent bumps, which you will get. If someone next door really is getting, if it’s apples to apples and you’re really getting a hundred dollars more or $150 more, and it was a very, very good rent comparable. That’s awesome. But off the bat, like if you’re buying this a mid 2020 during COVID no one’s raising rents, even if you told investors a year ago, Hey, we’re going to be raising rent for the next three years. You’re not raising it that time. And this is something that if you can find inefficiencies, especially on the expenses side, that’s something that you can fix in any market. And it’s always my own outages, less units equals more volatility. So the more units you want a part of, even if it’s not a hundred percent, even if it’s a little bit it’s going to have less volatility in your returns. So thank you so much for listening. Please remember to rate, review, subscribe, submit comments, and potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar LLC exclusively.
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