Real Estate Investing is an exhilarating journey. Becoming a savvy real estate investor comes from how well you identify and apply your strategy to your business. Do you have a strategy?
By clarifying your strategy such as buying single family, multifamily, etc., you are able to communicate your desires to others thereby opening yourself to more opportunities. Another aspect is learning to develop and track your profit and loss statement and cash flow statement which will help you to determine if your strategy is a viable one.
This is not just about the tools. It is about utilizing these results to make adjustments to your strategy. Identify what is working in your business, what needs improvement, and what is just not working.
Two key factors in deeming if your real estate strategy is a successful one is the amount of cash that it generates and your ultimate return on investment. Your real estate investment business strategy is considered successful if you bring in enough cash flow to support not only your current lifestyle, while building towards your retirement, but acquire enough cash to continue to invest.
Cash flow is the money moving (flowing) in and out of your business. Monies flowing in normally consist of rents which are pretty static. Monies flowing out are comprised of expenses such as mortgages, insurance, maintenance, repairs, taxes, utilities paid, and other miscellaneous items.
Rate of return is the gain or loss generated on an investment compared to the amount of money invested. You can use this to compare the efficiencies of different investment properties. When you invest in real estate you are investing in yourself and your ability to earn more than by just investing in the market. Considering the risk involved it must be at least 10% compared to the S & P investment of around 8.6%.
Once you have defined your business strategy and your business plan, your goal is to make your business scalable and profitable. By reviewing your financials on a regular basis you are able to grade your investments to see how you are doing.
Commit to a comprehensive approach to compiling your financials each month as if you would be presenting it to your shareholders. Include components such as property management and a vacancy rate (even if you self-manage. Once complete, review components to make sure they are accurate. Expenses are flexible and can be adjusted to increase the cash flow. Maintenance and repairs are the number one thing that sneak in and eat at your bottom line. Schedule an annual review of your property taxes, mortgage payments, and insurance.
Successful businesses work not only in their business but on their business. Real Estate Investing is like sailing, we chart a course, leave the safe harbor for exciting adventures and are constantly trimming the sails. Great adventures happen when we leave safe harbor.