This email will be short.
I just want to spend a few minutes digging a little deeper on what I said earlier this month regarding investment criteria.
Ready?—Let’s get started.
If you'll recall...
I said you need a strong, simple investment criteria to be effective with buying and selling real estate.
In particular, there are three things (above all others) that you need to focus on when constructing that criteria:
1) Your desired workload
2) Your available cash
3) What your schedule allows
Now, there’s nothing wrong with those criteria I shared—they really are the Big 3—but there’s a point I failed to make that’s critical to consider when you’re calculating your answers to the aforementioned criteria.
It’s timeframe.
Your investment timeframe influences your workload, your cash, and your schedule.
What do I mean by timeframe? Well, are you buying for the short-term, the mid-term, or the long-term?
Is this a quick-flip?
Is this a place for you to park some inheritance for several years while you figure out what you really want to spend the money on?
Is this a pure, buy-and-hold-till-the-day-I-die purchase?
Because depending upon your answer, your criteria will be radically different.
The short-term timeline (1 to 2 years)
With the short-term timeline, your workload tolerance needs to be high, your available cash (or cash flow) needs to be robust, and your schedule needs to be wide open.
Why?—Because the investments are primarily flip jobs, and flipping a house is stressful.
You’ve got to buy it. You’ve got to renovate it. You’ve got to sell it to someone else.
And you usually need to do all that in less than 12 months (unless you’re sitting on a gargantuan pile of cash, of course).
The closest analogy I can find to short-term real estate investing is short-term stock trading—it’s a very active type of investing that requires a lot of your time and attention. Done property, you can make a lot of money, but if you’re not keeping an eye on things, your investment can go sideways in a hurry.
If you’re not interested in being an active real estate investor or renovation project manager…
Or you don’t have enough cash to both buy the property and float it if it doesn’t resell within 12 months…
Don’t create an investment criteria that would allow you to fall haphazardly into owning a buy-and-flip property.
Mid-term timeline (2 to 10 years)
So, you came into some cash that you don’t want to see sit in the bank where it will earn 0.003% interest every year.
But you also don’t want to see all that money tied up in an investment that will either be hard to sell in five years or incapable of generating a steady profit.
What you want to do in this case is park your money for a few years somewhere it will be relatively safe and experience relatively consistent growth.
Enter the mid-term real estate timeline.
If this sounds like you, build an investment criteria that allows you to consider rentable apartments, condos, vacation homes, and the like…but also create your criteria in such a way that you also consider less conventional real estate investments such as storage units, parking garages, billboards, undeveloped urban lots, and more.
These alternative real estate investments aren’t as susceptible to the ebbs and flows of the general housing market, and they’re capable of generating strong monthly cash flow which is a nice way of lining your pocket for a few years while you figure out a more permanent solution for your money.
Long-term timeline (10+ years)
Finally, there’s the long-term timeline.
To adopt this timeline, you don’t necessarily need a lot of cash up front like you might require with a short- or mid-term timeline—but you do need to be comfortable not seeing that cash for a long time.
You also don’t typically need to contribute a lot to long-term investments in the way of time or energy, which means your criteria can accommodate a busy schedule or a hands-off (passive) approach to property management.
In addition to growing equity in the investment over decades, the properties you will most likely consider for a long-term timeline (single-family homes, duplexes, triplexes, vacation rentals, etc.) are usually good at generating stable (though not always sizable) income month to month. While these types of properties won’t put as much cash in your pocket on an annual basis as, say, a parking garage might, they will grow substantially more in value over multiple decades.
In closing…a personal favor
I know you’re busy.
I know you’ve got a million things to do.
But I really need your help on this one…I’m looking for a new assistant who can help me take my business to the next level.
The person you recommend (just shoot me their name + CV to ShannonShue@KW.com) should the kind of individual who can dedicate themselves to the three things I believe in most as a real estate professional:
***Care
***Commitment
***Communication
I’m looking for the type of guy or gal who knows what it means to go “above and beyond” for the client and ensure a silky smooth selling experience.
Thanks in advance for your suggestions!
-Shannon
310-853-0335 | ShannonShue@KW.com