How Do You Pinpoint an Investment Strategy in Any Real Estate Market?

How Do You Pinpoint an Investment Strategy in Any Real Estate Market?
Investment Strategies

Investment Strategies

I am in Eugene, Oregon this week looking at investment properties.  I have looked at properties in the Eugene and Springfield areas when I was up here in March.  I would view the current Eugene real estate market as a place that has pockets of rehab and resale properties.  Likewise, I would not consider rehabbing and renting or renting in this area due to the CAP rates being 5%-7% on average, because I prefer to receive a CAP rate of at least 10% and higher .  When I was pinpointing the investment strategies in this area, my colleague, who is newer to the real estate investing business asked me, how do you decide what investent strategy to use in each real estate market?  That is actually a great question.  Let’s define what he meant by investment strategy:

  • Rehabbing properties for immediate resale and profit
  • Rehabbing properties for resale with terms and one to three year cash  out
  • Rehabbing and renting or just renting

These are the 3 main investment strategies that most people will use to build long term wealth.  In many cases, people will use a combination of these different investment strategies over the lifetime of their investment career.

I guess the right response for which investment strategy do you use ………would be ….it depends.  It depends on the following elements:

  • Where is the money to acquire the investment property coming from? Private, Hard Money, Bank, Corporate Credit, Self Directed IRA, etc
  • How long can you keep that money in the property? Weeks, Months, Years,…etc
  • What is the interest rate you are being charged to borrow money? Low interest rate = long term or High interest rate = short term
  • Is the real estate market a sellers or buyers market?  sellers market = rehab and sell    buyers market = buy & hold or buy low enough rehab and sell
  • What is the draw to a particular area?  Who lives in this area and why do they live here?
  • What is the employment rate for a particular area?
  • What is the rate of return you are looking to receive?
  • Do you want cash right away or money over time? cash now = rehab and sell   cash over time = rehab and sell with terms or rental
  • Do you need a tax break more than profit?  rental property and rehab and sell with terms will be your investment strategy chooses
  • What are the numbers that you need to view this as a successful investment strategy?  The amount you are willing to work for per investment property sold or a minimum amount of money coming in per month after expenses

All in all you can see that there are many factors that will impact your decision to use different invesmtent strategies in different areas.  In some cases, you are going to find that real estate markets might offer opportunities in certain pockets to use either investment strategy, but you might lean toward one investment strategy over another based on the above listed factors.  If I can really maximize my cashflow in that area, I am going to focus on rental properties instead of resale.  If I can make more than $30,000 on a rehab and resale property, I am going to be turning properties as quickly as I can in that area.  It really does not need to be anymore difficult and complicated than that when you are deciding on which investment strategy works in a particular area.

May 15, 2012 / by / in , , ,

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