The real estate market can sometimes feel like the old frontier days of the Wild West with whipsaw price activity. Investors are often left to their own devices, making costly mistakes along the way. For the novice, this can be one of the toughest markets to break into. The necessary capital outlays make it particularly challenging for newcomers in this market.
Unlike other assets in an investment portfolio, real estate requires a substantial upfront commitment. Added to this are rehabilitation expenses, maintenance expenses, and regular monthly payments. In the words of real estate mogul, Ofir Eyal Bar, ‘Acquiring the asset is one thing but maintaining the asset and making it profitable is a whole other ballgame.’
Investments do not come with guarantees. Somewhere along the line, earnest money needs to be put down as a deposit on a property which may or may not pay dividends. Fortunately, there are hard and fast rules that real estate investors can trust to turn a profit. One such strategy used by leading investors is the BRRRR Strategy.
This acronym describes a multi-step approach to building a real estate portfolio, including Buying, Rehabilitating, Renting, Refinancing, and Repeating. It is crucial that each step in this process is conducted with precision. It is always best to adopt a comprehensive strategy when investing in properties. There is no one size fits all strategy to employ – rather it’s about evaluating real estate on its merits.
Diversify Your Portfolio for Maximum Success
When people think of real estate, the first thought that invariably comes to mind is residential real estate. The home you live in, whether it’s a townhome, condominium or freestanding house. Truth be told, there are many other types of real estate to invest in such as raw land, and commercial real estate.
Ofir Eyal Bar adopted an eclectic approach to real estate investments and now has a portfolio which spans diamond mines in South Africa, commercial and residential real estate holdings in Israel and the United Kingdom. It is important not to limit your options to a specific geographic area. Many people mistakenly believe that the only real estate investment worth having is one which you can actively manage in person on a day-to-day basis.
Rather than limit your options, it’s a much better idea to work with a trusted team of realtors, mortgage lenders, contractors, and investors. This network will help you to uncover lucrative real estate investments in different areas, possibly even in different countries. By exploring your options, you are also stepping out of your comfort zone and allowing market forces to work in your favor.
It is generally believed that your home will appreciate over your lifetime and serve you well as you head towards retirement. Many homeowners opt for 30-year mortgages on their properties, with a small down payment, and a steady stream of fixed monthly repayments. At year one, the monthly mortgage repayment may seem expensive, but 25 years later that figure is certainly a lot more affordable in real terms.
Renting Out Real Estate
The really smart investors don’t live in the homes that they purchase. They buy low, rehabilitate the properties, rent them out, and then refinance those properties to repeat the process all over again. Buying to rent requires some smarts. For starters, you will need to source an excellent investment property at a great price. Your budget is your best friend with real estate. Never overspend, and never waste money on unnecessary rehabilitation initiatives.
Of course, it’s important to take care of all the restorative work, structural problems, and aesthetic elements as a matter of priority. However, don’t get carried away and waste money on high-end furnishings, fixtures, fittings, and changes that will not pay dividends. In other words, do what needs to be done. Once the property has been completely rehabilitated, it’s important to get tenants in as quickly as possible. The longer you stay without regular rental income, the more stress this places on your personal finances.
As a rule of thumb, you should always have a reserve fund when buying to rehabilitate properties. That will help you through tough times, making it easier to sustain periods of un-rented property and unforeseen expenses which come your way. Bankroll management is the most important skill you can learn as a real estate investor. Once you have rehabilitated properties, you will gain in confidence.
This will give you the momentum you need to repeat the process on your next property, and the next one after that. The objective in all cases is the same: roll money from one investment into the next, building a formidable portfolio in the process. It’s not always plain sailing, and any honest real estate investor will tell you as much. There will be trying times and there will be boom periods too.
A Long-Term Approach to Wealth Creation
To succeed, you must apply sensible advice to each one of your investments. If you see a beautiful house in a great neighbourhood, make sure you are not paying top dollar for it. Rather buy the house with the most potential at the lowest cost, in a great neighbourhood. You are always trying to increase the difference between your income and expenditure in a positive way. The best way to do this is by using other people’s money to pay off your investments. It’s a long-term approach but it’s a proven approach to building wealth.