A Cliché’ Every New Real Estate Investor Should Know
Writer’s block. It happens to all bloggers from time to time. This morning as I sat staring blankly at my computer screen the phone rang. It was Monty, a BiggerPockets reader. He’s about to retire after 30 years of military service and wants to get into real estate investing.
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Now this is a really tired cliché, but I explained to Monty he should begin with the end in mind. If you’re just starting out in real estate investing here are two things you must determine:
- Your income goal.
- Your exit strategy.
Your Income Goal
Are you investing in real estate to replace your current income or supplement it? If you want to quit a $60,000 per year job that means you’ll need to clear $5,000 per month. I net about $6,000 a flip (after my profit split with equity partners). So in order for me to make $60,000 I need to do 10 flips a year.
How much cash is required to do 10 flips a year? Well, that depends on your market and whether or not you’re comfortable using leverage (hard money). Once you know how much money you need it’s time to start raising capital.
The process is the same if you’re looking to supplement your income. If you want to earn an extra $10,000 a year you’ll need to flip 1-2 houses. Or, buy a few rentals that net $800-$1,000 a month in positive cash flow.
Your Exit Strategy
There’s a ton of ways to acquire real estate, but only four exit strategies:
- Fixing and Flipping
- Buying and Holding
- Seller Financing (lease-options, wraps, carry backs)
Once you’ve determined your income goal it’s time to decide how you plan to make a profit. I always advise people to choose an exit strategy that best meets their personality type. I love fixing and flipping. But, it’s not for everyone. If you want more of a hands-off approach then buying and holding is a better way to go.
I couldn’t end this post without a shout out to BiggerPockets reader Monty. Good luck on starting your real estate investing business. Thanks for serving our country. And thank you for curing my writer’s block.