Real Estate Investing Basics

My 3 Favorite Real Estate Investing Strategies (and a Plug for Old-Fashioned Discipline)

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
228 Articles Written
aerial view of residential housing

Recently someone asked me, “What is the one thing you attribute your success to?”

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This was a tough question to answer, especially since I don’t see myself as any kind of overnight success. Many decisions and many people helped me get to where I am today. If I had to choose just one thing, though, I’d have to say discipline.

Most of that would be owed to my mom. She made us be punctual and prepared. She taught us to manage our time and to be organized. She told us to get ready the night before for work or school and to save money, work hard, and see things through. All of these habits could be considered forms of discipline.

I’ve employed many investing strategies over the years, but I believe that being disciplined is the biggest reason that any of them worked at all.

That said, in the last 30 years investing in real estate, I have developed some preferred strategies.

Here are my top three.

My 3 Favorite Real Estate Investing Strategies

1. Saving on Taxes

My first strategy started at a pretty early age when I was in college as an accounting major. At that time, much of the money I earned was paid out in taxes. In fact, most of us had to work several months into the year just to pay our taxes for that year. Still, I thought, wouldn’t it be nice to have all the money we pay in taxes to go towards a nest egg to invest with?

After college, I realized that the government rewarded members of society with tax breaks if they did certain things, such as creating jobs, providing housing, and offering charity. I quickly realized that if I just learned the rules of taxation, I could play a better game and win by utilizing legal deductions. This has served me very well over the years as a service provider and employer, as well as with all the charities I get to be involved with.

landlord-lessons

Related: The Simple Strategy I Use to Buy 10 Deals Per Month

Real estate also has been a phenomenal way for me as a real estate agent to take advantage of unlimited passive losses, as well as the normal mortgage interest and tax deductions, along with things like depreciation and componentizing. And let’s not forget other strategies like 1031 exchanges, getting a break on capital gains when selling one’s primary residence, or better yet, owning or flipping real estate in our self-directed IRAs and other custodial types of accounts and then passing real state to our heirs who get to enjoy a stepped-up basis. I could go on and on with all kinds of deductions for repairs, too.

2. Investing Intentionally

Besides saving money on taxes, my second favorite strategy is to invest intentionally with purposeful planning. The overarching goal would be to create as much cash flow as we can, as soon as we can, and to have it be as tax-free as possible.

One of my favorite examples of this that dramatically increased my net worth over the years was first by watching my housing expenses. By the way, housing is usually everyone’s biggest expense when they’re just starting out. Personally, I lived at home right after college to save money to get my first modest apartment, which enabled me to save for my first owner-occupied duplex, which I bought in 1989, and I still own it today.

My point is that buying and living in your first couple properties with the intent to keep them as future rentals will dramatically change your future net worth.

Not only are you getting better mortgage terms (lower rates and lower down payment), but you’re also eating away at your 30-year mortgage while living there, and you’re not losing out on all the settlement cost that you’ve already paid, let alone all the deductions you just picked up by keeping the properties. It may take you a little longer to save up for that next place, but usually it’s well worth it. I managed to keep all four properties that were each at one time my primary residence. Today, I still own three of them that cash flow out the wazoo!

3. Utilizing Leverage

My third strategy is focused on the proper use of leverage (notice that I said proper).

What I’m referring to here is understanding the difference between good and bad debt, as well as having sufficient reserves set aside to weather most storms.

A lot of my wealth was created by first using the bank’s money with traditional financing, commercial financing, and lines of credit—and then later using private debt. Today, I even raise private equity to purchase the banks’ bad debt. Talk about a complete 360-degree turn around.

build-relationships

Related: Rehabbing to Sell vs. Rehabbing to Rent: Which is a Better Strategy?

Understanding the correct use of leverage along with ideas of how to use arbitrage, compound interest, and how to play the float like the bank does has been instrumental in much of my financial growth.

That said, the biggest factor for me, by far, was the use of OPM (other people’s money). The ability to raise capital and to properly deploy it has been game changing for me.

We have a saying in my company that “your success is our success,” and frankly, I really mean it. There’s nothing more rewarding than to share an idea or strategy that someone else can employ to their benefit and have great success with.

I don’t mind admitting that I haven’t had too many ideas that were really all mine. Most of my strategies were learned from others, so I have those folks to thank too.

So, what are your favorite real estate investing strategies? If you’re on your way to building wealth through real estate, what are the top factors that contributed to your success so far?

Please share below!

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.

    Kris Patel Investor from Arroyo Grande, California
    Replied about 2 years ago
    Buy and hold for ever, let kids get it at stepped up basis, as long as they do not change the rule!
    Hugo
    Replied about 2 years ago
    But and hold is good but beware buying turnkey from some people on this blog.
    Kris Patel Investor from Arroyo Grande, California
    Replied about 2 years ago
    Will never get into that. Just buy STNL single tenant net lease. Thanks Reply Report comment
    Kris Patel Investor from Arroyo Grande, California
    Replied about 2 years ago
    Will never get into that. Just buy STNL single tenant net lease. Thanks
    Hugo
    Replied about 2 years ago
    But and hold is good but beware buying turnkey from some people on this blog.
    Josh Day from Memphis, Tennessee
    Replied about 2 years ago
    @Dave Van Horn thank you for the great article. Do you have any book recommendations for tax strategy, real estate or non real estate? I would love to educate myself on the subject, but not sure what is good information. Reply Report comment
    Josh Day from Memphis, Tennessee
    Replied about 2 years ago
    @Dave Van Horn thank you for the great article. Do you have any book recommendations for tax strategy, real estate or non real estate? I would love to educate myself on the subject, but not sure what is good information.
    Tyler Huntington from Long Beach, California
    Replied about 2 years ago
    Wait until 2018 tax plan rolls out. Read it thoroughly once available. Current tax benefits of owning real estate my drastically change. Reply Report comment
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Tyler has a good point. But for now, I’d recommend fellow BiggerPockets writer, Amanda Han’s book “The Book on Tax Strategies for the Savvy Real Estate Investor”. Also Brandon Hall is a great CPA/writer here on blog as well. Best, Dave
    Tyler Huntington from Long Beach, California
    Replied about 2 years ago
    Wait until 2018 tax plan rolls out. Read it thoroughly once available. Current tax benefits of owning real estate my drastically change.
    Sandra Roddy Investor from Arlington, VA
    Replied about 2 years ago
    As a semi-novice real estate investor, the article resonates a lot because I have gone through similar phases as I progress through my REI journey. On the micro level, streamlining my operating model has helped out significantly. All my properties are in similar neighborhoods. Additionally, they tend to have similar landscaping, the same paint (interior and exterior), same flooring, etc.. On the macro level, working with the same people – as often as possible – has helped out a lot. Some relationships have produced plenty of opportunities, especially when it comes to financing. My local bank has refinanced a few of my properties which has allowed me to grow faster. OPM!!! Oh, I should also mention a local auctioneer send me leads when a property, that fits my criteria, will be sold. This is nice because it enables me to gather the funds for the possible purchase.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Amen Sandra! I like the autioneer angle as well. Thanks for reading! Best, Dave
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Amen Sandra! I like the autioneer angle as well. Thanks for reading! Best, Dave
    John Murray from Portland, Oregon
    Replied about 2 years ago
    Great article! I have employed all 3 with great success. I would add mobility, move somewhere that the individual can be successful. Living in a place like NYC, San Francisco or Honolulu will have negative effect on your bottom line for most of us. One can overcome high priced areas but is is easier to succeed somewhere else.
    John Murray from Portland, Oregon
    Replied about 2 years ago
    Great article! I have employed all 3 with great success. I would add mobility, move somewhere that the individual can be successful. Living in a place like NYC, San Francisco or Honolulu will have negative effect on your bottom line for most of us. One can overcome high priced areas but is is easier to succeed somewhere else.
    John Murray from Portland, Oregon
    Replied about 2 years ago
    Great article! I have employed all 3 with great success. I would add mobility, move somewhere that the individual can be successful. Living in a place like NYC, San Francisco or Honolulu will have negative effect on your bottom line for most of us. One can overcome high priced areas but is is easier to succeed somewhere else.
    Tyler Huntington from Long Beach, California
    Replied about 2 years ago
    #1 could very well change by end of year. Mortgage interest deduction, state and local tax deduction, are all on the chopping block. “Trump is a real estate mogul, he’d never do such a thing” ?
    DG A. Investor from Oakland, CA
    Replied about 2 years ago
    Where can one read about the potential changes to the Mortgage Interest Deduction?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Good point. But I’ve always believed it’s more about how one responds to what those in power do more than anything. There are many things I miss from when I started out, like Accelerated Deprecation for example. But now we have Fixed Asset Componentization – it’s a little more work, but it can be a workaround. Best, Dave
    DG A. Investor from Oakland, CA
    Replied about 2 years ago
    Where can one read about the potential changes to the Mortgage Interest Deduction?
    Stephen Hundley Realtor from Lafayette, LA
    Replied about 2 years ago
    Absolutely love your recommendation on buying a primary residence with the intent to keep later on as a rental! I’ve done that twice and both properties cash flow like crazy bc of the favorable terms! More people need to hear this recommendation!
    Stephen Hundley Realtor from Lafayette, LA
    Replied about 2 years ago
    Absolutely love your recommendation on buying a primary residence with the intent to keep later on as a rental! I’ve done that twice and both properties cash flow like crazy bc of the favorable terms! More people need to hear this recommendation! Reply Report comment
    Stephen Hundley Realtor from Lafayette, LA
    Replied about 2 years ago
    Absolutely love your recommendation on buying a primary residence with the intent to keep later on as a rental! I’ve done that twice and both properties cash flow like crazy bc of the favorable terms! More people need to hear this recommendation!
    Stephen Hundley Realtor from Lafayette, LA
    Replied about 2 years ago
    Absolutely love your recommendation on buying a primary residence with the intent to keep later on as a rental! I’ve done that twice and both properties cash flow like crazy bc of the favorable terms! More people need to hear this recommendation!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    I agree Stephen! Trying to do what I can to spread the word. Thanks for reading.
    Mark Welp Investor/Agent/CPA from Columbus, OH
    Replied about 2 years ago
    Great article and strategies!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Appreciate the kind words, Mark. Thanks for reading!
    Daniel Pollock Real Estate Investor from Brooklyn, New York
    Replied about 2 years ago
    Thank you David, very informative.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Thanks as always Daniel!