The Key to Creating a Sustainable, Cash-Flowing Real Estate Business

by | BiggerPockets.com

If you think about any real estate acquisitions operation, it comes down to three essential pillars.

  1. There’s the first pillar of lead generation, which is creating the opportunities to make money.
  2. The second pillar is lead management, the capturing of those leads and the working through and nurturing those leads to get the contract.
  3. The third is monetization. What strategy are you using to take that contract and turn it into profit? You may wholesale it to another rehabber, flip it yourself, buy and hold it, or do a lease option or owner financing—whatever strategy you decide.

Three Paydays or One?

Let’s explore those options for earning money in real estate, as they are all tremendous opportunities. If you wholesale or flip, what do you have to do in order to get another check? Wholesale or flip again. When you do another deal, how many checks do you get? One per deal, right? Logical, but what if you can turn one deal into three distinct paydays? Yes, it is possible to create three paydays per deal.

When you can buy on lease purchase, owner financing, or subject to—just as mentioned above—you have some exit (sell) options. I strongly suggest you sell on rent-to-own (with the proper vetting and pre-screening mechanisms in place to ensure their success) because, when done properly, you can create the three paydays.

Related: The Rewards of Commitment: Why You Should Learn to Do Your Best With the Skills You Have

Every business needs continuous cash flow. When you place a buyer into the home using the rent-to-own path, you create payday #1 with the buyer’s non-refundable down payment (remember, they’re a buyer needing time, not a tenant).

You then collect a monthly lease payment while they are going through their financing, credit enhancement, or both. The difference between what you are collecting and what you’re paying out (lease to owner, owner financing payment to seller, or direct mortgage payment to bank for owners’ underlying mortgage) is payday #2.

Lastly, and the bigger payday typically, is when the buyer secures their financing and cashes out the home. You’ll capture the amount owed (sales price, less deposit paid up front, less mortgage payoff) plus any accumulated principal pay-down (you as the investor always benefit from the principal pay-down during the term—never the seller, regardless of how you bought or secured the property).

So you just created the ideal cash flow scenario for any business or individual: cash flow now, continuous cash flow, and longer-term cash flow.

The beauty is that you can do that without ever taking out a bank loan or using large amounts of your own cash.

The Pillar in the Middle: Commitment

The one pillar in the middle is where I find most investors struggle, because it’s the most difficult after you learn all the basics. It’s the most thankless act of this business—having to learn all the new skill sets, building a business of your own (entrepreneurship can be lonely at the beginning), and believing with certainty that, yes, it can and will work for you.

In order to optimize that center pillar of commitment and all the little stages of the business building process, be sure to manage your expectations. Think about it this way—what if you were to gather a board room of, say, 10 investors who you were selling on a new invention or idea. You get them together, you present the idea and the numbers, and you have them all on the edge of their seats. Then, however, you drop the bomb about commitment. You say, “Thanks for coming. I want you to know that I’m going to give this a shot for 90 days or so and see if it works.” BOOM. You just blew every chance of the investors backing you.

Related: 4 Tips to Find Your Niche in Real Estate (& Actually START Investing!)

What does that have to do with your commitment to your real estate business? Well, if you set out to build a real estate business and your expectation is to just “try” it, you may as well never start. Your mindset and level of commitment should be closer to “I have decided which niche I’m going to create my cash flow and wealth in, and I’m willing to commit to that for three years.”

When you have that level of commitment, you will do what it takes. You will find the skills you need, you will seek out a mentor who is (not was) in your niche who you can latch onto, and you will do whatever it takes because (a) success leaves clues and your answers are out there, and (b) real estate is proven and has been for many decades before you and me. You and your market won’t stop anyone from having success in your area—let it be you.

Questions? Comments?

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About Author

Chris Prefontaine

Chris Prefontaine is the bestselling author of Real Estate on your terms – Create continuous cash flow now, without using your cash or credit and real estate investor with over 26 years of experience in the field. He is also founder of Smart Real Estate Coach and host of Smart Real Estate Coach Podcast. He lives in Newport RI with his wife Kim and his family.

6 Comments

  1. Alex Franks

    Great information. For me I have been involved in the 2007 crash then the 2013 invasion of the hedge funds. So always reinventing myself but my thought process has stayed the same. I diversify within real estate. For me wholesaling, building new construction, buying cash flow rentals. Taking AB paying down C building that passive income. Side note my pops was born in RI.

    Sincerely
    Alex Franks

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