Chapter 1

Introducing Real Estate Investment Strategies

IN THIS CHAPTER

Growing as a real estate investor and progressing beyond standard buy-to-rent properties

Considering the international angle

Incorporating different strategies into your portfolio for maximum success

Real estate is an asset that pretty much anyone can understand. Unlike the more complex worlds of stocks, bonds, retirement savings, and the like, real estate is a rare type of investment because it’s something you have an inherent basic understanding of. It’s what you live in and vacation in, day in and day out. You already know what makes a home attractive, inviting, and desirable. You already have a good understanding of your local real estate market, because you’ve already bought or rented in that market. In other words, you get it.

Real estate is the natural choice for many investors. They’re initially attracted by

• Relatively fewer market fluctuations compared to, say, twitchy and volatile stock exchanges
• Healthy cash flow with regular income coming your way
• The ability to achieve capital growth (by selling a property and pocketing the profit) on top of a steady income
• The potential to be fairly hands off and earn “passive” income

However, just because you understand real estate, doesn’t mean you’ll be a successful real estate investor. You won’t achieve financial security and real wealth by renting out one property; to be successful and secure, you need to build a diverse portfolio of real estate investments, and develop an understanding of the full range of real estate strategies on offer. In this chapter, I explain what that means in practice.

Taking Your Real Estate Investments to the Next Level

Many books out there show you how to rent a property and become a landlord, including the very thorough Real Estate Investing For Dummies, by Eric Tyson and Robert S. Griswold (Wiley). That’s not my goal in this book.

This book is designed to help you go beyond the basics so that you can progress as an investor and grow your real estate portfolio — wherever you are in the world, and wherever you want to invest.

The idea for this book grew out of my own experience as an investor. Early in my real estate career, it quickly became apparent that there were tons of different strategies out there, beyond the obvious routes, for making money from property. And unlike the conventional path of buying a property and renting it out, some of the new strategies I was discovering required very little capital to get started.

I just didn’t know, back then, which strategies were right for me. I could have used a one-stop guide to the various strategies out there, something to help me decide how to take my portfolio to the next level. That’s where this book comes in.

Comparing property to other asset classes

I believe real estate is a much better, much more achievable route to wealth than, say, stocks or bonds. That’s because property is

• Tangible: You can literally touch bricks and mortar, which, for many people, makes it easier to understand.
• Highly controllable: You have total control over your strategy, the properties you buy, the location you buy in, and the types of tenant you decide to target. With other asset classes, you may not get the same level of control (for example, in the case of a fund investment, someone else will be making the investment decisions for you).
• More accessible in terms of knowledge: Most people have a pretty good basic understanding of property.
• More accessible in terms of money: You need serious capital if you want to make serious money with stocks. But with property, you can deploy a variety of strategies with little upfront capital, and leverage is available (in the form of mortgages and loans) to help you gear up.
• Less vulnerable to short-term market risk: Because you’re in control, you can shift your strategy and make different investment decisions in line with what’s happening in the market. If you take a longer-term view (which is sensible in property investment), then the market fluctuations are more likely to iron themselves out over time with the inherent underlying asset still holding significant value even in “bad times.”

Personally, I don’t get as involved in stocks or other securities like currency. There are too many factors beyond my control for my liking, I don’t feel like I have enough of an understanding of macro- and microeconomic factors to do it well, and, frankly, it’s just too technical. And I say that as someone who used to work in the City of London on a trading floor alongside hundreds of traders! That doesn’t mean you can’t make great investments through stock trading, but it takes a lot more dedication and precise knowledge, as well as more risk, in my opinion.

What was really interesting to me, working alongside traders, was that very few of them invested in stocks outside of their “day job.” Despite their detailed working knowledge of the markets, my colleagues preferred to invest their own money in other assets, specifically property. That was very telling.

But even though property is, for me, head and shoulders above other types of investments, the comparison is useful because it reminds us that property is, above all, an asset. Real estate investments should be selected with all the care and attention that a stock investor uses when assessing which companies to invest in — and should be managed extremely carefully, like a diligent trader keeping a watchful eye on the markets.

An asset is only an asset if it makes you money. If it’s not making you money, it’s a drain on your finances, time, and energy — in other words, it’s a liability. Just like any other asset class, if you neglect your investment, take your eye off the ball, and become complacent, a property can become a liability pretty quickly.

In practice, that means if you mismanage a property or neglect it to a point where people no longer want to live in it, you’ll have a liability on your hands. That’s why, for the strategies in this book, I give lots of tips to help you manage your investments proactively so that they continue to be assets and make money.

Going beyond fixer-uppers and straightforward buy-to-rents

So, what’s wrong with fixing up and flipping a property or owning one rental property as a retirement nest egg? Absolutely nothing at all. Done well, flipping is a decent way to make some short-term profit, and renting out a property as a standard single rental (rented to one tenant or one family) will bring in a regular monthly income with little effort required.

But if you want to become a serious real estate investor, perhaps to the point where you can afford to give up your day job and concentrate on your real estate business, owning one rental property or flipping a house once in a while isn’t going to cut it. You’re going to have to dream bigger. One of our family mottos is “Always dream big.” Why don’t you make it one of yours?

Introducing multi-tenant strategies

You can grow your portfolio by having 12 properties across town that you rent out to 12 families or individuals. That’s certainly one way to grow. But is it the smartest way? Maybe not. If you instead rented out your property on a room-by-room basis to young professionals or students, you’d earn significantly more rental income than you would on a standard single rental. Multiply that by multiple properties and you’re really cooking.

For example, say you have a three-bedroom house that you rent to a nice young couple. You’re earning $1,000 per month from your rental, and it requires little effort from you to keep the income coming in.

Now, imagine that same house is turned into a four-bedroom house for young professionals to share (four bedrooms because you’ve turned the dining room into an extra rental bedroom to maximize income). And each tenant is paying you $500 a month for his room. Now you have $2,000 per month coming in.

Sure, it’s a little more work to find and manage four tenants than it is to deal with one nice young couple, but, in return for that little bit of extra effort, you’ve doubled your rental income. And that’s without making expensive upgrades to the property.

Exploring other high-earning strategies

Multi-tenant strategies are a great way to turbo-boost your income, which allows you to grow your portfolio more quickly. But there are also plenty of other strategies on the table to maximize your income.

For example, you could invest in apartments that are rented as serviced accommodation by the night (like an Airbnb). You’ll earn significantly more in rental income than renting out the same apartments on standard 12-month contracts (albeit it with higher costs and a higher risk of void periods, where the property sits empty).

Some of the strategies in this book will be more appealing to you than others. Some will play to your strengths. And some will work better in your chosen location than others. The critical thing is to be aware of the wide range of options available to you as a real estate investor, so that you give yourself the best chance of building a successful real...