So you want to be a real estate investor?
There are many characters in the world of real estate. As a real estate investor, you won’t be the first to invest in property! There is nothing new under the sun. Once you hit the scene of investment clubs, networking, and actual investing you’ll begin to meet other players in the game. As a real estate investor we’ll highlight four many characters and investing styles we’ve come across. Here goes it:
Cash Flow King
This type of real estate investor seeks cash flow above all else. They typically have little to no concern about crime, demographics or anything other can purely maximizing their return on investment. Beware, this investment style is not for the faint of heart. It requires intensive management and extremely diligent tenant screening. The risk with this style of investing is the same as it’s benefits. This type of investor can be so focused on the return on investment that they can discount the other factors that can affect an investment’s performance such as neighborhood, crime, resident demographics and lifestyle of residents.
Solid Returns Seeker
The Solid Return Seeker is a real estate investor that has a high emphasis on cash flow, but is not willing to sacrifice on quality of neighborhood to achieve it. Much like the Cash Flow King, the Solid Returns Seeker is not counting on appreciation as a part of their investment strategy. For them, the monthly cash flow is the name of the game. This type of investor is willing to pay a little bit more for the investment in an effort to reduce the intensity of management required. Often this type of investor does well in forced appreciation situations often found in commercial multifamily projects. This pragmatic investor doesn’t like to take too many risks, opting instead for calculated decisions.
Appreciation Aficionado is on the opposite end of the spectrum as the Cash Flow King. This type of investor cares not about cash flow – but purely buying well located property with hopes that it will increase in value. This is where the old real estate adage “location, location, location” comes into play. While under the right conditions this investing strategy can be profitable, it is also the most risky. This type of real estate investor is willing to take on a short term cash drain with the logic that the ultimate pay off will repay those short term expenses and still offer a handsome profit. Some examples of this type of investing are house flippers. Beware, this type of investing can be resembly more like gambling if investor is not knowledgeable about his/her subject matter.
Appreciation – Cash Flow Blend
Now this one is interesting. This type of real estate investor is the ultimate opportunist. They want to play the field and win on both ends. It’s genius actually, but can be a bit difficult to implement in practice. The person is looking for a blend of appreciation and cash flow and is willing to speculate while profiting in the short term. In exchange for this trade off, this type of investor is usually willing to sacrifice ROI for hopes of a bigger pay off in the end. The Appreciation-Cash Flow Blend isn’t as risky as the Appreciation Aficionado, but is more so than the Solid Returns Seeker and the Cash Flow King. This can be a profitable strategy when it pays off and the cash flow helps the investor stay afloat until payday.