Which Investment Strategy Should I Choose?

“Which real estate investment strategy should I choose?” is a question I get frequently. Should I do short sales? Should I do fix and flips? Should I do REOs? Should I do buy and holds? These are the types of questions that often find their way to my inbox, through my over-the-phone-coaching and at my live events. There are several investment strategies within real estate of which to choose that it’s understandable picking the right one for you can be difficult. Maybe this will help?

investing strategyFirst, when I get a question like “Should I do buy and hold or short sales?” it tells me right away that more education is needed as that question isn’t really answerable. When it comes to real estate investing, there are two investment strategies of which to consider. There’s an acquisition investment strategy and there’s an exit investment strategy. Keep in mind both parts as you make your money when you acquire (buy), and you get paid when you exit (sell). Regarding the question “Should I do buy and hold or short sales?” Buy and hold is an exit strategy. Short sales is an acquisition strategy. For example, you could acquire an income property through the short sale process, and you could hold on to it for “cash flow.”

Second, you should understand that all of the strategies work. However, your results can vary based on your market, the economy and your resources. For example in California in 2006 all you had to do was buy a property, wait six months and you could sell it for a healthy profit. The market conditions allowed that. If you tried that today, you’d lose your shirt. Nonetheless, investors are still making money in today’s California market. They simply changed their investment strategy when the market changed. Another thing you’ll want to look at when choosing an investment strategy is your resources. If you have money in invest, or at least access to it, REOs or auctions might be a good acquisition strategy for you as you need money to play those games. Or, if you’re short on money but you have a lot of time, working For Sale By Owners (FSBOs) or Notice of Defaults (NODs) might be the right acquisition strategy for you. Those two strategies allow you to get creative with financing, but take a lot of time to find motivated sellers that will be open to your creativity.

Third, pick just one acquisition strategy. As I mentioned before, they all work. Any strategy you’ve heard of has produced a millionaire somewhere. So, pick one acquisition strategy and master it, and learn all four exit strategies (buy and hold, fix and flip, lease optioning and wholesaling). It’s the experts in this business that make all the money. Become in an expert in one acquisition strategy like REOs, auctions, probate, absentee owners, tax liens and deeds, FSBOs, expired listings, etc… and understand that all of these investment strategies are going to be slow building in the beginning. They’re all skills, and skills take time to develop. Avoid the pitfall of jumping from one strategy to the next, that’s a recipe for failure. Focus on one and master it before you take on an additional strategy.

When you take into account the many acquisition strategies available and the four basic exit strategies, there are multiple combinations you could put together to create the right investment strategy for you. Do some homework, pick one and get to work. They will all work, but only if you do.

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