THE BIG PICTURE
ASSET STRATEGIES
about) and that they believe can have an appealing mone- tary return. The key is making that assessment correctly. Like most things in life, property type is a personal choice. 2. IDENTIFY THE RIGHT STRATEGY FOR YOUR PROPERTY CHOICE After determining which property type to pursue, choose the right real estate strategy for that asset class. In general, real estate investors choose whether to own or lend and whether to be active or passive. These choices usually lead to one of the four following strategies. • Buying and Holding • Flipping • Wholesaling • Loaning via Notes Deciding which strategy is best is similar to determining which property types to choose. What makes sense for one investor might not work for another. Unlike property selection, strategy decisions usually come down to time horizon, investor temperament, and personal and professional risk tolerance. For example, some people are more short-term oriented and prefer flipping houses to holding them long-term. Others are planning for decades ahead and choose to buy and hold. Some investors want to be active with their real estate while others are more passive. We have found that investors can be successful by implementing any real estate strategy. The key is to thoughtfully choose the strategy that matches needs and desires. Even more than property type, strategy is a personal selec- tion for each investor based on their unique circumstances. 3. DRILL DOWN INTO THE RIGHT LOCATION Strategy and property-type selection are a chicken-and-egg scenario. Do investors chose their strategy and then select their property type or do they find a property type and then determine their strategy? At the end of the day, it is very
CASE STUDY: ABREAKDOWN OF MY PERSONAL DECISION- MAKING PROCESS H ere is how I decided to invest in buy and hold single family homes in Memphis, Tennessee. I chose single-family residential (SFR) properties because I was working in the residential real estate business for my day job, which meant I could make contacts and ask questions while I was on the clock. Learning about multifamily or com- mercial properties would have been a much steeper learning curve for me. I did not want to spend the time and resources to gain knowledge about other property types when I was getting paid to learn about single family investing. Basically, I selected SFR because it was in my circle of competence (that is, it was something I knew about). It made sense to me. I decided on buy and hold as my real estate strategy be- cause I wanted to build wealth over the long term. Flipping and wholesaling were potentially quicker ways to make money, but I viewed buy and hold as an opportunity to work toward permanent financial freedom. Furthermore, buy-and- hold is an ideal investment, in my opinion, because it offers some specific benefits: • Income • Depreciation • Equity • Appreciation • Leverage Notice these benefits spell (IDEAL). These benefits matched not only my temperament and time horizon, but also my risk tolerance. Once I committed to buy and hold SFR investing, I used the three keys to the successful investor model to find the right market(s) for me. I learned how to value buy and hold SFR, then I looked for opportunities and made deals. Over the years, I have made hundreds of successful deals, but I have had to look at thousands of opportunities in order to do so. In conclusion, every investor must choose a property type, select a real estate strategy, and then decide on a market to begin investing. Determining a property type and strategy are personal choices, but having a framework like the successful investor model, allows investors to choose a market much more objectively.
3 Steps to Effective Investing Strategies in aWidening Market
THE REAL ESTATE ASSET CLASS IS EXPANDING. MAKE THE RIGHT CHOICES FOR YOUR CAPITAL.
by Douglas Skipworth
ver the years, our real estate company has found there are three major, universal decisions every inves- tor must face (and make) before pulling the trigger on an investment: picking a property type, choosing a strategy, and se- lecting a market. Navigating that process has always been crucial to getting good returns, but it is constantly becoming more complicated as our asset class and our sector expand in scope and definition. Here is how we deal with these deal-making and -breaking decisions: O 1. UPDATE YOUR PROPERTY TYPES AND ASSET CLASS VOCABULARY As most investors know, real estate is considered an asset class, much like
stocks, bonds, and cash. Similar to stocks that have companies in various industries, real estate as an asset class is comprised of several different property types. So, when it comes to property types, real estate investors have many options. On a high level, real estate is often- times separated simply into residential and commercial with multifamily being considered residential to some investors and commercial to others. You likely think of real estate in the following three categories (single-family, multifamily, and commercial) but it’s important to break commercial property down a little further for our purposes. Conventional industry definitions break the commercial definition down into:
1 Retail 2 Industrial 3 Office
4 Specialty , which can include proper- ties such as hotels, self-storage facili- ties, mobile homes, farmland, etc. Over our 20-year real estate career, we have found most investors select a specific property type for personal rea- sons. Investors are compelled to choose a property niche by both the financial re- wards of that property type and by their own perceived ability to understand or relate to that specific property type. Put another way: Investors choose proper- ty types that they know (or can learn
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Douglas Skipworth, CPA, CFA is the Co-Founder and Principal Broker at CrestCore Realty in Memphis, TN. CrestCore manages over 2,500 units for approximately 500 individual investor clients, of which Douglas and his business partner Dan Butler are the largest. Connect with Douglas at douglas@crestcore.com.
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