Daytona Beach Real Estate Investing - 3 Things You Must Know to Succeed

There are two main types of real estate investors - pros and amateurs.

Are you a real estate investing pro? Answering this question defines your approach because pros make money at their profession. Deciding that you are a pro means that you are going to make money from real estate investment.

You must know three things to succeed in real estate investing:

1. Your primary profit strategy
2. Your execution strategy
3. You exit strategy

What is Your Real Estate Investment Profit Strategy

How are you going to profit from real estate investing? There are many ways:

Buy - Fix - Resell at a Profit (Short term strategy)

Buy - Hold - Sell on Appreciation (Buy early in rising market)

Buy - Rent - Hold positive cash flow (Rents must be higher than expenses)

Buy - Rent - Hold tax shelter (Paying less taxes on other income because of real estate rental losses)

There are many more, and strategies can be used in combination.

Many people who invested in Daytona Beach Homes and Condos are in big trouble right now because the didn’t follow any profit strategy other than buy high and sell higher. This strategy can work for a while, but generally does not end well. Too many were caught holding properties with 100% or higher mortgages, negative cash flow, decreasing prices and rising rental vacancy rates.

Here’s an example of a package I put together a couple of years ago. An investor, with cash, wanted a high rate of return on his cash. We found an opportunity where the investor bought the property, built the building, and then leased it to a convenience store chain for 15 years. The convenience store would maintain the building, so he was essentially guaranteed a tenant for 15 years and fixed rate of return on his money. He was careful to buy in a good location, in an area that was growing economically, so at the end of 15 years he would have a property worth much more.

This investor is a pro. He sets the rate of return he will accept, and then structures a deal to meet his requirements.

What is Your Execution Strategy?

What are your criteria for buying a property?

• Maximum Investment
• Return on Investment
• Return on Your Time
• Cash Flow Requirements
• Financial Situation and Tax Benefits

If you’re going to buy the fix and resell you need to establish a return on invested money and your time. When you put money in a bank, you get a rate of return and you don’t need to do anything to get that return. Your investment is passive. If you’re spending time on your investment, you need to be compensated for that time. Set a rate for your time and include it in your criteria. By setting the required return on investment and compensation for your time, you can now find properties that meet your requirements.

If you’re looking for positive cash flow, a lot will depend on the amount of financial leverage you will use. If you’re financing 100% of a property, your options are limited. If you spend $100,000 for a property and it costs you $1,000 a month in Mortgage payments, insurance and taxes, your costs are likely to be about $1,250 a month when you factor in maintenance and occasional vacancies. You’ll need to get monthly rent over $1,250 to have any positive cash flow at all. In the Daytona Beach real estate market, you’re talking about a duplex or triplex to get that amount of rent. Tax advantages may still make it attractive, but you need to be sure before you invest.

If your goal is positive cash flow to contribute to income then you most likely will need to have significant equity in the property, but you still need to establish your return on investment targets before looking at any property.

What is Your Exit Strategy?

Warning! Paper Profits Do Not Spend Well!

I know of people who had over $1,000,000 in paper real estate profits in the Daytona Beach area. Today those profits are $0. The market went south fast and there was no way to cash out. There is no profit until you receive the money. The time for an exit strategy is before you buy.

What are the conditions under which you are going to sell your property, or cash out your profit? Are there any conditions that would cause you to sell at loss? What are they? Define your exit strategy in advance and modify it with market conditions. You need to invest the time to follow market information affecting your real estate investments and adjust as necessary.

Treat real estate investment like a business. Don’t get caught up in crowd behavior and buy on speculation. Buy properties that meet your criteria based on profit and exit strategies. Be wary of anyone who promises you instant easy profits. Know your market, know local conditions and profit from that knowledge and a solid plan.

Contact me if you would like additional information about investing in Daytona Beach real estate.

Technorati Tags Daytona Beach Real Estate, Daytona Beach Real Estate Investment