4 Major Strategies for Your Real Estate Investment Business to Focus
APR 19, 2023 by PAUL MARVEL
You're now the proud owner of a real estate investment franchise. How will you go about deciding the direction that your business will take? Given the fact that the franchisor provides wide latitude in terms of selecting holdings and making the most from them, there are a number of options to consider.
Part of what you should do now is to consider each of the investment opportunities found in your area, and determine which ones would be the most lucrative while carrying no more than an acceptable degree of risk. Keep in mind that you may start out with one or two approaches, then slowly expand to include a wider range of properties.
It's helpful to group different strategies into categories. This helps you to get a better handle on what sort of investments have more common ground, and which ones you may be ready to tackle right now. This approach can also provide the basis for deciding what comes next when you're ready to expand.
Statistics About Real Estate That You Should Know
Before jumping in and determining which areas you will focus on, it pays to understand a little about the market and where it is these days. Consider these statistics compiled by the National Association of Realtors, and how they relate to your area. Making good use of them will go a long way toward helping you determine which set of strategies fits in with your goals for the new real estate franchise.
*From February to December 2022, the sale of existing homes decreased from month to month. That's left more residential properties on the market for you to consider. It may also mean that properties in your area that have been on the market for much of that period may be secured for less than the current asking price.
*For the period between 2012 and 2022, owners of real estate in Denver saw the value of those properties appreciate by a significant margin. Collectively the appreciation was just under 146%. If your plan is to buy properties and keep them for the long term, you may eventually be able to sell them for much more than the initial purchase.
*If flipping homes are what you have in mind, there's good news there.
Residential properties are spending an average of 23 days on the market before they sell. The odds of being able to sell a property that you upgraded without having to hold onto it for long are quite high.
The bottom line is that securing the right property at the right time, and then doing what is necessary to make it desirable to tenants or sellers, does carry a good chance of generating a lot of net profit. It all depends on how you settle on the strategy or strategies to employ.
A Word About Diversifying Strategies
As with any type of investment activity, it makes sense to diversify your real estate holdings. By all means, begin with investments that you feel great about, both in terms of purchase expense, any changes that you want to make, and what sort of returns you are likely to earn from that investment.
What you want to avoid is becoming so entrenched with one type of real estate investment that you leave other opportunities on the table. That's an easy habit to develop, especially when the type of strategy you're using is currently hot. Thinks won't be so great if that market happens to cool, and you begin losing money.
Diversification can help you remain profitable, even when one cash cow isn't doing much. It's not unusual for some real estate holdings to continue performing well while other holdings are in a slump. See diversifying strategies as a way to protect the long-term health of your franchise.
A core strategy can be the starting place for your real estate franchise. Generally speaking, this is a strategy that makes use of what's known as the "buy and hold" solution. You're securing properties with the intention of retaining ownership for an extended period of time. During that period, those properties are generating a steady flow of revenue that provides the foundation for the franchise.
This element of operating a real estate home based business can involve buying and holding several different kinds of properties. For example, you may buy a residence or two and rent them out. Maybe you invest in an apartment building, make some enhancements, and collect monthly rent on each occupied unit. You can even purchase office buildings or other commercial properties, lease out space, and have a steady flow of income.
Many consider the core strategy as the option involving the least amount of risk. It will require additional investment over time, typically in the form of maintenance and upkeep. Even so, this can be a great way to supply something that's needed in your community, and earn a decent living in the process.
A core plus strategy shares many characteristics with the basic core strategy. Essentially, it's still a buy and hold model, in that you acquire properties with the intent of using them to generate a consistent flow of income. What's different is the amount of risk that you take on.
With this type of real estate investment, you're taking on a property that will need some attention immediately. That may be in the form of cosmetic work, updating basics like wiring and plumbing, or in some other way modernizing the structure. It can also be about selecting a property that's not in great shape, but happens to be in an area that's becoming more desirable.
In other words, you will be sinking money into the property aside from the purchase price. It may take weeks of months before the property is ready for use. Even then, it may take time before you find the right tenants. In the interim, you're still allocating more funds to the property, with the hope that it will eventually turn a profit.
The risk comes in the form of what you project to happen never coming to fruition. The area ends up not being as desirable for some reason, or the cost of upgrades and changes comes to more than you projected. While you may never realize the level of return that you originally hoped, the property may become profitable at some point, or you may find a buyer who can take it off your hands and offset the overall losses.
With a value-added property, there's a higher level of risk than with core plus properties. The amount of work needed is more comprehensive, with structural issues requiring a lot of attention, followed with some basic cosmetic touches. This will not become a money-maker any time soon. In fact, you may end up having to invest five to seven years in getting the property ready for tenants.
With this type of strategy, you're going for the long game rather than a short one. That means having deep pockets to keep things on track. Having other investors who participate in the project helps to share the cost, but it will also mean sharing the profits once they begin to materialize.
Even so, a successful value-added strategy can generate a great deal of wealth for everyone involved. That success may come in the form of eventually securing tenants who pay well and sign long-term leases, or it could mean selling the revitalized property for a considerable profit. See this as a good option to consider while also maintaining other property investments that involve less risk and continue to supply a steady flow of revenue.
The Opportunistic Strategy
Opportunistic strategies do offer the most potential for high returns on investments. They also carry the greatest degree of risk. These are projects that involve securing properties that are more than somewhat distressed. Dilapidated would be a better description. The question will be if there's anything to recommend the property other than the location.
In some cases, it may be possible to restore the structure, and make it viable for use once again. At other times, the point of purchasing the property is to raze the structure and replace it with something that is likely to attract attention from potential tenants. That will mean spending a nice chunk on demolition before you can even think about rebuilding.
The opportunistic element may be attractive because of a low purchase price. Simply put, the property was on the market for a long time, and no one has shown interest. This is true even if the asking price was reduced more than once. If you think the location is enough to eventually allow you to realize a return, this may be a good project for your real estate investment franchise.
Like value-added opportunities, an opportunistic one will take time to generate a return. Several years may be involved in razing the property, coming up with plans for new structures, hiring the right professionals for the job, and securing tenants once the space is ready for occupation. Along with plenty of financial resources, be prepared to exercise a lot of patience.
Finding the right real estate business for sale Orlando FL is just the beginning. Choosing to become a franchisee means having access to all the resources that the franchisor provides. That includes training, support, and possibly even help with locating the best suppliers and vendors to make your projects come to life. Choose each of those projects with care, and you will have a better chance of making the franchise into everything that you hoped it would be.