Whether you are just entering the world of real estate investing or you are an experienced investor, your ultimate goal being a real estate investor is to grow – in order to make more and more money from your real estate investing business.
Although it is generally advisable to start small to give yourself a chance to learn by doing, it is a must to constantly keep growing for being a real estate investor. You probably think right now “Easier said than done”, so following is a list of the most successful strategies to grow your real estate investing business.
Being a real estate investor: Use your positive cash flow as your growth strategy
The #1 rule in real estate investing is to ALWAYS have positive cash flow. Don’t ever fall into the trap of investing in a negative cash flow income property because you expect things to change in the future and your property miraculously to turn into a positive cash flow one. You will see how important positive cash flow is in a minute as the first set of growth strategies for being a real estate investor are centered on this idea.
Related: How to Get Rich in Real Estate: 4 Different Cycles
1. Use positive cash flow to pay off mortgage faster
An important question is real estate investing is whether and when you should remortgage your property. Well, if you realize that you are making lots of cash flow because you manage to get high rental income and/or to minimize your expenses, that’s the right time to start making larger mortgage payments to finish up quickly. Alternatively, you could save the extra cash you have at the end of each month and credit it towards your mortgage at once to repay in full. In either case, the final result will be that you will be done with the mortgage on your first rental property earlier than expected and you can then buy and start paying the mortgage on another investment property.
2. Use positive cash flow to buy another property
As soon as you are done with paying for one income property, you should buy another one. Actually some experts would go as far as saying that you should be adding a new property to your investment portfolio every 2-3 years. This might sound crazy to you right now, but remember that buying a new property will be becoming easier and easier as you accumulate more of them. The idea is that you can use the positive cash flow from your monthly rental income on one investment property to save for a down payment and then pay the mortgage of another property. This strategy could work out in either of two cases: 1) If you make enough cash to pay the mortgage of your current property and have some left over to start buying another property or 2) If you have already paid off the mortgage on your first property.
These two growth strategies are also known as the snowball method in real estate investing.
Related: The Snowball Method in Real Estate Investing
Being a real estate investor: Sell your income property and buy a new one to growth faster
3. Sell your income property to buy a bigger one
As a real estate investor, you have an important asset – your income property. Remember that you can always sell this one (unless the market is down) to allow yourself to grow being a real estate investor. The most straightforward decision is to use the money from your smaller, less luxurious, less income generating investment property for buying a new one which would make more money for you – either because of being bigger or because of having more to offer to potential tenants (having a garden or a swimming pool or being really nicely furnished). One option is to switch from a single-family home to a multi-family property. The key here is to buy a new property for which you will be able to charge more rental income than for the previous one. Needless to say, you will not be able to pay the new property in full with the money from the old one since it will be more expensive, but at least the money from the sale will make for a sizeable down payment.
4. Sell your income property to buy two new ones
Alternatively, you could use the money from the sale to buy two smaller or even equal-size rental properties. After making the down payment with the money from your original property, you can use the monthly cash flow for the mortgage payments, as explained above. Indeed, that’s probably the better strategy to grow being a real estate investor as in addition to increasing your monthly income, you are also growing and diversifying your property, which is important in any investment business.
Being a real estate investor: Use appreciation to grow
5. Sell an appreciated property to buy new ones
Directly related to the idea of selling your old income property to buy a new one or new ones is that you should always attempt to buy properties which are expected to undergo major real estate appreciation in the short or medium run. When searching for an investment property, focus on areas that are growing fast, where demand is high, and land is becoming limited. If your property experiences quick appreciation, this will give you the opportunity to exchange it for a bigger one or two separate properties sooner rather than later. Thus, remember that appreciation is not only a way to become rich in real estate but also a way to grow being a real estate investor.
Being a real estate investor: Enter into partnerships
6. Find partners to buy more and bigger properties
A real estate investor cannot be a lone wolf. If you attempt to play alone in this business, you will lose on so many important opportunities that it is just not worth it to try to protect your independence and freedom. If you enter into a real estate investing partnership, you will be faced with so many more options which are not affordable otherwise – larger single-family homes, more luxurious properties, multi-family homes, commercial buildings, etc. Even if you don’t have enough money to buy a new property on your own at the moment, you might be able to have shares in a few through partnerships.
Related: What You Need to Know about Real Estate Partnerships
One of the largest mistakes which real estate investors can make is to be satisfied with the size of their current business and decide to stay stagnant. There are so many opportunities to grow being a real estate investor, as shown above, that you should never miss on them. You should continue buying more and bigger income properties all the time. Whenever you are ready for a new purchase, check out Mashvisor for analysis of numerous properties across the US top real estate investing cities and neighborhoods.