Investing in Residential Real Estate : Mindset & Business Case

Residential real estate investing can help you achieve your financial goals. Still, are you committed?

Commitment to have the right mindset

Lack of money, spare time or knowledge should not serve as excuses not to start. Instead, ask yourself
“Am I committed to taking action?”
“Am I committed to dedicating my spare time?”
“Am I committed to replacing daydreams by strategies?”
“Am I committed to investing my money?”
If you are truly committed, you can keep reading this article!

The investment journey will challenge yourself

You will start envisioning another life for yourself
Friends and family may prevent you from taking action
This is when you start to step out and create a whole new path for yourself
You will look at life, finance and real estate differently
You will be introduced to numerous ideas, paths, strategies, and concepts for achieving your financial goals through rental investing

The business case for rental properties

Ability to purchase properties with leverage (through banks or private money) to increase your potential return
The down payment amount should not be as important as the deal you get
Knowledge (to have the right processes in place and know how to react when things go wrong) and reserves (eg. 6 months of expenses) can help reduce the risk involved with leverage
Ability to hustle for greater returns and leverage your skills (DYI), time (networking), and knowledge (deal analysis)
Ability to manage your investments directly contrary to stocks or mutual funds. You are directly responsible for the outcome of your investments
People will always need a place to live so the demand will never ends
It has worked for many investors and most private wealth has been created through owning and leasing properties
Cash flows are fairly stable and predictable even if boom and bust cycles exist
Variety of asset types, markets and strategies to choose from
Straightforward process easy to learn and master, with plenty of information available
It is possible to buy under market value when you know your market and master some negotiating skills
Insider trading is legal in real estate contrary to financial markets so you can leverage your knowledge and your network (eg. knowing in advance that public transportation will be extended to a neighborhood to buy there first)
Passive investments if structured the right way so that you do not need to be present 100% of the time

The four ways profits are generated

calculator and notepad placed on usa dollars stack

Appreciation of the property (natural or forced through rehabs)
Cash Flow (from day 1 or soon after). It is the lifeblood of rental investing. Break even or negative cash flows only lead to financial ruins
Tax savings can make good deals better deals as fiscal policies encourage investments and allow depreciation of assets (non-cash charges)
Loan pay-down as each and every month your tenant reimburse your mortgage, consequently your equity increases

The Top 5 difficulties of rental property investing

anxious woman having phone conversation in office

Building wealth takes time so be prepared to get there for the long haul and to face the ups and downs
It can be all-consuming as problems will happen from time to time, even when you are on vacation. However, your business will run the way you set it up to run. Treat your business like a business and not like a hobby.
You have to deal with difficult people such as contractors, bankers, tenants or property managers. Manage effectively by doing your due diligence up front, screening tenants or outsourcing tasks you don’t want to do.
It involves paperwork and bookkeeping but the right processes or the right professionals will help
You can lose your investment. Still, with the right education, networking, and systems in place, you’ll do great.

Why so many rental property owners fail?

They take on too much risk. Understand risk and managing it effectively will dictate your success
Not enough education whereas it is easily available (books, videos, podcasts, forums, conferences)
Not enough analysis as bad math makes bad investments
They do not treat their business like a business
They never develop systems to help them as they grow.
They treat their tenants like friends.
They don’t create clear policies for finding good tenants.

Treat your business like a business

Monitor your business’s health, hire the right people to do the right jobs, and continually find ways to improve your bottom line to create a long-lasting business.

Sources and credits

All explanations and tips come from Brandon Turner’s Book on Rental Investing

CLS IMMO GROUP