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5 Growth Strategies for Gaining True Financial Freedom

by xyonent
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When you say the word “strategy” in the context of real estate investing, most people think of different deal types like BRRRR, house hacking, house flipping, etc. To me, a strategy is bigger than any individual deal.

There are many definitions of strategy, but one I like is: “A strategy defines your long-term goals and the plan for achieving them.” A strategy is your big-picture goal and the overarching theme of how you will pursue that goal.

At the other end of the spectrum, tactics are smaller units of effort within a strategy, where you specify specific steps.

Given these definitions, a real estate investor’s strategy must be bigger than any individual deal or portfolio decision. Strategy has to do with big questions like whether to work a 9-to-5 job or go full-time into real estate. Or how much risk are you willing to take? Or how much time can you devote to your portfolio?

Deciding whether to refinance or rent out your property for the short or medium term are tactics. Strategy and tactics are both important, but the order of execution matters. Develop a strategic plan first and then employ your tactics accordingly.

So I want to show you how strategic planning influenced my tactics and got me well on my way to financial freedom.

My portfolio goal is to generate $20,000 per month in after-tax, inflation-adjusted income from real estate within 15 years. I’ve been investing for 14 years, but didn’t have a formal plan or strategy for the first 7. I set this goal about 7 years ago, so I’m about halfway there, but well ahead of schedule.

Below are five strategic decisions I made seven years ago that helped me achieve my goals.

1. Get a high-paying job

Like most people, my early investing career was constrained by access to capital: I was lucky to have partners on my first deals, but I quickly realized that to scale I needed a steady income to provide investment capital and borrowing ability.

In the first few years, I worked a variety of jobs, including as a waiter, a salesman, a tech startup rep, media sales, etc. Finally, after about five years, I decided to get a master’s degree in Data Analytics, a high-paying, growing, and stable industry.

Although tuition was more than I could afford, I went to a state university and managed to get by with loans. It was worth it, because my salary increased and I was able to recoup my tuition in just one year.

I know that not everyone wants to be a data analyst, and not everyone wants to stay in their current job, and that’s fine. But for me, this is probably the most important strategic decision I’ve made as an investor. I could have focused more on real estate investing, but I chose not to.

I realized the best strategy for achieving my long-term goals was to focus on my primary career rather than working full-time in real estate.

This strategy helped me increase the size of my portfolio in a number of ways. First, I had more money to invest. Second, my higher income allowed me to take out bigger loans. And third, because I knew I could live on my salary, I was able to take more risk in my portfolio, which led to bigger gains.

Some may consider this a sacrifice, but for me it’s not. I love my career and am grateful to be able to work that alongside real estate investing.

2. Prioritize capital over cash flow

Because my goal was 15 years out and I knew I was going to continue in my career, I decided not to place too much importance on cash flow initially, and instead focus on building as much wealth as possible through value addition, carefully selected properties, leverage, and some lucky market timing.

This was a simple strategy for me. When I thought about my goal, I knew I needed to invest about $4.5 million in equity at an 8% cash on cash return (COCR) to get there. And when I started, I was nowhere near my goal. Buying properties with high cash flow but low equity gains was never going to get me to where I wanted to be.

Instead, I needed to find a way to acquire significant capital, through selective investments in areas of high value-add and demand. So I decided to deprioritize cash flow and instead focus on building capital as efficiently as possible.

To be clear, I have never bought a property with no cash flow, and I never will. Every property I have ever purchased had a minimum CoCR of 2% and very conservative underwriting, but I set that minimum as a defensive measure, not because I needed the cash.

Allowing yourself some breathing room to break even allows you to hold onto your real estate, allow it to continue to grow in value, and give you strategic flexibility. Reinvest 100% of your cash flow.

As I get closer to my goal, I plan to focus more on cash flow over the next few years, and ideally I will be increasing my minimum return target from a minimum of 2% to around 6% to 8%, depending on the property.

With equity, you can easily find cash flow. You can renovate your home and increase the rent, reduce your debt, or buy with cash. Equity gives you flexibility.

But even if cash flow is a priority, you probably wouldn’t buy solely for cash flow: for example, you would prefer a 5%-6% CoCR on a B class property that’s in good condition and has the potential to appreciate in value over a 10% CoCR on a rundown property in a C class neighborhood.

3. Set a time limit

Achieving long-term goals like my 15-year goal requires persistence. As the saying goes, it’s more of a marathon than a sprint. So I came up with a unique strategy: put a time limit on my investments.

This may sound weird, and it’s probably why most people don’t do this, but it was great for me. In 2017, I was looking to scale, but I was also working full time, going to grad school, and had a social life that I valued.

Balancing all of this required me to set boundaries. The limit I imposed on myself was 20 hours per month, and I haven’t changed that limit since.

Real estate investing strategies vary greatly in time constraints. By setting a monthly time limit, I have chosen only strategies that allow me to grow sustainably and never burn out. If I am renovating a rental property, I cannot buy another project with more renovations at the same time, or I will exceed my time limit.

Most of the tactics of flipping houses, wholesaling and finding off-market deals were not an option because they would take too much time. Sure, this meant I missed out on some great opportunities, but it also meant I was able to live a balanced lifestyle that I enjoyed – one that allowed me to grow my portfolio while still having time for work, a social life and family. I’m willing to accept that trade-off any day.

4. Chase risk adjusted returns

Everyone seems to be chasing the highest possible investment return, but not me. I chase the highest “risk-adjusted return.”

The idea of ​​risk-adjusted return is that there is a range of risk and return. The most profitable investment option also has the highest risk of loss (i.e. resale), while the investment with the lowest return has the lowest risk of loss (i.e. government bonds). As an investor, you need to find where on that range you are comfortable.

For short-term investments, it is better to take less risk, for long-term investments you can safely take on bigger projects – that’s the general rule of thumb.

However, when it comes to investing, I don’t have much risk tolerance. With a stable career, I have never felt the need to take big bets and risk big losses. Why should I? My salary covers my expenses, and if I continue on a stable, moderate-risk path for 15 years, I’ll easily reach my goal.

For my portfolio, I am happy with an IRR of 10% to 15%. This is a good rate of return when compounded over a long period of time, and if you continue to average this rate, you will get a return that is far greater than your original goal. Knowing what rate of return will comfortably get you to your goal will make it easier to choose strategies and trades and avoid taking unnecessary risks.

5. Run your own race

The strategic decision I recently made was the hardest to stick to. I realized that choosing to focus on my career meant I couldn’t pursue many of the most attractive and profitable strategies as an investor. Working full time means flipping properties is not possible. I can’t manage STRs myself. Even renovations have to be limited in scope.

At first, this was easy: I knew how to buy rental properties, fix them up and increase their value, so why not keep going?

But as my career at BiggerPockets progressed, I was exposed to a lot of great ideas. I wanted to flip houses, buy large apartment complexes, and pursue the time-consuming but effective tactics that many of my friends were using to find off-market deals.

But despite a fair bit of FOMO, I stuck to my original plan, and although I probably missed out on a few great deals, it was all worth it.

Right now I don’t have the time to flip a house or buy a large apartment complex, and while mid-term rentals have the potential for great cash flow, I choose not to do them because manageability and long-term stability are more important to me than short-term cash flow.

I’m not going to be the best STR host on the market, I need to stick to tactics that fit my personality, risk tolerance, and other strategic decisions.

Being focused may not seem like a strategy, but I believe it is. There are many attractive ways to invest in real estate, and it’s easy to get distracted. But not every strategy works for every investor. Knowing yourself and sticking to a plan has been a winning strategy for me.

Tactics I used

Please note that these strategies are not what most people in real estate investing would call strategies. My strategies do not include specific deals whatsoever. Instead, as the definition suggests, these are high-level ideas designed to help me achieve my long-term goals.

With these strategic guardrails in place, it was easy for me to make decisions about which tactics to use. For the past seven years, I have been purchasing long-term rental properties. In many of them, I have completed value-add projects and refinances (BRRRR), but I have also purchased turnkey assets. Over the past few years, I have participated in several syndications and funds because they offer higher-risk opportunities to build equity. They are less time-constrained, so they fit easily into my plans to continue working.

Of course, there were trade-offs. I get jealous when I see friends flipping houses or raising big sums to make a ton of money. But the jealousy quickly fades. I’m on track (or even ahead) to reach my goals, and that’s all that matters.

To you, many of the strategic and tactical decisions I made seem crazy. Maybe you want to quit your job as soon as possible. Or maybe you want cash flow right now.

Those are great goals, and I wouldn’t argue with what your goals are. My only advice is that before you choose a tactic or individual trade, sit down and really think about your goals and what strategies you’re going to use to achieve them.

If this seems daunting and you need help developing your own strategy, check out my book. Start with a strategyand the accompanying brand new Strategic Planneris packed with exercises and tools to help you develop a personalized strategy based on your unique situation.

Discover your vision and reach your goals with this practical planner.

Use Dave Meyer’s customizable planner for real estate investors to create your own plan of action, fill in the gaps, and design the perfect deal that fits your vision of success. Let’s start with the strategy.

BiggerPockets notes: These are opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.

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