Real estate investors are notorious for using only one income-generating strategy, such as renting out a house, or buying and flipping.
In reality, there are multiple income-generating strategies you can combine. This is supported by one of my favorite books:
Set Your Goals
The 10X Rule: The Only Difference Between Success and Failure by Grant Cardone.
It’s full of amazing income-generating strategies, and it really helped me grow my real estate business, by setting goals and learning how to implement them.
Below are my two favorite quotes from the book, explaining why most people don’t achieve their goals:
Why People Don’t Achieve Their Goals:
- Mistargeting by setting objectives that are too low and don’t allow for enough correct motivation.
- Severely underestimating what it will take in terms of actions, resources, money, and energy to accomplish the target.
- Spending too much time competing and not enough time dominating their sector.
- Underestimating the amount of adversity they will need to overcome in order to actually attain their desired goal.
“In order to get to the next level of whatever you’re doing, you must think and act in a wildly different way than you previously have been. You cannot get to the next phase of a project without a grander mind-set, more acceleration, and extra horsepower.”
The first thing to understand is that cash is king and gives you leverage and financial flexibility. You will be growing a company exponentially, which generally strains your liquidity and systems. The more cash you have on hand, the better off you’ll be.
Related: Our List of Income ideas
Step 1: Build Up Cash via Short-Term Rentals
This income-generating strategy creates revenue without adding any meaningful expenses. It’s possible for you to make enough profit through Airbnb to pay your mortgage. With a solid foundation of cash, you can start buying properties.
Imagine how much money you could save if you had your mortgage paid every month.
Step 2: Use the C-B-A Strategy to Grow
Everybody has heard the adage about what’s important when investing in real estate: location, location, location.
Consider adding this to the equation: Buy C properties, and upgrade them slightly to make them B properties in A locations.
Here’s how it works, but first a definition:
- Class C Properties
Older properties, sometimes in bad neighborhoods, which need renovations.
- Class B Properties
Well-maintained properties that are not as nice as Class A properties.
- Class A Properties
The best of the best. They are new properties with all the amenities.
Getting 50% Off Class C Properties
The thought of buying C properties makes most real estate investors cringe … which is exactly why you should like them.
If you are going after only B properties, you’re competing with everyone else. If you only go after A properties, you’re not only competing with everyone, you are probably getting a lower cap rate or lower cash flow. Investors who buy only “A” properties would probably be better off building them than buying them.
There are obvious issues with C properties, usually major upgrades are needed. However, all you have to do is calculate that expense into the price of your offer.
My friend Max who routinely buys properties at 50% off the MLS. Do I have your attention?
What my friend Max, who is a real estate agent, does is to search the MLS for properties that have the words “foundation repair” in the listing description. I’ll be honest. If I read a description with “foundation repair” in the listing I’m out, and apparently I’m not the only one. However, foundation can generally be fixed for $15,000 on the high end, and most foundations can be repaired for around $10,000.
Just because a property is a Class C property doesn’t mean you should automatically avoid it.
So, find a property that has a foundation problem, and ask a block mason, engineer and/or foundation company to estimate the cost to fix it. Most people overestimate the cost of foundation repair jobs when pricing real estate.
I have another friend who uses this strategy, but instead of foundation problems, he looks for houses that have fire damage. Just because a property is a Class C property doesn’t mean you should automatically avoid it.
Upgrade a “C” Property to a “B”
After buying a C property, upgrade it to a B to get people to live in it.
Consider the following, which tenants love:
- Real hardwood floors
- Washer/dryer in the unit
- Dedicated off-street parking
- Stainless steel appliances
While you don’t need to have all these features, try to have at least one of them.
For example, if you buy a Section 8 property in a bad area, after making sure it passes the local Housing Authority’s inspection, add stainless steel appliances. Before you know it, you could have a waiting list of tenants wanting to rent from you.
Make some upgrades, and you will probably get a tenant who stays in your properties longer.
Look for “Class A” Locations
Even if you buy an A property, if it’s not in an A location you are likely to struggle to sell it or get it rented, just because of the location.
Only investing in “Class A” properties allows for several mistakes.
You’re likely to get much higher cash-flow returns investing in Class B and Class C properties. Make sure you study which are the desirable ZIP codes, and pick the most popular one. By focusing on one area, it allows you to get to know it intimately.
Do you agree or disagree with any of the points above? Let me know in the comments!