There is no one size fits all real estate investing strategy. Still, today’s market favors some strategies more than others. Your best approach is first understanding what is currently in your portfolio or the portfolio you want if you are just beginning. You can then use tips about what is working in today’s market to create the portfolio best suiting your goals. For most investors, the overarching goal is to have as much passive income as possible. And to have as much of it tax-free as possible. The closer you are to retirement, the more critical this goal becomes.
Tip #1. Every tax dollar saved is another dollar available to pay down debt, go in your pocket, or towards another investment. With the tax changes beginning this year, now is the time to make sure depreciation, mortgage interest deductions, property and other taxes, maintenance, and all available write offs are maximized.
This is also a good time to meet with your accountant to discuss the tax advantages of investing through qualified plans like self-directed IRA accounts, ROTH-IRAs, HSAs, ESAs, and other tax deferred or tax-free accounts.
Tip #2. Plan your money sources wisely. Money remains relatively inexpensive for the time being but no one is sure how high interest rates might go in future months. Also, despite being stalled in congress there is still a push to reform Fannie Mae and Freddie Mac. If reform ever passes it could drive mortgage rates even higher. This uncertainty is good reason to evaluate alternative money sources. These could include stock piling reserves from currently cash flowing properties or alternative sources such as individuals buying mortgages with retirement funds or crowdfunding.
Tip #3. Have you worked on your soft skills lately? This is a time when you need more than your core skills of cash flow analysis, property management, or scheduling rehab projects. We’re in a highly active market that you can benefit in by sharpening skills like negotiating, time management, people skills, and profile enhancement through charitable work and public speaking.
Tip #4. Look to the future for changes in strategy. Change is inevitable and we have been in this hot market for several years. Are you sitting on your laurels after fine-tuning a successful strategy fitting today’s market? Change is coming and you should be prepared. High-end investors that have been in Class A rentals are already making changes to rehabbing Class B properties and moving out of gateway cities to secondary metro areas and suburbs. Your strategy in the next several months should be better serving middle-class workers that are being priced out of both the rental and homeownership markets.
Tip #5. There is still room in the right segments of the commercial markets. We all know that brick and mortar retail sales are gravely ill. But growth of e-commerce shows no signs of slowing down. In fact, faster deliveries are the future. Warehouses supporting e-commerce have been built in more and more metro areas. In congested areas, drones are now making same day deliveries. Gone is 5 -7 day shipping. Growth opportunities look to be in the “last mile” of delivery. Those failed suburban shopping malls may be the future residential e-commerce distribution centers.
Tip #6. Paying down debt should be the cornerstone of your retirement strategy. Nearing retirement is the time to shift from acquiring properties to paying off underlying debt on properties that you already own. This time of rising rents is ideal for funneling excess cash flow into paying off outstanding debt. This could be followed with seller financing of debt-free properties to provide a fully passive income for your retirement.
Even if 2017 and 2018 have been your best years ever, you can still do better by preparing for tomorrow.
Please comment with your investing tips for today.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.