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Planning Your Exit Strategy

With any type of investment, a clear exit strategy is one of the most important things to think about, and unfortunately, it's one of the most overlooked pieces of an investment strategy. Many times, when faced with a "can't miss" opportunity, an investor can get wrapped up in the excitement, forgetting to plan out their exit strategy BEFORE they invest. What happens? A long-term, financially crippling "investment" that leaves you shattered.

It's not enough to say "Oh, in around 3 years or so I'll most likely sell it". Your exit strategy needs to be well-defined in advance, including dates, prices and if possible, potential buyers. A clearly planned exit strategy will be the most valuable tool for your investment. Throughout your investment, your positive cash flow will be your working profit, while your profit-focused exit strategy will make up your big pay day. The two together, properly worked, are your ticket to a great investment.

The look of your exit strategy will vary depending on your investment vehicle, but these four aspects should be considered for most, if not all.


Economic Outlook

Especially these days, the economy is something that must be considered. There are some great buys to be had when the economy is low, but if you want out in 16 months and the market hasn't swung back, your strategy needs to be altered, perhaps allowing more time to account for possible market fluctuations.



Changes in the area

With a real estate investment, possible changes in the area could affect your exit strategy - for the better, if you've done your homework! Is the city upgrading the neighbourhood? Is there a school going in nearby? These are factors that will affect your exit strategy, since you won't want to sell before those upgrades happen. Alternatly, is there a crack-house on the corner? A large grocery store going in next door? These factors will also affect your exit strategy. You must know the area. A new Starbucks on the corner could either increase or decrease the value, based on the values of those who are attracted to the area.


Environmental factors

If you are investing in an area that experiences extreme seasons, you will need to plan your exit strategy around the weather. For example, it's harder to sell a house or a surfing supplies shop in the dead of winter. Typhoon season is not the time to sell your beach-front property, so your exit strategy must be mapped for the proper time of year.



The buzz from other investors

Networking with other savvy investors is vital to planning your exit strategy, particularly if you are planning to sell to another investor. There's no sense buying a business in Pleasantville with the intent to sell if other investors typically despise everything to do with the town. These things are not in books or online - you have to learn them from your peers.

Partnered with positive cash flow, your profit-focused exit strategy will be the big payday, but a poorly-planned or outright ignored exit strategy will be your big downfall. See your escape route BEFORE you begin and you increase your chances of investment success.

Reducing Costs to Maximize Return On Investment

One of the easiest ways to maximize your return on investment is to reduce how much you put into your investment. Sounds simple, right? Believe it or not, this is one of the most ignored aspects of an investment plan, and, as usual, one of the most important. No matter your investment vehicle, you can reduce your costs to keep your ROI high. In real estate investing, there are numerous things we can do to reduce costs and put more money in our pockets.

1. Have the tenant be the one responsible for repairs
This solution is the most feasible in a lease to own system, however it can work for other real estate investment strategies as well.


2. Hire Reputable and Reliable People
When you do have to hire someone in, always go for the person who is the most reputable and reliable. When you hire the person with the lowest quote, you risk the chance of shoddy work, and will most likely have to have the work done again. The money you will save by checking references and hiring someone good in the first place will make up for the amount you save by going with the cheapest - after all, the adage is usually true - you tend to get what you pay for.

3. Work Your Network
For recurring purchases or processes (like repairs or mortgage financing) refer to your network to find someone you like, trust and can work with continuously. Then, speak to them about a discount for using their services exclusively in exchange for the high volume of your business. If they are unable to extend you such a courtesy, it may be time to expand your network. Organizations like REIN (the Real Estate Investment Network) can put you in contact with other like-minded people who could be vital to your investment success.

4. Call In Favours
How many times have you helped your buddy move? If that buddy has skills that can benefit you, don't be shy - it's time to start calling in favours. No one ever got anywhere without help from someone or another, so why not help yourself and enlist your twice-divorced bachelor friend to paint the fence at your investment property in exchange for all the times you've helped him in a pinch.

5. Outsource When You Can
At first, this could seem like an added expense, but the question is, how much is your time worth? In our last issue, we talked about Time Leveraging as a way to increase your productivity and duplicate your time, energy and efforts. Outsourcing is a great way to do that. Do you need an ad posted to 20 listing agents online? There are plenty of freelancers and students out there looking to make some extra money. Your time is better spent finalizing your new investment property than calling papers to place ads. Outsource when you can to increase your productivity and, in turn, your profit.

6. Use Low-Cost or No Cost Advertising
The internet is a great resource, and these days it's the first place most people go when searching for any kind of resource. Not only is it the most effective, it also tends to be the cheapest way to list your property. Listing sites, forums and message boards - all can be vital to your advertising without spending a fortune. In addition to the internet, use local, community newspapers and free publications to advertise - people pick these publications up because they are free, thereby increasing your exposure.

7. And of course... Buy When the Market is Low
This economy is getting a bad wrap - as investors, now is the time to buy! Find yourself a nice property and a tidy little deal and you'll be setting yourself up for great return on investment when the market swings back up - with little investment.

Harness the Power of Time Leveraging!

Time leveraging is one of the most overlooked in investing, but is definitely one of the most powerful. When you properly harness the power of time leveraging you duplicate your time, energy and efforts so they work when you aren't there.

But what is time leveraging? Essentially, time leveraging means you're duplicating your efforts so you spend the same (or less) time and effort on a project, and yeild better results.

The most basic example of time leveraging is a working husband and wife. There is one household, and each person only has 8 hours in the day to offer to work. But by both working, they are doubling that 8 hours to make 16 working hours in the day, thereby increasing productivity, efficiency and, of course, profit.

If time leveraging is kept in the forefront of an investment strategy, there is a good chance that investment will yield high profit while limiting the pain-in-the-butt factor. Here are a few ways to harness the power of time leveraging in a real estate investment situation:


Surround yourself with people who are smarter than you

Having a network of like-minded individuals is a great way to leverage your time. Spending time researching something is a waste of time when there are people out there who already know what you need to know. Make sure your network consists of those who know more than you. That way, when faced with an issue for which you don't have the answer, these "smarter people" will be able to guide you, without you having to waste time finding the answer (or learning the lesson, in some cases) on your own.


Make yourself replaceable

Sure, there is something to be said for being "irreplaceable" in a job - if no one else can do what you do, your job security goes up. In investing, however, our mindsets are usually a different - we want to be able to manage our investments without having to babysit them 24/7. How can you take an extended tropical vacation when you are being called in the dead of night to unplug a toilet? If someone else can do what you're doing, even for a short period of time, you free up your time to do the things you really want to do.


Follow a proven system

This is key. Why make all the same mistakes everyone else has already made when you can learn from them and avoid them, making you profitable sooner? Find a system that matches your investing objectives and follow it - to the letter - to find the same success as others.

Keep the time leveraging factor in mind when looking at a potential investment and you'll be sure to maximize your time, energy and efforts in every endeavour.

Five Ways to Minimize Risk in Real Estate Investing

These days, minimizing risk in your real estate investments is vital to long-term success. But do not confuse "minimizing risk" with "limiting risk". Limiting risk means investing conservatively. Minimizing your risk involves a few steps one must take to ensure their maximum-return investment will have the best possible chance of turning a great profit.

Risk minimization consists of strategies one can implement to keep risk low as your investment works for you. Minimizing risk in real estate investing need not be a confusing topic. In fact, keeping a few things in mind as you invest will help to minimize your risk without moving you into a conservative investing strategy. Of course, with each investment your risk minimization strategies will vary, but here are a few that are mostly universal.

1. Determine the Seller's Motivation

Ask questions to find out the reason behind a seller's actions. Are they trying to get out of a bad property investment, or simply trying to sell the property to finalize an estate? Is their current property too big or small for their current family, or are they aware of a plumbing issue and trying to rid themselves of a problem? Asking questions of the sellers and judging both the things they say and the way they say them will go a long way to determining the seller's motivation, and could perhaps keep you from taking over someone else's problem.

2. Determine your Renter's Motivation

Are they new to the city? Going through a divorce? Perhaps downsizing to deal with the current economic down swing? Or have they been evicted from their previous rental property for hosting a grow-op in their unit? Just as you were able to determine the seller's motivation by asking questions, you can do the same with your tenant. Judge not only what they say, but also how they say it and always, ALWAYS check references.

3. Lower the Chance your Tenant will Default on their Payments

To a certain extent, you have control over whether your tenants will default on their rental payment. Using a TDS/GDS calculation of 40% will ensure your tenants do not have too high of a debt ratio, and can actually afford to rent your property. Failing to do this could set your tenants up for disaster - no one wittingly rents a property with the intention of not paying their rent, and everyone's intentions are good at the beginning. Juggling the numbers properly could prevent a sticky financial situation for your tenant and save yourself a lot of hassle in the future.

4. Look for Medium Term Investments Over Short Term Investments

Flipping a house in a bad market is not as good an investment as it is in a good economy. In fact, many people who bought at the wrong time are now scrambling to find ways of recouping their investments. If you have a property you purchased at the height of the real estate influx, selling in a low market is a bad investment decision, especially if you've fixed it up with the intention of flipping it. Instead, consider a rent to own strategy, and when the economy springs back up, look again at selling.

In this market there are some great real estate deals to be had. Purchase low and hold that property on a rental basis for two to three years while renting the property with a high monthly cash flow, and then sell when the market is back up. The monthly cash flow will ensure you have cash coming in when the market is low, and your profit when you sell will line your bank account, ready for your next purchase.

5. Use a Tried and True Strategy

Why make all of the mistakes others have already made if you don't have to? Find a good investment strategy that works with your goals and stick to it. After all, why would you walk through a mine field alone if there was someone else familiar with the route who could lead you safely through?

Curb Emotional Investing By Focusing On Positive Cash Flow

To even the newest investor the importance of positive cash flow seems obvious. Where most investors run into trouble though, is keeping details like positive cash flow in mind when faced with an exciting investment possibility. When an investor makes a decision based on excitement or sentimental value over true numbers and details, it's known as "Emotional Investing".

Let's look for a moment at this term, "Emotional Investing". Investing in any market can be driven by emotions. After all, the current "economic crisis" was in large part created by the reactions of every day people to the potential recession. The stock market is another great example of how investments can be affected by human emotions - in uncertain times people sell low and lose all of their money out of fear!

Remember the movie The Wizard of Oz? The heroes Dorothy, Toto, The Scarecrow, Lion and Tin Man go to The Emerald City to see The Wizard, and they cower before the giant face, scared out of their wits. Yet, if our movie heroes were investors, who do you think would be the best at it? TOTO, of course! Why? Because the inquisitive little dog PEEKED BEHIND THE CURTAIN to see the man behind the smoke and flames and reveal the truth.

As savvy investors, it's our duty to look behind the curtain, just as Toto did - pull it aside and reveal what is really there. How can we determine what's really there? By taking a candid look at the POSITIVE CASH FLOW of a possible investment.

Think of it as your lighthouse in the fog, your compass in the woods, your TomTom while lost in Edmonton... your heart may be pounding, your blood rushing as you stare at that EXCITING investment opportunity, your brain screaming TAKE IT! DO IT! This is the time to take a step back, pull that curtain aside and look at the cash flow. It may FEEL like the best investment you've ever encountered, but unless the numbers yield you positive cash flow, as hard as it can be, you may need to walk away.

On the other hand, sometimes an investment doesn't look great at first glance, but when the numbers yield positive cash flow in spite of the appearance of the opportunity, you've just found an investment others will pass by without giving a second glance.

Taking the emotion out of investing is not an easy thing to do, but by using positive cash flow as your gauge on each and every opportunity, you will peek behind the curtain every time and see not only the investments you should leave alone, but also the worthwhile investments others leave behind.

Real Estate Investing - The Big Picture

The Big Picture
Even the greenest investor knows that examining the big picture of a potential investment is vital. When examining an investment, most of us look at the cashflow and ROI (return on investment). Of course cashflow is important (it's #1 on our list of considerations; why else would we invest if not to make money?) but it shouldn't be the only factor to consider when you decide if an investment is sound. Read on to see what else you should consider before you dive into the investment deep end.

Positive Cashflow - as I mentioned, positive cashflow is the backbone of any real estate investment. After all, why else would we bother investing if we weren't making money? But there is a reason this "obvious" factor makes our list, and comes in at number one. Emotional investing is a very real entity, even amongst the most seasoned investors.

Limited Risk - A myth in the investing world is that the higher the risk, the higher the return. The truth is, a savvy investor can choose an investment strategy, such as a rent-to-own strategy, that is both low-risk and high return, IF the investor knows what to look for.

Clean Exit Strategy - just as important as positive cashflow, your investments MUST have a well-thought out and clearly-plotted exit strategy. Before you invest, you should have a well-mapped exit route that ensures maximum return for both your money AND your time.

Time Leveraging - This concept is one most investors miss, but once grasped, leveraging can be one of the most powerful ways of duplicating your time, money and energy. Plainly put, your investments work for you while you're doing something else - like sipping pina coladas on the beach, perhaps?

Keeping Costs Low - this is another factor of investing that is often overlooked. Most investors, especially new investors, look for high return and low investment. But low costs throughout the investment is just as important to your bottom line as low initial investment and high returns.

Risk Minimization - not to be confused with limited risk, which speaks of the investment risk as a whole. Risk minimization contains strategies one can implement to keep risk low as your investment works for you.

Hog vs. Rabbit Investing - Is your portfolio dominated by one or two "hog" investments, or are your investment choices allowing you to duplicate ad expand your portfolio (a rabbit investment).

This list is just an overview, but all aspects should be taken to heart. Over the coming weeks, we will look at each point in detail to help you maximize your portfolio, increase returns and make your investment choices work FOR you, instead of you working for your investments.

Every day www.theversatileinvestor.com receives great investment opportunities Canada-wide, which we put forth to our members. For more on these, visit HOT DEALS in our discussion forum.