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?