I originally wrote this as a response in another thread, but I decided to put it out here instead as the beginning of a new topic which will, hopefully, be more interesting and lead to a deeper and more positive discourse. It may appear that I am explaining and defending a philosophy which has not been criticized, but that is because this was originally written for another thread.
What does your Real Estate Portfolio look like? Is each property the same as the others? Is it “I have a $250 per month positive cash flow in this one, a $150 per month positive on that one, and a $200 per month positive on the other one because I am a Cash Flow Investor. Cash is king and that’s the only way to go”?
Or maybe it’s “I made 20% on this flip, 18% on that one and 22% on the other because I am a Flipper. Flipping is what I do. Flipping is what it’s all about”?
I don’t see real estate investing that way at all. Real estate investing is a world of opportunity. Many different kinds of opportunities are out there. I want to take part in any deal which makes sense as a stand alone deal AND fits into my cash on hand/cashflow situation. Another way to say that is to say that I am looking for a deal which fits into my real estate investment portfolio.
My last 4 properties bought, over a 6.5 month period: (1) SFH, flip with minimal (< $1000) fixup, sold it this week, $58000 profit, I had this under contract for 8 mos (in an appreciating market) before the Nov 2005 closing because the seller wanted to delay closing until his new house was finished, they were appreciative that I allowed them to delay. (2) SFH on 2 acre lot, I subdivided it into 3 lots, lease option on lot with house is in the works for break even cash flow for 6 mos., I will keep the vacant lots for at least until the 1 year point where I may 1031 one or both into an income producing property. (3) SFH, buy and hold, old waterfront property on 2 lots, rented with small negative, will redivide within a couple of years, I have large equity in these lots already and I may build my next two primary residences on them. (4) 1998 doublewide on 3/4 acre lot, bought on courthouse steps at 55% of recent VA appraisal, rented, will hold for at least 1 year. (5) is under contract, late June closing, a <90 day fix and flip.
At this moment I have a large negative cash flow on (2) and small negatives on (3) and (4). I will have a large negative on (5) when I own it. Thousands of dollars of negative cash flow, how could I be so foolish?
Now take a step back and look at the BIG PICTURE. Positive cash flow? Got it. Large equity position? Got it. Accumulating more real estate? Yep. Selling 1 and 5 is part of my accumulation strategy. Those give me slugs of cash for down payments and offset negative cashflows.
Consider that a number of real estate properties can make up a balanced real estate portfolio, even if not every individual property is “balanced” if it were standing alone.
Consider also that my portfolio is custom made to fit MY goals, not yours. I don’t need monthly cash flow from rei. If I need a chunk of cash, then I will sell or refi something. My goal is to accumulate a large amount of wealth in the form of real estate over the next 20 years. I am succeeding with that goal. I will maintain flexibility. As the market changes, my strategies will change. Opportunities will always be available.
What is your Big Picture?