Interview by Tim Houghten
The Metrics That Really Make a Champion Real Estate Investment Portfolio
Winning in real estate is all about the numbers. Far too many real estate investors are sabotaging their results by focusing on the wrong metrics.
Some of the most obvious blunders today may be blindly focusing on:
Number of hours worked
Number of Facebook followers
Number of employees
So as long as investors focus on gross revenue and great-looking properties, which an agent promises will go up in value the most they’ll be fine, right? No.
Remember the number one rule of investing in real estate—it’s all about “location, location, location.”
WANTED: GOOD PROPERTIES, AT FAIR PRICES, IN GREAT LOCATIONS
There can be properties on which the numbers appear to work all over the United States. Journalists regularly publish various ‘top 10’ lists claiming to predict which markets may be the trendiest or see the most price appreciation over the coming months. Unfortunately, while many investors are diligently working the numbers on potential deals, are completing due diligence and inspections, and are obtaining insurances – they are missing the most important factors that can really dictate their success.
Just as the stock and retirement savings market is horrifically skewed based on tracking the wrong figures, or what the price to get in is today, many real estate promoters are advertising the wrong figures too. In fairness, this market appears to be 90% or more made up of individuals who have only gotten in since 2008. They may not know any better. Others are only focusing on filing their pockets today, with no concern for tomorrow. They are encouraging the public to follow that plan too. Some are clearly heading off a cliff within the next 10 years, or less.
I have a little different view. Making money today is great. Real estate can deliver on that. What’s most important to me is building a sustainable business, which will provide my family a sure stream of passive income, and assets which can stand the test of time to ensure they’ll always be taken care of in my lifetime, and well beyond.
That means focusing on a slightly different data set than most. Specifically it means focusing on the numbers in the local market, not just crystal ball predictions on a particular property.
SOME SCARY DATA EXPANDING OUT THERE INCLUDES:
• Orlando, FL topping 177% on the affordability index, meaning it costs almost double the average wage to secure housing there
• Yesterday’s hot cities, like Miami, now full with over 24 months of home inventory
• The number of investors taking out 10-year balloon loans on portfolios of rentals
What I want to know is:
• How strong is the local economy?
• What direction is the local economy headed in?
• How long will it last?
• Can properties in this location continue to produce positive cash flow?
• Will I be able to sell this property for a profit in the future?
• What are my viable exit strategies?
While it is always important to pay attention to what you are buying, and to make sure the individual investment makes sense, and is profitable, the location can be far more important. There are plenty of fabulous looking properties, which have fallen into ruins because the area burned out.
There are luxury estates and condos in ‘hotspots’, which have lost millions in equity. Then there are average, bread-and-butter properties, which have delivered incredible cash flow over the long run, and have pretty consistently tip toed up in value. This last group is the one I love the most.
FAST CHECKING THE FUNDAMENTALS
Numbers to use in evaluating a destination should include:
It’s also worth evaluating the innovative DNA of a given destination. Is this a city that has proven to be able to reinvent itself and fuel growth in spite of other macro-economic changes?
Let’s take the example of the state of Ohio. For those that have been listening to the debates, Republican John Kasich states that Ohio’s economy was ranking nearly dead last, and has now been built up with over 400,000 jobs. That ranks Ohio number eight in the nation for job creation, and number one in the Midwest, according to Kasich and Politifact.com. It’s also worth noting that Cleveland in particular is home to almost 30 colleges and universities, and more than 60 hospitals.
So where can real estate investors find the data they need to make smarter investments?
Data sources may include:
FRED—St. Louis Fed
U.S. Census Bureau
Department of Labor
Black Belt Investors
KNOW & GO
To invest for success in both the short and long term, real estate investors must know their numbers. More important they must know and focus on the right numbers. That includes intimately knowing the local market and its fundamental trends. For myself and Black Belt Investors in 2016 that points to cities like Cleveland, Ohio for remote rehab investing. What does that data say to you? Where will you invest?
ABOUT SENSEI GILLILAND
Founder of Black Belt Investors, Sensei Gilliland has been featured on the cover of Real Estate Wealth magazine, hosts ‘The West’s Top Ranked Real Estate Investors’ Club’ – 12 ROUNDS, and has engineered several highly popular trademarked real estate investment systems. Sensei is the go-to source for serious investors and entrepreneurs seeking extremely effective, no-holds barred training, investment properties, and funding.
Sensei Gilliland, CEO of Black Belt Investors, is a regular editorial contributor and expo speaker. Learn about Sensei’s events and tours: http://blackbeltinvestors.com
Black Belt Investors