Before buying an investment property you need to know about the three phases of real estate investing.
A lot of investors focus on the acquisition or buying an investment property, however there are three phases you need to know before jumping into the real estate investing game.
Phase 1 - Acquisition
Phase 1 is acquisition where again a lot of people put their focus and time and effort.
Phase 2 - Operation
Phase 2 is operation, which is the longest period of time. This is when you are holding the property, have tenants, have to manage it and take care of the property over the years and over the time frame that you own that investment.
Phase 3 - The Why or Exit Strategy
Phase 3 is the why or the exit strategy and in my opinion this is the most important phase. Here are three examples of why you should start with the third phase which is the why or the exit strategy. Example 1 is a real estate investor who's looking to maximize their cash flow right away. Right after acquisition. This type of investors strategy would focus on short term rentals or student housing.
From the operation perspective those types of investments are much more involved much more hands on for a couple of reasons.
One - with the short term rentals you have high turn over. You have to maintain the property, clean it up and get it ready for the next tenant and in the case of student rentals, there's a lot of wear and tear that needs to be taken care of throughout the operation or management time frame.
A second example is a real estate investor who is looking for investment diversification and has a busy lifestyle. Now because of their time commitments the suitable approach for that specific investor is a less hands on type of investment property. In this case it would be a condo which requires less hands on, less work, compared to a student rental or short term rental or other types of investments.
A third example is a real estate investor who's looking to get capital in a short period of time. In this case there isn't much of an operation aspect for that type of investor because they would most probably be looking at doing flips. Keep in mind a plan b would require that investor to rent their property if they can't sell that specific flip for the price they want in order to maximize their profits.
Keep in mind the three phases of real estate investing the next time you are thinking of buying a rental property.