How to Find Good Investment Property

The topic that will be explained in this article is the way to find good investment property. Owning rental real estate seems to be more and more popular as investor tire of the swoops and swoons of the stock market. As for our information, not everyone has what it takes to be a landlord. But those who do may find out that rental will be a good way to build wealth. After we have decided to buy rental property, our real work begins. To find a profitable rental property usually takes a long time, connections and plenty of research.

To find good investment property, we need to know our time horizon. As it is the same as any other investment, we must have a plan or idea on the period we want to own a rental property before we buy it.

The longer the period we plan to own the property, the more we’ll probably need to invest in maintenance, improvements and repairs. If we’re keeping it for 20 or 15 years, at some point, it means that we will be putting a new roof on that property. In addition, we will be putting in new appliances and doing some major repairs. If we are only planning to own a property for four or five years, by contrast, we will probably want to avoid making any major improvements unless we are confident that we can recoup the cost with a higher sale price.

There will also a greater risk that we will face within a shorter time horizon. Although our rental will almost certainly appreciate over 15 years, but it could easily lose all the value in the following next five, especially if we are buying in an overheated market. We will need a higher amount of potential annual return to make up for that risk.

As for small investors, they might prefer long-term ownership. We will have plenty of time to achieve great result in the market, and rental income can make a nice supplement to our day job. Find more rental properties, and being a landlord may become our daily job.

Lastly, we need to develop a network. Landlords that have greater experience might find their properties in a variety of ways. Some of them will hunt for foreclosures, making friends with bank employees and city hall clerks or who has information on which properties are about to be sold. Some of them run promotion in local newspapers. Meantime, others might work with real estate agents that keep their eyes peeled for possible buys. Some of the landlords might be joining a local landlord and property owner’s association to make contacts and good relationship. It is believed that when we begin to own rentals, all the other investors start coming out of the woodwork.

Are You Building Equity Or Income in Your Business?

When considering an exit from your business, you need to ask yourself whether you are focused on building an income stream within your business, or whether you are building equity in the business. The difference between these two opposing perspectives will reveal itself when your turn comes to exit your business.

An owner who builds their business for income has a job. An owner who builds their business for equity has an investment. One day someone other than yourself will be running your business. Will that successor be purchasing a job from you or an enterprise? Your eventual buyer or successor will likely be interested in knowing about the equity that you have built, not about the income that you have achieved within your business. And, as the exiting owner, you want to speak in terms of equity and not in terms of income. You see, income can vary according to the personal needs of the owner-operator. However, equity can be expanded and value can be driven into your business once your focus moves to an ‘equity driven’ model.

Technically, ‘equity’ is a Balance Sheet term which is equal to your assets less your liabilities; this would reveal your owner’s equity. However, we are not discussing the financial reporting within your business, we are discussing the manner in which you make operational decisions to increase the value of your business.

For example. Jim owns a distribution company and spends most of his time focusing on building strategic relationships to increase sales, as well as increasing the capacity of his business to distribute more products. Sounds simple enough. However, Jim’s mindset is towards conducting these activities so that he can take a larger salary and bonus at the end of the year. Again, to most reading this newsletter, that sounds like a very reasonable objective. But there is a problem, a very predictable and obvious problem once Jim is aware of it.

The problem is that Jim is not spending any time considering who would be doing his ‘job’ at the company in his absence. True, the company can run for a week or two as Jim takes his vacations. Perhaps the business could even sustain for a few months if Jim were to want time off or had a physical problem that prevented him from working – these instances alone would not materially affect Jim’s income. However Jim is not protecting the equity in his business with his decision making process. Jim’s equity, and hence his illiquid business wealth, is at risk because Jim has not focused on his business as an investment.

What Jim needs to do in this case is begin to ask the important and crystallizing questions that will define how he exits his business. Jim needs to know ‘who will run the business after him’. But in order to get to that point, Jim needs to have some idea as to what his exit options are and which one is optimal for his situation.

For example, Jim may want his management team to take over the business. Well, Jim’s succession plan will need to include specific action items and benchmarks for transferring responsibility within his firm. The decisions that Jim makes in his business today, will need to be aligned with his choice of exit in order to maximize the equity within his business for his personal needs. Jim should communicate with his management team his desire to transfer operational control and begin to put measures in place to start this shift. Jim should take his future rain-maker to the meetings with his strategic partners, take his financial person to the meeting with the bank, and allow his operational person to set policies and speak with authority to others in the organization.

When Jim begins to make these changes to his behavior and the manner in which the business is run, he starts to build on the equity in his business because he is treating the business more of an investment and less as a job. Jim’s role converts to that of an overseer of the activities within his organization, not the creator of those activities. As a result, over time Jim’s presence will no longer be critical to the proper running of the business.

At this point in time, the focus on the business – as an entity separate and distinct from Jim’s personal desire for more income – and the running of the business with a process in place- Jim is increasing the value of his business. Jim’s value is increased because all business valuation is a prophecy of future cash flows. Now Jim can more confidently state that his future cash flows are more secure because his management team has decision-making authority and Jim has protected the ongoing streams of income and cash flow against his own short-comings and/or mortality. As a consequence, the value of the business increases because a buyer or successor has a higher certainty as to the ability to achieve future cash flows in Jim’s absence.

Owners who fail to make these important decisions leave the value of their business in a very uncertain state. Unfortunately, far too many business owners today are in this position. Also, compounding this problem is the fact that these changes can take time (often times many years) to occur within an organization. Therefore, the time is NOW to begin this process.