Many times I have been asked about the reason why some investors become successful in real estate investing and others fail at it. One of the observations I have made is that those that are successful tend to have an area of focus. They focus on quality instead of the quantity of transactions.
When I say quality I mean the focus in the cashflow generated by transaction. This is critical when you are starting. Our resources are limited so we need to be smart about where to invest those funds. In real estate investing I suggest that you establish a target of minimum amount of cash flow you want on each property. For example you may establish a goal of $300 per month per property. Now you may say that is not enough, but remember we talking about monthly cashflow, net of all rental expenses. Therefore on a real estate transaction where you have invested $20,000, you will experience a cash-on-cash return of 18% annually, not bad.
I understand that many times investors must flip properties to generate some cash to pay off bills and to generate cashflow. However, as you develop a real estate portfolio based on quality you will generate cashflow from each property which will generate a monthly income for your family. Please remember that it is not the number of houses what is important; it is the amount of income from each property. Many times investors set up their target on the number of properties they want in their real estate portfolio, I think that is the wrong approach. Let me explain, would you rather have ten houses with $300 of cashflow per month per property or have thirty properties with $100 cashflow per month? Both portfolios have the same amount of income. However, one of this portfolios will give you the biggest bang for your buck? Which one will potentially provide you the most amount of headache in managing the properties? Which portfolio is going to have the most repairs costs?
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