So, as you probably know, there is no “one-size-fits-all” business model for investing. Even when you find strategies that work amazingly for you, those strategies will need to morph and change as the market changes.
That’s why I like to emphasize REI basics in many of my lessons. Because – even if you’ve heard something several times – you’re bound to get that “a-ha!” moment each time, as your expertise progresses and develops over time.
Think of it like a multi-layered cake (mmm... delicious). When you’re a brand new investor, you need to build the base of your cake. As you learn more about your industry, you start stockpiling knowledge, which represents the first layer of “frosting” on the cake.
As the market changes, as you invest in different neighborhoods, zip codes or even states, you’ll add another layer of knowledge to your “cake.” And, subsequently, another layer of frosting.
Over the years, your cake will develop many layers. Just because you learn new things (the upper layers) doesn’t mean you need to scrap the older knowledge (the bottom layer).
Each layer is valuable in its own way. And your cumulative experience (the entire cake) is all necessary to make smart, strategic decisions regarding your business.
Hey Moguls, Cody Sperber here... the one who is making your mouth water and your stomach growl.
The point of this cake analogy is to let you know that you need to change your strategy for different types of markets – which is exactly what I want to talk about today.
As you build your experience and add layers to your business, hold on to the knowledge you gather about unique markets and neighborhoods – and apply that knowledge when you do future deals.
So, let’s take a glance at 4 common types of markets/neighborhoods where investors typically do property deals – and discover the strategies you may want to use for each type.
The Neighborhood: War Zone
“War zones” are those neighborhoods where you simply don’t feel safe. They are usually riddled with crime and dilapidated homes.
The Strategy: Investing in a war zone property can be a tricky matter. I would highly recommend steering clear of rehabs. (Trust me… I’ve learned my lesson by fixing up properties in war zones, only to have my new fixtures and appliances ripped out and stolen within days.)
Instead, consider wholesaling as a strategy of choice for war zone properties. This is probably your safest choice (no pun intended).
The Neighborhood: Low-Income Area
Low income areas (working-class neighborhoods) are often a “sweet spot” for investors because they offer a variety of opportunities that other neighborhoods may not.
The Strategy: In low-income areas, you can safely try any of these options:
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Wholesale
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Creative financing
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Fix & Flips
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Rentals
The Neighborhood: Middle-Income Area
As you continue to grow in your career as an investor, middle-income neighborhoods may be a natural “step up” for you.
The Strategy: Like low-income areas, middle-income neighborhoods offer investors a variety of options. You can choose any of the options in the low-income list above, or you could even buy & hold.
The key thing to remember when buying and holding a property (especially in a middle-income neighborhood) is to make sure you can earn cash flow.
Cash flow = the monthly rental income minus your monthly expenses for the property
You want to be in a comfortable $200-$300 zone (if not more) for each property you own.
Don’t fall into the trap of buying a property that appears to be a great deal if it will not earn cash flow!
The Neighborhood: High-Income Area
Just like the war zones, high-income neighborhoods are areas where you should proceed with caution (but for a different reason, as I’m sure you guessed).
The Strategy: Wholesaling is your best option here. Don’t try anything else, unless you are a highly, highly experienced and confident investor.
I know some very experienced and savvy investors who have rental properties in high-income areas. But this is something that involves a high level of risk, so you should have very abundant financial resources to take on this risk.
It’s not something you want to mess around with if you’re still working on building your business.
Have Your Cake and Eat it Too
Remember, investing is all about building your knowledge of various markets, buying and selling techniques, and so on. Each layer of expertise will make up a scrumptiously tall “cake” that you are proud to show off.
When you’re new to investing (or even still in your first 5-10 years), it’s crucial to minimize your risk. Stick to the investing strategies you know will work well, and then gradually introduce new ones are you become more experienced.
Share with Us
Which other neighborhood types have you invested in (and which investing strategy do you use)? Let me know below!
Stake out the neighborhood(s) of choice – determine which areas are the best fit for your business at this moment in time.
Devise a strategy – will it be wholesaling? Fix & flips? Think about the long-term consequences of your decision.
Learn from mistakes – you will never be flawless in your decision-making, but if you make sure you remember the lessons you learn along the way, you’ll be just fine.
Cody Sperber
is founder and CEO of www.CleverInvestor.com. He's successfully closed many different types of real estate transactions including wholesale deals, short sales, multi-unit, subject to, lease options and my own proprietary investing strategy, the Reverse Short Sale. As a new investor he quickly gained a huge competitive advantage by mastering online lead generation, building one of the most successful real estate investing firms in the Arizona market. His companies have bought and sold hundreds of millions in properties and closed hundreds of real estate transactions. Before real estate, Cody served in the Navy and attended Arizona State, and he is now married to his best friend and has two beautiful children (Hudson and Brynlee).