Tuesday, June 9, 2009

Are YOU an Investor or a Speculator?

Are you a real estate investor or a real estate speculator? What's the difference?!!?!How about a clear cut strategy, a set of goals, and a business plan on how to reach those goals?

When is a Strategy not a Strategy?

All too often when asked the question, “What’s your strategy with this property?” an investor will start talking about:

Repairs Paint FlooringUpdating

Landscaping HVACBathrooms Kitchens

These are short term tactics, not a strategy! These are the things that you need to do toget ready to execute your strategy! Here are some popular strategies:

  • Fix-up and sell
  • Long term financing and rent
  • Lease option
  • Long term financing with credit partner
  • Pull out equity, create a cash reserve to cover negative cash flow, and then sell after one year to pay long-term capital gains tax
  • Fix-up, move in for two years or more, and sell within five years to qualify for primary residence tax exemptions

Who Cares About "Tactics" vs. "Strategies?"

You should! All too often real estate "investors" are really "speculators," without a real game plan. A basic plan should be in writing and include some basics:

  • Financial goals- long term, short term, annual, etc.
  • Primary Investment Strategy
    • See the list above for a start
  • Backup plan if the primary strategy for a property is unsuccessful
  • Ideal Property Profile
    • Price range, including target discount below market
    • Location, location, location
    • Condition (new, touch-up, fix-up, major rehab, etc.)
  • Key team members
    • Title officer, appraiser, and inspector
    • Real estate agent(s) & other property sources
    • Long-term loan broker & short term loan sources
    • Accountant, lawyer, and book keeper
    • Contractors of all types

The Acid Test

How do you know that you have a business and are not just speculating? Well, can you sayyour business plan in 30 seconds or less if someone asks? For example,

"I invest in multi-family, residential housing in Webercounty for both cash flowand long-term capital gains.

I buy them in good condition for 90% or less of market value and then do everything I can to keep them occupiedand expenses down.

My goal is to have one new property every six monthsand I only sell properties if my business needs a cash infusion."

There is a BIG difference between Investors and Speculators. The biggest is that speculators loose money when the market changes, investors thrive!


  1. If a good real estate agent can help grease the wheels and get your offer in front of a lender, you can get an answer more quickly, and potentially close more deals.

  2. I agree. A good real estate agent who knows how to work with all aspects of investment properties is a great resource and well worth what they are paid.