By Neil Fjellestad and Chris De Marco
Our business for the last four decades has been advising independent real estate investors, acquiring rental property with potential to fulfill their designated strategy and providing complete management to ensure that potential is realized. It continues to be our experience that real estate investors can be divided into several types- situational, speculative and strategic.
Let us explain:
Situational investors would not choose to become rental owners if their circumstances did not require it. Market conditions often don’t allow a real estate owner to sell their property profitably when they are motivated to do so. Perhaps their employment relocated them leaving a property unable to sell but mortgages to pay or a buyer’s market makes it favorable to buy another property but not a good time to sell their unwanted real estate. Sometimes a family situation (divorce, death of a spouse or inheritance from parents) has put them in the position of rental owners. Maybe current situations call for the rental of a property that at some future date they want to occupy. In most of these situations the owner will remain a rental owner only until their situation changes.
Speculative owners, developers and real estate entrepreneurs are a special breed of situational investors. Owning real estate is only a “means to a short-term end” for the speculative investor until building it out, fixing it up and/or selling it to an end- user. Capital resources cannot remain tied up in owning property since the real estate is actually inventory to the speculator. Turning it into a rental is a last resort because a tenant is another complication in the way of returning their working capital.
Strategic investors acquire, own and operate real estate as a rental business satisfying the primary priorities of financial independence: safety of capital, inflation hedge and tax-favored income. The rental owner business can be the surest method to build wealth and reliable cash flow for their retirement. They like the security and flexibility of being an independent real estate owner though like any smart business owner they utilize comprehensive advisory and complete management services. Strategic investors acquire well-located real estate, keep it well maintained and managed, optimize revenue, pay off the loans and retire with growing tax-advantaged income.
It shouldn’t be difficult to determine which type of investor enjoys a favored retirement, is it?