When you mention the word “strategy” in real estate investing, most people think of different trading types, such as BRRRR or house hacking or house flipping. To me, strategy is more important than any one individual deal.
There are many definitions of strategy, but one I like is “Strategy defines your long-term goals and how you plan to achieve them.” Strategy is the overarching theme of the big picture goal and how to achieve it.
The counterpart to a strategy is a strategy, which is a smaller unit of work within a strategy. This is where you get specific with specific steps.
Given these definitions, a real estate investor’s strategy must be greater than any individual trading or portfolio decision. Strategies touch on big questions like working a 9-to-5 job versus working in real estate full-time. Or how much risk you are willing to take. Or how much time you can devote to working on your portfolio.
These are all strategies when it comes to refinancing or whether to rent out a property in the short or medium term. Strategy and tactics are equally important, but the order of actions matters. Strategic planning must come first, then the tactics you use.
So, I’m going to show how strategic planning guided my strategy and helped me get on the road to financial freedom.
My portfolio goal is to generate $20,000 per month in after-tax, inflation-adjusted income from real estate over 15 years. I’ve been investing for 14 years, but for the first seven years, I had no formal plan or strategy. I defined this goal about seven years ago, so I’m about halfway through my time frame, but well ahead of schedule.
Here are five strategic decisions I made seven years ago that helped me exceed my goals.
1. Get a high-paying career
Like most people, my early investing career was limited by access to capital. I was lucky enough to find a partner on my first deal, but I quickly realized that if I was going to scale, I would need steady income to provide me with investment capital and borrowing capacity.
In my first few years, I worked a lot of jobs: waitress, cold calling, tech startup person, media sales, etc. Finally, about five years later, I decided to get a master’s degree in a well-paying, growing, and stable industry: data analytics.
The tuition was more than I could afford, but I went to a public school, applied for a loan, and got through. It’s all very worth it. It only took me a year to earn back my new, higher salary.
I know not everyone wants to be a data analyst, and not everyone wants to keep their job. It doesn’t matter. But for me, this is probably the most important strategic decision I make as an investor. I could have focused more on real estate investing, but I chose not to.
I realized that the best strategy for achieving my long-term goals was not to pursue real estate full time. This is a commitment to my primary career.
This strategy has helped me expand my portfolio in many ways. First, I have more money to invest. Second, I was able to get more loans with a higher income. Third, knowing that I can afford my lifestyle with my salary allows me to take on more risk in my portfolio, leading to bigger wins.
To some, this may be seen as a sacrifice, but not to me. I love my career and am grateful that I can do this while investing in real estate.
2. Prioritize equity over cash flow
I knew my goal was to be achieved in 15 years and I would be continuing my career, so I chose not to focus too much on cash flow from the beginning. Instead, I focus on building as much equity as possible through value appreciation, carefully selected properties, leverage and lucky market timing.
This is an obvious strategy to me. When I looked at my goals, I realized I would need approximately $4.5 million in equity investment with an 8% cash-on-cash rate of return (COCR) to achieve it. When I started, I had a long way to go. Seizing properties with high cash flow but low return on equity will never get me where I want to be.
Instead, I need to find ways to acquire significant equity stakes – through value addition and selective investing in high-demand areas. So I decided to stop prioritizing cash flow and focus on building equity as efficiently as possible.
To be clear, I have never, and probably never will, buy a property with no cash flow. Everything I’ve ever purchased offers a CoCR of at least 2%, and the underwriting is very conservative. But I set this minimum as a defense mechanism—not because I needed the cash.
Ensuring I break even and have a little cushion allows me to retain my property, continue to grow in value, and have strategic flexibility. I reinvest 100% of my cash flow.
I plan to focus more on cash flow in the coming years as I get closer to my goal. Ideally, my minimum return target would be as low as 2% to around 6% to 8%, depending on the property.
It’s easy to find cash flow when you own equity. You can renovate your home to increase rent, reduce debt, or even buy it with cash. Equity gives you flexibility.
But even if I value cash flow more, I wouldn’t buy just for cash flow. For example, I would still prefer a 5% to 6% CoCR on Class B properties that are in good condition and can appreciate in value, rather than a 10% CoCR on dilapidated properties in Class C neighborhoods.
3. Set time limits
In order to achieve a long-term goal, like my 15-year goal, you need to stick to it. As they say, it’s more of a marathon than a sprint. So I developed a unique strategy for myself: I set time limits on my investments.
I know this sounds weird – which is probably why most people don’t do it – but it’s awesome to me. Back in 2017, I was trying to scale, but I also had a full-time job, I was in grad school, and I had a social life that I valued.
If I’m going to balance all of these things, I have to set boundaries. The limit I set for myself is 20 hours per month. I haven’t changed since.
The time intensity of real estate investment strategies varies widely. By setting time limits each month, I only choose strategies that will keep me growing and never burn out. If I’m doing renovations on a rental property, I can’t simultaneously purchase another project that needs renovations. The time limit will be exceeded.
House flipping, wholesaling, and most over-the-counter deal-finding strategies are excluded. They are too time consuming. Yes, it means I’m missing out on some great opportunities, but it also means I’m living a balanced lifestyle that I love. It’s a place where I can grow my investment portfolio while also having a career, social life, and spending time with my family. I would make that trade-off any day.
4. Pursue risk-adjusted returns
It seems like everyone is chasing the highest possible return on investment, but that’s not what I’m going to do. I pursue the highest “risk-adjusted return.”
The idea of risk-adjusted returns is that there is a range of risks and rewards. The most profitable investment options also carry the highest risk of loss (i.e. flipping). At the same time, the investment with the lowest return (i.e., Treasury bonds) also has the lowest risk of loss. As an investor, you need to find a place within this range that you feel comfortable with.
When you make short-term investments, it is recommended to reduce risk. When you invest for the long term, you can take on larger projects with greater security. This is a general rule of thumb.
But for me, I’m not a very risk-tolerant person when it comes to investing. Because I had a stable career, I never felt the need to risk huge losses on big swings. Why should I? My salary covers my expenses, and if I stay on a stable, moderate-risk path for 15 years, I will easily achieve my goals.
In my portfolio, I’m happy to have an IRR of 10% to 15%. When compounded over the long term, this is a very good rate of return, and if I continued to average this rate of return, I would far exceed my original goal. Knowing what rates of return will easily achieve my goals allows me to easily choose strategies and trades without taking on unnecessary risk.
5. Run your own race
The last strategic decision I made was the hardest to stick with. Given the career I chose to commit to, I recognized that as an investor I would not be able to pursue many of the sexiest, most profitable strategies. Working full time meant flipping houses was impossible. I cannot self-manage my STR. Even renovations must be limited in scope.
At first, it was easy. I know how to buy rental properties and rehab them and increase their value. Why not continue?
But as my career at BiggerPockets progressed, I was exposed to a lot of cool ideas. I want to flip houses, buy large multifamily deals, or employ the time-consuming but effective off-market deal-finding strategy many of my friends use.
But despite all the FOMO, I was able to stick to my original plan. Even though I may have missed out on some great deals, it was worth it.
I don’t have time to flip houses right now, nor do I have time to buy a large multi-family property. I choose not to do mid-term leases, even though they offer great cash flow potential, because ease of management and long-term stability are more important to me than short-term cash flow.
I’m not going to be the best STR host on the market. I need to stick to a strategy that fits my personality, risk tolerance, and other strategic decisions.
Focus may not seem like a strategy, but I think it is. It’s easy to get distracted by the many exciting ways to invest in real estate. But not all strategies are suitable for all investors. Knowing yourself and sticking to a plan has been a winning strategy for me.
Tactics I’ve used
Note that these strategies are not what most real estate investing people refer to as strategies. My strategy does not include specific trades at all. Rather, as the definition implies, these are high-level ideas designed to help me achieve my long-term goals.
With these strategic guardrails in place, I was able to easily decide which strategy to use. For the past seven years I have purchased long-term rentals. On many of these projects I have completed value-add projects and refinances (BRRRR), but I have also purchased turnkey assets. Over the past few years, I have been involved in a number of syndicates and funds because they offered higher risk opportunities to build equity. Since they are less time intensive, they fit easily into my plans to continue working.
Of course, there are trade-offs. I get jealous when I see my friends cashing huge checks by flipping houses or raising large sums of money. But the jealousy soon faded. I am achieving (even ahead of) my goals and that’s what matters most.
I think a lot of the strategic and tactical decisions I made will seem crazy to you. Maybe you want to quit your job as soon as possible. Or maybe you want cash flow now.
These are great goals. I can’t oppose any of your goals. My only advice is that before you start choosing a strategy or individual trades, sit down and really think about your goals and what strategies you will use to achieve those goals.
If this task sounds daunting and you need help developing your own strategy, you can check out my book Start with strategyand the accompanying new Strategy Planner, which contains exercises and tools to help you develop a personalized strategy for your unique situation.
Find your vision and achieve your goals with this practical planner.
Use Dave Meyer’s customizable planning tool for real estate investors Start with strategy.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
