Real estate investing can seem like a lot of work, unless you have someone to help guide you through the process and help choose the right properties for your goals.
With years of experience in the real estate industry, Jason Hartman has been that someone for real estate investors across the country. He’s utilized this knowledge to build a business that helps others to fulfill the American dream of financial freedom by purchasing investment property.
In this episode of Freedom Fast Lane, Jason walks you through how you can leverage your turnkey real estate investment to increase your cash flow.
Understanding where to invest in the real estate market cycle
Real estate is split into three main markets. Each of these comes with different investment opportunities at varying levels of risk. Understanding which market you are in will give you a better opportunity to make wise investments that will ultimately increase your cash flow.
Jason outlines the three market areas as:
- Linear
The linear property market is a slow burner investment. The properties in this market are reliable and their value will appreciate gradually over time. Low risk, reliable return investments.
- Cyclical
Cyclical property markets are found in high-value property areas. These are areas of incredible financial highs with a greater potential for really ugly lows. Properties within these markets are high risk with the potential for huge return on investment.
- Hybrid
The hybrid property market sits between the linear and cyclical market. Less predictable and reliable as the former, but lower risk than the latter.
But how do you know which of the three markets you are in?
RV (the Rent-To-Value ratio) is a very reliable indicator of the market you are in. If your turnkey property is receiving 1% of its current value in rent per month, you are in a good linear market. A property in a cyclical market on the other end of the spectrum will be receiving less than .5% RV.
Jason advises investment in linear market cash flow properties. Simple and reliable real estate investment, good income properties.
The importance of making direct investments
When investing in cash flow properties Jason has one key piece of advice:
“Thou shalt remain in control”
Investing it’s not just about asset classes, it’s about the vehicle you use to be in that asset class.
There are lots of ways to invest in real estate; investing in a fund, in someone’s private placement memorandum, in a Real Estate Investment Trust (REIT), or a stock of any company that is essentially a real estate company.
However, being a direct investor allows you full control of the property and you don’t leave yourself susceptible to three major problems:
- Investing with a crook
- Investing with an idiot
- Huge management fees for managing the deal
When cash flow is the end goal any one of these three problems could have a hugely negative financial impact.
Leveraging real estate investment to alleviate debt
How can your turnkey property investment increase the value of your debt?
High quality, long-term, fixed rate, and investment grade debt with interest rates that are below or close to the rate of inflation can work hand in hand with real estate investment to turn this debt into a huge asset.
With negative or close to negative interest rates debt becomes a huge asset against assets that are indexed to inflation, where you can outsource the repayment of that debt to a third party, your tenants or renters.
That amongst other things is what makes income properties an amazing cash flow investment. It’s a multi-dimensional asset class where you earn your return from several different dimensions.
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