A Slow, Boring, Incredibly Awesome Strategy for Building Wealth Through Passive Real Estate Investing

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There are at least a dozen ways to make a turn from residential property investing...here are just some of them:

Flips (or buy-to-sell)

HMOs (houses of multiple occupation rented by the room)

Holiday / short-term rentals (renting by the week)

Forced appreciation (the classic 'doer-upper' with light or heavy refurbishment)

Small development projects (adding extensions, loft conversions, extra bedrooms, etc.)

Title splits (splitting a single unit into several separate saleable units)

Short lease extensions (buying a leasehold property with less than say 80 years left and agreeing an extension)

Lease options (agreeing to pay a certain price sometime in the future and renting / selling on to profit)

Rent-to-rent (agreeing to rent from the owner and sub-let with their agreement to others at a profit)

Garden development and other planning consent strategies (to increase value through property ‘intellectual capital’)

Change of use conversions (such as commercial or retail to residential)

Property joint ventures (working with another investor say to provide funds for their projects for a return)

I could have added instalment contracts, delayed completions and vendor financing as variations on a theme, or deal sourcing and property lettings as property-related additional income streams too and; no doubt if I sat here long enough several more besides. So what is the point here?

The point is that the most obvious and common method of property investing is a standard, single property, held and let for the long-term. It is often under-rated and under-loved, once we get 'into' property investing more fully. This is what makes it 'boring' as far as some people are concerned, hence Brandon Turner's use of the term in his post title here. Slow it might be, boring it might be too. Nevertheless, it is not by any stretch of the imagination less effective as a result.

This post does something that I related to so much. I have mentioned before my 'Eureka moment', when I sat in a quiet beer garden one summer's eve after a day's work playing with some numbers on scraps of paper. I dug out those scraps just the other day and they brought a big smile to my face - they were very similar to Brandon's numbers in this post. A slow and steady formula for long-term wealth creation that I stumbled upon and have since being applying.

Take the time to read the attached post and get past the US-orientation...yes the figures are in US Dollars and yes, he talks about Duplexes and Fourplexes that we do not use in the UK but that misses the point – some of these principles are universally applicable and so worth understanding.

This is the story of a make-believe couple, called the Johnsons, who over a 10-20 year time horizon achieve a fantastic early retirement plan through passively investing in externally managed, buy-to-lets.

However, some key aspects of their success are if you like, 'laws of investing' that help them make it sound so easy. These laws are apparent throughout the story and summarised as:

1. A real commitment to saving

They can't get going without practicing what is known as 'delayed gratification' the idea of giving something up for today in return of something better tomorrow. They commit to save 25% of their net take home pay and then to invest this once they have enough for a deposit. Some of the alternative property investing strategies listed above could in theory short cut this notion of saving (e.g. rent-to-rent) but in the main, we get our rewards by foregoing something today for a better tomorrow.

2. Above average cashflowing property investment

At nearly $500 (c£333) per month in clear cashflow, the Johnsons here are probably getting above market net cash returns and this is not easy. It is however possible through some smart research and strategy application, such as buying below market value, in high demand rental areas and / or with above average yields among several key strategic attributes.

3. Using the power of compound growth

See how they save all of the cash they generate in savings and net rental income to first reinvest in their portfolio to accelerate growth and second to then pay down the debt using the 'snowball method' mentioned. This rolling up of funds and then applying it to the portfolio has the effect of multiplying their overall returns at a much faster rate than without it.

There may be other laws such as the notion of leveraging up early and down later in the investment lifecycle but for now, at least I wanted to focus on these three.

It took me around another four years after my beer garden discovery before I was able to buy my 'second first investment property' by a commitment to saving and that was tough going. Since then I have managed to grow steadily and whilst I have applied one or two other strategies as I have gone, I have retained in the main, a focus on developing a portfolio of long-term buy to hold rental properties that I know are a real life reflection of the Johnsons story here.

Thanks to Tim Taylor’s Landlord (ironic that!) on that summer's eve for helping to get those creative juices flowing that lead to the first step on this wonderful journey.

Boring is good, boring is effective, boring is sexy!

Source and credits: Bigger Pockets