All the talk about different types of investment strategies with real assets and real estate can be confusing at times, so today, I’m going to simplify each type of investment strategy so you can start getting results.

This is something we were talking about recently on our podcast. If you haven’t checked it out, please do so! It’s on all platforms, and it’s there to provide you with value at least once a week.

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One of the things that came up over the last couple interviews were people asking about these different types of investment strategies. To start, imagine you’re in a junkyard and you’re looking at three different types of cars. That’s where we’re going to set the scene.

The first car is one that’s completely dilapidated–the wheels are broken, the car is crushed, the windows are shattered–and you think, “Wow, you know what? If I can get this fixed and get it back to a new condition, then it’ll be something I can find a buyer for. I can definitely sell it.” You know there’s a lot of risk, because not everyone will want a car this old, but once you put some tender loving care in there, you’ll eventually find a buyer and have the opportunity to make a large profit. You bought it cheap and were able to resell it for a much higher value. The best part about taking a lot of risk on this deal is the opportunity to reap a large reward.

A second example would be if you found a car that’s about 10 years old. There’s some minor work to be done, like changing the tires or updating the interior, but ultimately, it’s still in good shape. You only have to make minor improvements, and you’ll probably have a lot more people interested in it once you try to sell it. You’ll be able to make a profit, but it won’t be as much as the car in the first example because you’ll end up buying it for a higher initial price.

The third example includes finding a car that’s almost brand new. It’s only been out for two or three months, and you’ve got a number of people interested in buying it. You won’t have to invest as much (or any) money into fixing it up, but you’ll also have to buy it for a higher initial price. This means you’ll make even less money on it. The upside is that it’ll be fairly easy to sell because a lot of people will want a car this new.

These examples can all apply to real estate investing. That first example of the broken down car is what we call a distressed investment. These are the types of investments that are less than 85% full in terms of physical occupancy. You’ll also need to put in a lot more work, such as heavy refurbishments on major systems, like the roof. There’s a lot more risk with this property, but also the chance for a larger profit margin.

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The second car is an example of a value add investment. In terms of real estate, this asset will be at least 85% or higher with regard to physical occupancy. You’ll need to do some minor touch-ups, like changing a lock or replacing the carpet, but there will be no major overhauls. This is the kind of investment that will pay you over a period of time and allow you to earn a cashflow. It’ll be a little more expensive up front, but more people will be interested in this property than the first one, which means you can keep the occupancy high.

Lastly, the third car represents a turnkey property. These are typically at least 90% occupied, ready to move into, and basically already have cashflow. It’s something that will generate more money, but will reap a lower reward once you’re able to sell the asset. The risk is much lower than the first two properties, but you’ll also need to be ready to make less money once you sell.

So, now that you know the difference between these types of investments, which type do you see yourself investing in? Do you want to get a distressed investment that you’ll need to fix up, or do you want something that will start making you money right away, like a turnkey investment? Leave your comments below.

For those who don’t know me, I’m Billy Keels with KeePon Cashflow. I like to share a number of different strategies and tips for how you can make more money, have control over your free time, and ultimately live with less stress.

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That’s my two cents for today. 

Make it a great day!

bK

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