By Mike Heayn

People always want to know the secret to real estate investing. I do not know the secret, but I do know that one of the simplest ways to create wealth through real estate is to use the buy and hold method. The buy and hold method, as simple as it sounds, is purchasing property, such as an apartment, at any price and holding it for the long term, usually in excess of 10 years. After several years, the property should have appreciated, as long as it did not fall into disrepair. “Is this the only strategy?” you ask. No. I will explain another strategy later in the article. No matter the strategy, real estate should be looked at as a vehicle for wealth, with cash, in the form of a down payment, acting as a tool.

We as a society place a great deal of emotional attachment on cash and for good reason. Cash to purchase food, clothing, electronics, etc., is used daily by most people in the form of revolving debt, such as credit cards; debit cards, such as a check cards; or physical currency. Nevertheless, when investing you should remove your emotional attachment to cash, as it is merely a tool. When investing in real estate, or any other investment for that matter, you should simply look at the return on investment (ROI). ROI is essentially a measurement of the effectiveness of your money as a tool for wealth creation.

As I have stated before, when you purchase a piece of commercial real estate you are purchasing an income stream. When purchasing commercial real estate you should look at ways to increase that income stream relative to cost, and try to find value where other investors can not in order to increase your return on investment. For example, if you were examining the particulars of a property, called completing due diligence, in a rent controlled area, you would want to see if you could add value to the property by reducing the expenses. Some investors only look for income increases, or rental upside, but examining how to both increase income and decrease expenses is how real value is added.

As I stated earlier, another strategy for acquiring real estate and making a solid return on investments exists. One such strategy, which has made many investors wealthy, is what I refer to as ‘following the herd, but getting there before them.’ Simply put this strategy establishes where population growth may take place. Numerous facets exists where to retrieve this information, one of which is the census. The census will gauge where population growth is taking place.

Another way to track growth is finding out where large corporations are moving. When a corporation moves, many employees move with it causing people to migrate to the new location. The idea is to get to a location prior to the explosive growth phase where large numbers of people are moving into an area. If you invest in an area prior to the construction phase, in the right direction of the growth, your investment will yield a strong return. However, like all strategies, this is not a guaranteed way to make you wealthy. If you buy in an area and the ‘explosive growth’ does not take place due to a corporation not moving, a government not offering incentives such as tax abatements or low interest rates, or any number of other reasons, you stand the possibility of losing a great deal of money or making a nominal return on investment.

In the end all investing, no matter what type, offers some level of risk. Some investments offer little risk, such as U.S. bonds, but deliver small returns. While other investments have a great deal of risk, such as a condominium construction project, but deliver huge returns if done correctly and at the right time in the market. No matter what type of investment you choose, remember to stay emotionally detached, as the cash you invest is merely a tool to help you strive closer to that goal of independent wealth.

Mike Heayn is a Washington Mutual multi-family loan consultant. He can be reached at (310) 428-1342, or e-mailed at michael.heayn@wamu.net.