When you say the word strategy in the context of real estate investing, most people think of different deal types, like BRRRR or house hacking or flipping. To me, strategy is something larger 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’re planning to achieve them.” Strategy is the big-picture objective and the overarching themes of how you’ll pursue that objective.
Strategy’s counterpart, tactics, is a smaller unit of effort within your strategy. This is where you get specific with concrete steps.
Given these definitions, strategy for real estate investors must be bigger than any individual deal or portfolio decision. Strategy pertains to big questions like working a 9-5 job versus going full-time into real estate. Or how much risk you’re willing to take. Or how much time you can commit to your portfolio.
When it comes to decisions about refinancing or whether you’ll lease out a property short—or medium-term, those are tactics. Strategy and tactics are equally important, but the order of operations matters. Strategic planning must come first, and the tactics you use will follow.
So, I am going to show how strategic planning has informed my tactics and put me well on my way to financial freedom.
My portfolio goal is to generate $20,000/month in post-tax, inflation-adjusted income from real estate within 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 horizon but well ahead of schedule.
Here are the five strategic decisions I made seven years ago that have helped me get ahead of my goal.
1. Obtain a High-Paying Career
Like most people, my early investing career was constrained by access to capital. I was lucky enough to have partners for my first deal, but I quickly realized that if I were to scale, I needed a stable income that gave me capital to invest and the ability to borrow.
During those first few years, I had many jobs: waiter, cold calling, tech startup guy, media sales, and more. Ultimately, after about five years, I decided to get a master’s degree in a high-paying, growing, and stable industry: data analytics.
Tuition was higher than I could afford, but I went to a state school, took out loans, and made it work. All well worth it. I earned the money back in just one year of my new, higher salary.
I know not everyone wants to be a data analyst, and not everyone wants to stay in their jobs. That’s fine. But for me, this is probably the most important strategic decision I made as an investor. I could lean more heavily into real estate investing, but I chose not to.
I recognized that the best strategy for achieving my long-term goals was not full-time real estate. It was committing to my primary career.
This strategy helped me scale my portfolio in many ways. First, I had more money to invest. Second, I was able to take on bigger loans with a higher income. And third, knowing I could afford my lifestyle with my salary allowed me to take more risks in my portfolio, which led to bigger wins.
For some, this may be seen as a sacrifice, but it hasn’t been for me. I like my career, and am grateful I get to do it alongside my real estate investing.
2. Prioritize Equity Over Cash Flow
Knowing that my goal was 15 years away and that I was going to remain in my career, I chose to place minor importance on cash flow at the start. Instead, I’ve focused on trying to build as much equity as possible through value-add, carefully selected properties, leverage, and fortunate market timing.
This was a no-brainer strategy for me. When I looked at my goal, I recognized that I need about $4.5 million in equity invested at an 8% cash-on-cash return (COCR) to achieve it. And when I started, I was a long way off. Grabbing properties with high cash flow but low equity gains was never going to get me where I wanted to be.
Instead, I needed to find ways to get big chunks of equity—which you do through value add and selectively investing in high-demand areas. So, I made the decision to deprioritize cash flow, and instead focus on building equity as efficiently as possible.
To be clear, I have never, and may not ever, buy a property that doesn’t cash flow. Everything I’ve ever bought offers a minimum of a 2% CoCR, with very conservative underwriting. But I set this minimum as a defensive mechanism—not because I need that cash.
Ensuring I break even, with a bit of buffer, allows me to hold on to my properties, continue to add value, and have strategic flexibility. I reinvest 100% of my cash flow.
As I get close to my goal, I plan to focus more on cash flow in the coming years. Ideally, my minimum return target will go from a low 2% to something more like 6% to 8%, depending on the property.
When you have equity, it’s easy to find cash flow. You can renovate houses to drive up rents, use less debt, or even buy for cash. Equity gives you flexibility.
But even as I prioritize cash flow more, I won’t likely buy just for cash flow. For example, I’d still prefer a 5% to 6% CoCR on a B-class property that is in decent shape and could grow in value over a 10% CoCR on a run-down property in a C-class neighborhood.
3. Set Time Limits
To accomplish a long-term goal, like my 15-year one, you need staying power. As they say, it’s more of a marathon than a sprint. As such, I came up with a unique strategy for myself: I set time limits on my investing.
I know this sounds weird—which is probably why most people don’t do this—but it’s been amazing for me. Back in 2017, I was trying to scale, but I also worked full-time, I was in graduate school, and I had a social life I valued.
If I were to balance all of those things, I had to establish boundaries. The limit I set for myself was 20 hours per month. I haven’t changed it since.
Real estate investing tactics vary widely in their time intensity. By setting a monthly time limit, I have only selected tactics that allow me to grow sustainably and never burn out. If I was doing a renovation on a rental property, I couldn’t buy another renovation-heavy project at the same time. The time limit would be exceeded.
Flipping houses, wholesaling, and most off-market deal-finding tactics came off the table. They are just too time-consuming. Yes, this means I missed out on some great opportunities—but it also meant I lived a balanced lifestyle I enjoyed. One where I could grow my portfolio, but also have a career, a social life, and spend time with my family. I’ll take that tradeoff any day.
4. Chase Risk-Adjusted Returns
Everyone seems to chase the highest possible investment returns, but I don’t. I chase the highest “risk-adjusted returns.”
The idea of risk-adjusted returns is that there is a spectrum of risk and reward. The most profitable investment options also have the highest risk of loss (i.e., flipping). Meanwhile, the lowest-reward investments have the lowest risk of loss (i.e., Treasuries). As an investor, you need to find where on that spectrum you’re comfortable.
When you’re investing for a short period of time, it’s advisable to take less risk. When you’re investing for a long period of time, you can more safely take on bigger projects. That’s the general rule of thumb.
But for me, I am not a very risk-tolerant person when it comes to investing. Because I have a stable career, I’ve just never felt the need to take big swings with big risks of loss. Why should I? My salary covers my expenses, and If I just stay on my stable, moderate risk path for 15 years, I’ll beat my goals easily.
In my portfolio, I am happy to have an IRR of 10% to 15%. This is an excellent rate of return when compounded over a long period of time, and if I keep averaging this rate, I will far exceed my initial goals. Knowing what rate of return will comfortably get me to my goal has allowed me to select tactics and deals easily and not take on unnecessary risk.
5. Run My Own Race
The last strategic decision I made has been the hardest to stick to. Given my choice to commit to my career, I recognized that I wouldn’t be able to pursue many of the sexiest, highest-profit tactics as an investor. Working full-time meant that flipping properties was off the table. I couldn’t self-manage my STR. Even renovations would have to be limited in scope.
At first, this was easy. I knew how to buy rental properties and fix them up and drive up the value. Why not continue?
But as my career at BiggerPockets grew, I was exposed to so many cool ideas. I wanted to flip houses, buy large multifamily deals, or pursue the time-consuming but effective off-market deal-finding tactics many of my friends used.
But despite a lot of FOMO, I’ve been able to stick to my original plan. And although I’ve probably missed out on some great deals, it’s been worth it.
I don’t have time to flip houses, or to buy large multifamily deals right now. I chose not to do mid-term rentals, even though they offer great cash flow potential, because ease of management and long-term stability is 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 tactics that align with 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 every tactic works for every investor. Knowing myself and sticking to a plan has been a winning strategy for me.
Tactics I’ve Used
Notice that these strategies are not what most of those in real estate investing call strategy. None of my strategies include specific deals at all. Instead, like the definition implies, these are high-level ideas designed to help me achieve my long-term goals.
With these strategic guardrails in place, I have been able to make easy decisions about tactics to use. For the last seven years, I’ve bought long-term rentals. On many of them, I have completed value-add projects and refinances (BRRRR), but I’ve also bought turnkey assets as well. Over the last few years, I’ve participated in a few syndications and funds because they offer higher-risk opportunities to build equity. Since they are low in time intensity, they easily fit into my plan to keep working.
Of course, there have been trade-offs. I get jealous when I see my friends cash huge checks from flipping a house or raising a big fund. But that jealousy fades quickly. I am on track (ahead, even) to reach my goal, and that’s what matters.
For you, I’d imagine that many of the strategic and tactical decisions I made seem crazy to you. Maybe you want to quit your job ASAP. Or, perhaps you want cash flow now.
Those are great goals. I can’t argue with whatever objectives you have. My only advice is to sit down and think very hard about your goals, and what strategies you’ll use to achieve them—before you start selecting tactics or individual deals.
If this task sounds daunting and you need help developing your own strategy, you can check out my book Start with Strategy, and the accompanying brand-new Strategy Planner, which is packed with exercises and tools to help you develop a personalized strategy based on your unique situation.
Find your vision and achieve your goals with this hands-on planner.
Create your own action plan, fill in the gaps, and design the perfect deal for YOUR vision of success with Dave Meyer’s customizable planner for real estate investors—the companion to Start with Strategy.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
