From real estate investment trusts (REITs) to investment properties, investors have plenty of options when it comes to real estate. But what makes a good real estate investment? The answer might surprise you.
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According to Grant Cardone, an American businessman and real estate investor with a $1.6 billion net worth, there are two main factors that make for a good investment: the deal and the exits.
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It’s All About the Deal
Grant Cardone recently spoke with Brian Bandell on the Business Breakdown podcast about what makes for a good real estate investment. It’s not always about the splits or the returns. It’s not even about the structure of the deal. What matters most is the deal itself.
According to Cardone, 80% of your decision to invest should be based on the quality of the property you’re considering. When assessing a piece of real estate’s value, think about the following:
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Its location: Is the property centrally located? Is it a good location right now? If it’s a rental, what would make it appealing to renters? What kind of existing value does it have that will attract and keep tenants, even if they have to pay more?
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Its future potential: What’s the potential of the location you’ve chosen? What’s the potential of the real estate itself?
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Branding: If you’re a relatively unknown investor, this might not be as relevant to you. But if you’re someone like Grant Cardone, part of choosing a good piece of real estate is determining what will happen once you put your brand on it. Will it increase its value or the tenant renewal rate? Will people be willing to pay more for it because you — or your brand — are involved?
Buying real estate isn’t cheap, but neither is renting. Currently, the average U.S. rental costs $1,761, according to RentCafe. For investors, it’s vital that you find ways to keep tenants for the long term. This means evaluating any rental property based on its existing and future potential.
The Exits Are Also Key
The second factor that makes a good real estate investment, said Grant Cardone, is the exits. When you’re investing hundreds of thousands of dollars — if not more — in a property, it makes sense to want to know what kind of value you’re getting, and your potential returns.
Grant Cardone’s real estate portfolio has an estimated $5 billion worth. But he didn’t get there by choosing properties at random. He got there, at least in large part, by knowing all the ways he could increase value without spending more money.
The more exits you have, the better. But the ones available to you might depend on the way you’ve invested.
Take Cardone’s Boca Raton apartment complex deal as an example. He bid $230 million in the deal. He’s also included $100 million worth of bitcoin in the deal for his investors so as to capitalize on returns and liquidity.
As for his top exits, they are as follows:
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Gain cash flow while waiting for the property to appreciate
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Option to flip the property to a developer and get a substantial paycheck, while still keeping bitcoin
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Option to develop the property himself to get a greater return when selling, while still owning bitcoin
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Ability to sell off bitcoin and keep the property
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Ability to sell both and turn a profit on both
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Option to take the venture public
How you go about turning a profit might be different, but the key is to know your strategy in advance.
Property Type Matters, Too
If you’ve ever thought about real estate investing, you’ve probably heard that location is key — something Grant Cardone clearly agrees with. But property type matters, too.
“The location is key because you can change or update anything in a home, but it takes years for a neighborhood to change. The type of property also plays a role,” said Jose Hernandez, Real Estate Broker at Coldwell Banker. “For example, if you’re looking to buy a condo as an investment, but you buy a condo in a family neighborhood, it will be difficult to find tenants, since most tenants are looking at single-family homes.”
On the other hand, choosing a property in a popular, trendy neighborhood that needs updating can be a good investment — particularly if you’re looking into residential real estate like single- or multi-family homes.
“These are gold if you ask me,” Hernandez said. “Update the property, and you will be able to charge premium rental rates.”
You don’t have to stick with rentals, though. Grant Cardone said he’s been looking into other options, like healthcare, as these have potential for great returns.
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This article originally appeared on GOBankingRates.com: Grant Cardone Explains What Makes a Good Real Estate Investment — It Might Surprise You
