Succeeding in Real Estate from Adrian John Cartwood

Adapted from Adrian John Cartwood, at Quora

This is the strategy that I am slowly putting in place now, and the one you should begin with.

Property is the right place to keep the bulk of your portfolio; but buy to own 100%, live from the income; and, never plan on selling. In every correction, people still need somewhere to live and must pay rent. Since you are never planning on selling, the notional value of your property at any specific point in time becomes moot.

Here's how to put it all together:

1. Start buying a balanced portfolio of smaller residential and commercial properties in prime, established areas. Avoid new areas and new (e.g. off the plan) properties. I always buy small, entire buildings (e.g. quadruplex apartment blocks; self-contained office buildings on own title; etc.). Look for current (e.g. modest rehab) and/or future upside potential to increase long-term returns.
2. If you are slightly aggressive, plan to partially-gear these (e.g. borrow up to 50%), so that you can optimize for number of properties owned. Try to make sure that each property is at least slightly cash flow positive, after expenses (including mortgage, taxes, repairs, vacancies, etc.). As you get older, aim to move to 100%-owned, no borrowing.
3. After you have become comfortable with owning one or two of these types of rental properties for at least a year or two, you can think about developing your own. This should increase your returns, as you get to keep the developer's margin and there may be depreciation or other tax benefits.
4. Warning: developing property is very attractive and very lucrative. In theory. In practice, it's also very risky and the great source of my personal stress. When markets turn, developers go bankrupt. So, here's the secret: Only develop real-estate that you can afford to keep. That way, if you're having fun and the market is strong, you can sell and do it all over again, but if the market is weak, you simply add the property to your rental portfolio and ride the market out.

Aim for a cash buffer of two year's living expenses at all times. Double every 20 years, to account for inflation. Every year, or two, if you have an excess of cash in your buffer, buy or build another property.

In all other respects, live like any other person of your age, spending - and living - no more than 20% more/better than your peers. Aspire and create in the same way they do. Take chances and enjoy life in the knowledge that you have a secret safety net that you can rely on for when times get tough.

Do nothing, though, that could destroy that net, even if you think it might make you even richer in the long-term. That would not be an optimal Life Decision.