No matter what you are investing in, it’s always important to have goals, and real estate is no different. Before you actually dive into real estate investing, you must know where you are going so you can make a plan to get there. You must also have guidelines in place to help you on your way, so you don’t stray off the path on the way to your goals.
Setting Real Estate Investing Goals
When setting real estate investing goals, it’s important to think big but also realistically. Some investors can achieve $10,000 or $15,000 in cash flow every month, and it’s OK to set goals that are that high. However, it might make sense to start with smaller numbers when you are first getting into real estate investing.
When setting real estate investing goals, you should think about what you would do with your cash flow. Some investors might want to be able to travel more, while others would like to be able to make sizable donations to charity organizations. Others want to retire early so they can spend more time doing the things they really enjoy doing. Whatever your ultimate goal is, having an image of it in your mind will make it easier to land on each of the stepping stones that will get you there via real estate investing.
It helps to think about setting goals with the SMART acronym in mind:
How to Decide What Your Goals Should Be
To figure out what your real estate investing goals should be, you should think about why you decided to invest in real estate in the first place. Perhaps you want to rake in a certain amount of cash every month. Other investors look at it from the standpoint of achieving a certain net worth by a particular age. Still, others think about the number of properties they want to own.
The key is to assign a number or value to your goal so you have a concrete idea about what to aim for. You should also assign a specific timeline to your goal, so it should read something like achieving X within Y number of years. Being specific is extremely important because it gives you something concrete to aim for rather than a vague idea about what you want. It’s much easier to form a plan to achieve concrete goals than it is to plan for something vague.
Additionally, creating goals with concrete numbers makes it much easier to see how well you are doing at achieving your goal. If you want to own a particular number of properties in five years, and you only own two properties after three years, you will easily realize that you aren’t making very much progress on your goal. You won’t be on track to achieve it in the timeline you have set at that pace.
Setting Guidelines to Achieve Your Real Estate Investing Goals
After you have your concrete goals in place, it’s time to set guidelines that assist you on your way to meeting those goals. Without guidelines, you won’t have a clear action plan to help you get where you want to go. The guidelines you set will depend entirely on what your goals are. Some guidelines will be more helpful in achieving certain goals than other guidelines will.
For example, if you want to be recording a certain amount of cash flow every month, it’s important to evaluate all properties based on the amount of cash flow they will provide. That means looking at what it will cost to buy and finance them and then how much money you can earn from either renting them out each month or flipping them. Some factors that affect how much cash flow you can earn from properties can include details about the neighbourhood they are in and more obvious things like the purchase price and costs involved in fixing them up.
If you’re thinking about your net worth or want to retire early, you’ll need to be very careful about your leverage. Since net worth is the number of properties and other assets you own, minus what you owe on them, the idea is to finance as little as possible because any mortgages or other loans you take out will just subtract from your net worth. Additionally, the longer it takes you to pay off those loans, the later you will have to push out your retirement.
Build Your Team to Meet Your Goals
Another important aspect of real estate investing has a solid team around you. Your network will be a key piece of the puzzle as you go about achieving your goals. Mentors will help you find your way, which is especially important for those who are just getting started.
Real estate mogul Warren Buffett would advise you to stay within your “circle of competence”. You will need other members in your team that have their own circles of competence.
You will need a real estate broker or agent who is exceptionally knowledgeable about real estate investing rather than just buying and selling properties. You may also need a property management firm if you aren’t planning on doing everything yourself. You really won’t be able to do it all if you’re juggling multiple properties, so it’s important to realize this early on.
Your team should also include professionals like a lawyer and accountants to help you with the legal and financial aspects of buying and investing in real estate. You will also need several contractors to turn to every time you need to fix up a property and get it ready for re-sale or rental.
One of the great benefits of real estate investing is that it offers a very flexible way to meet whatever goals you would like to set. The market is wide open for investors to build a comfortable life for themselves, no matter where they would like to be in five or 10 years. All it takes is some determination and some capital to get started in the niche.