It’s the start of the year and undeniably people are doing everything they can to be better. The answer for improving your results, according to many, start with writing goals down for yourself. Step Two would be identifying someone to hold you accountable for performing the activities needed to accomplish those goals, but that lesson is for another blog post another day.
What happens when you are committed to writing your goals down, but you don’t know how to come up with something that is measurable?
“Unsure” about how to start is how most people feel when I start speaking with them about investment real estate. Many people are excited to begin, have an idea of what their future looks like, but are unable to tie it back to today so they can measure their success. The first thing I encourage people to do is come up with their long-term goal. For investment real estate, you may determine your goal by answering the following question: “How much money do you want to make annually from your investments?” Let’s say you want to retire and receive $100,000 per year from your real estate portfolio. That would be your long-term goal, and we would use that to build the rest of your goals and the plan to achieve them.
The next step you need to take for goal planning is to determine how much real estate you need to own to produce that annual income. I recommend using the capitalization rate formula for that. The formula is simple and accurate enough to build a plan upon. The formula is Value (of real estate needed) = Annual Net Operating Income ($100,000 in our case) / 10% (An assumption on the return you will make). So, if $100,00 per year is your goal, then you will execute the below equation:
$100,000 / 10% = $1,000,000 in real estate owned
$1,000,000 worth of real estate owned would be the second goal needed for you to construct your future plan. The last question, and most important for planning purposes, to ask yourself would be: “How am I going to buy $1,000,000 worth of investment real estate?” To make this question easier to answer, my recommendation is to acquire, with leverage, all of the properties as fast as possible. Don’t start until you have enough cash for a down payment for a property that is larger than 20%, and don’t try to pay each mortgage off before buying your next property. Buy properties until you own $1,000,000 worth of properties, then turn your investment cash flows toward paying off each home’s mortgage.
**Note: This is my opinion of the best course of action for real estate investing.**
There is no doubt that the two main activities to accomplish your real estate investment goals are: 1) Saving cash for making the down payment and, 2) Buying solid investment properties.
How much of a down payment do you need?
What can you do today to start saving for your next investment purchase?
How can you speed that timeline up?
Do you have an agent who can help you be successful with your first investment purchase? What systems do you have to manage a property once purchased and leased?
How do those property management systems scale?
Answer these questions, talk to others who invest in real estate, and determine what you are going to do today that’s most important. Better yet, determine the most important tasks and ask someone to hold you accountable to accomplishing them.
An annual income amount should be your goal for your investment real estate portfolio. There is a lot that goes into accomplishing that goal; however, writing the goal and plan should be simple.
1) Determine your income amount desired
2) Determine the amount of real estate needed to achieve this income goal
3) Start to save for your down payments
4) Buy great investment properties
5) Create property management systems that scale
This blog post is be a great place to start for your goal planning. If you have any questions about steps 1-3 of your plan, please give us a call. All throughout the process, keep us updated with your plans so we can help! We are experts at steps 4-5 and are excited to work with you to accomplish them!