Defining Your Investment Goals
Before You Invest In Real Estate, Be Sure To Clearly Define Your Investment Goals
Take a moment to consider how you found the house you’re in right now. You most certainly had a wish list that included a specific neighborhood, school district, commute, and amount of bedrooms. Even with a fantastic view, you would not have compromised for a one-bedroom high-rise apartment if you were looking for a three-bedroom with plenty of green space for your growing family.
When it comes to real estate investing, it’s the same issue. Before you even evaluate potential investment options, you must first determine WHY you’re investing and WHAT you hope to gain from it.
Without clear goals, you’ll be easily tempted (or overwhelmed) by attractive pictures and well-marketed opportunities that don’t actually align with your investing objectives.
See if any of these examples resonate with you as we go through them. You’ll know exactly what to do when the ideal investment opportunity presents itself if you have clear goals in mind.
Investing Goal Example #1: Investing for Cash Flow
Sarah is a working mother with a full-time corporate job. While the pay is good, the meetings, drive, and other daily inconveniences are not worth her time away from her children. As a result, she’d like to generate a monthly passive income of roughly $2,000 that will fully cover her family’s current living expenses, allowing her to leave her job. Finding investments that would produce consistent cash flow will allow her to replace her income and be completely present with her children.
If Sarah needs $24,000 each year ($2,000 per month), she’ll need to invest around $300,000 if the projected returns are around 8%.
$300,000 invested x 8% cash flow returns = $24,000 per year in passive income.
Sarah should concentrate on cash flow first and foremost now that she has this information and these figures. That means any investments with lower predicted cash flow returns should be automatically eliminated, while any opportunities with returns of 8% or more should be given special consideration.
Investing Goal Example #2: Investing for Appreciation
Daniel, on the other hand, is single and has no children. He has good cash flow and is more interested in future appreciation than quitting his full-time work. He’s seen how property values have risen dramatically, and he’s excited about the prospect of investing in large coastal cities such as New York and San Francisco. He’s conscious of the increased danger and length of time he’ll have to wait for payment, but he’s fine with it because his current cash flow is strong. He doesn’t mind if his investment doesn’t appreciate as much as he had hoped. He’s more interested in the “possibility” of it happening.
The general consensus among investors is that these investments are riskier and that you should always invest for cash flow. However, some investors with a higher risk tolerance are willing to take on the danger in exchange for the prospect of profit.
In this situation, Daniel is aware of the advantages and disadvantages, understands that there are winners and losers in this game, and searches for value-add agreements in appreciating markets to maximize his chances of making a profit.
The Hybrid: Investing for Cash Flow AND Appreciation
If you didn’t feel very comfortable in Sarah’s or Daniel’s shoes, that’s fine! That just means you’re in the majority and prefer a combination of cash flow and appreciation. There are hybrid investments that give some cash flow as well as the opportunity for gain throughout the project. Don’t be scared to go for that sweet spot, where you’ll obtain enough income flow to support your living needs while still having the chance to profit later on in the project.
Know Your Goals
The investment summaries for real estate syndication opportunities are designed to catch your eye with gorgeous colors and beautiful photographs, which is why it’s crucial to understand why you’re investing in the first place.
When an offer matches with your objectives, you’ll be able to confidently look past the pretty visuals, concentrate on the figures, and act quickly without second-guessing yourself.