Real Estate Goal Setting

Over the past few weeks, I’ve shared some thoughts about when to sell and when to buy real estate. If you’ve read between the lines, it comes down to another theme I’ve blogged about previously, goal setting. Setting goals prior to even looking for a property is a critical first step when investing in real estate. Every real estate purchase we’ve made was with a clear goal in mind, but we didn’t always get it right! Regardless, diving into real estate without goals is ill advised. I’ll share how we established investment goals for our real estate journey.  

First, determine how you see yourself growing wealth from the investment. If desiring to produce a monthly income, then investing in multi-family may be the best option. If just looking for a safe place to invest beyond the stock market and monthly income is less important, then perhaps a nice single-family property may be the best option. We are partial to multi-family because of the generally higher monthly net income enabled us to grow our portfolio, but we’ve also had success investing in single family.  In fact, we bought the single-family home we live in now with the intention of turning it into a rental some day! Type of property will fundamentally shape the long-term goals for your portfolio.

In either case, it is extremely important to remember real estate is a long-term investment. By long term, I’d estimate around 10 years as a minimum. If needing to “cash out” an investment in five or less years, real estate is probably not the right place to tie up your capital. There are folks who have made a lot of quick money flipping real estate but that’s a different type of real estate investing entirely!

The next goal to consider, is how big to grow the portfolio. We knew we wanted to grow our portfolio but probably didn’t define that goal quite well enough. We used a “snowball” method to fund our real estate journey which very simply used the net income from one acquisition to fund additional acquisitions. As tempting as it was, we didn’t touch the income from our properties for 14 years and reinvested every penny. While this is a simple concept, it takes some dedication and discipline to implement!

Real estate can be a lot like rabbits; the portfolio can multiply quickly! In a little over a decade, we grew to 10 properties. As the portfolio grows, so does a nice net monthly income stream. Not to mention, the portfolio is building great equity! Not too bad for a “passive income” side hustle. But this is where goal setting (and some fiscal discipline) matters most! Deviating from the plan just once could delay the growth goals. Set a goal on how big to grow the portfolio and stick to it.   

Before purchasing that first property, you’ve set goals about the types of property to invest in and determined how big you’ll grow the portfolio, what’s the final goal to establish? This is where an investor has to look long term and mesh their real estate investment goals with life goals. When will we start taking owner draws and to what ends? Will real estate be a primary source of income in our retirement years? Will we plan to dispose of the investments in 10, 20 or 30 years based on anticipated life needs such as funding education for a child, purchasing a “forever” home or maybe a nice vacation home? Tough questions for an investor just starting out! It all comes down to time as time perhaps more so than anticipated profit, is one of the primary considerations for setting real estate investment goals.  

As I blogged a few weeks ago, we will be putting one of our assets on the market soon to reallocate some of our overall investment portfolio and to fund a personal life goal. We began this real estate investing journey with the ultimate goal of enabling an early retirement. If we had not established this long-term end state, perhaps our journey would not have turned out successful.

Every financial advisor will say investment goals are important, but I believe even more so when investing in real estate due to the lack of liquidity and the nuances of investing in physical property. While we didn’t get it 100% correct, we did establish goals for our real estate investments and stuck to them. So far so good!   

Interested in rental property investing? Look for “Collect Rent, Don’t Pay It: A Beginner’s Guide to Rental Property Investing” on Amazon to learn how our family turned rental property investing into a successful side hustle!

Looking for a good how-to on wealth building? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truth’s to Build Wealth on sale now at Amazon!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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