Setting real estate goals is the first step in achieving financial freedom with real estate investing. Whether you’re just starting out or you’ve had some experience with real estate, having clear goals will help keep you focused.
It’s not unusual for people to point out how the neighbor down the block has six income-producing properties when asked why they want to invest in real estate. This is called confirmation bias and behavioral psychology shows that impulse investments rarely end well. Both new and experienced investors make mistakes. Some experienced investors fall into the sunk cost trap in which case they lose the ability to objectively assess a particular investment in relation to their goals.
Goal setting is the foundation of investing. Whether retirement, funding a child’s education, getting a specific car, or just becoming financially independent, if your goals are set correctly, they will push you to go above and beyond to achieve them. These goals will provide you with a feeling of accomplishment when you fulfill them. And you’ll be able to assess your performance and see what you could have improved.
In this article, we will examine the kind of goals you should have as a real estate investor plus some real estate goal examples. We will also talk about SMART goals and how to set SMART real estate investing goals. Let’s get started.
10 Real Estate Goals and Objectives for Success
Real estate goals tend to run the spectrum from very modest to extremely ambitious. This is because investors put money into real estate for different reasons. While some real estate investors want to supplement the income from their day job, others simply want to retire comfortably.
Each investor’s reason for investing tends to influence their degree of risk aversion, how much they are willing to invest, and the financial goals they set.
The following are some of the top real estate goals and objectives every real estate investor should set:
1. Set a net worth goal
Every working individual should have a target net worth goal. You can set this net worth goal by age. By age 40, your goal is for your net worth to be twice your annual salary. If your salary edges up to 70,000 dollars in your 30s, you should strive for a total net worth of 140,000 dollars by the time you’re 40 years old. By age 50, you should target 4x your annual salary. If you have a $200,000 income, you’re in the top 10% of US earners.
Investing in real estate is a smart way to grow your net worth since rental properties appreciate as the years go by. Real estate investors profit from tax deductions, appreciation and rental income. This means that your small downpayment on a home could potentially reap big rewards later on. If you buy similar-type properties, you can even defer taxes using 1031 exchanges.
2. Set a goal for honing your deal analysis skill
It’s easy to locate investment properties. The hardest part of real estate investing for newbies is assessing which investments would eventually pay off. This is a skill that successful investors have mastered over the years. You should set a goal to analyze a set amount of property each week. You’re not going to be investing in all these properties. But you want to develop “muscle memory” for knowing which properties would be profitable right off the bat.
When assessing a building’s ROI potential, itemize the following metrics:
- Net Operating Income (NOI): The gross income minus property operating expenses
- Cap Rate: NOI divided by the price of the property
- Cash on Cash Return: For properties that involve long term borrowing, this is the annual cash return before taxes divided by the total amount of cash paid for the property.
- Annual Gross Rent Multiplier. Total sales price of the property divided by the annual rent. This helps you determine if the asking price of the property is reasonable.
- Annual Cash Flow. Net operating income minus debt. This shows your actual profit or loss from the investment.
When you understand how to assess deals, you can determine what levels of risk you want to take on as an investor. At Realwealth, you get access to expert investors with years of market experience ready to help you select the most profitable property deals.
3. Create a goal for continual real estate education
Learning never ends. You may have heard that before, and it certainly applies to real estate investing. No matter how much experience you have in real estate, it is imperative that you keep learning and stay up-to-date on current developments.
There are numerous options available online to help you learn on the job, from podcasts, news to blog posts and online courses.
RealWealth has loads of resources to teach you how to grow your portfolio and your real estate investing net worth.
4. Map out a portfolio building and diversification goal
Some investors don’t believe in diversifying their real estate portfolio. They buy one multi-family house in Indiana or another landlord-friendly state and they leave it at that. According to them, not diversifying their investments keeps them safe and secure.
However, research has proven otherwise. According to a paper published in the Journal of Real Estate Research titled “Real Estate Diversification Benefits”, diversifying real estate can reduce risk by as much as 60% – 94% in US and European markets.
It seems like a lot of work diversifying your real estate portfolio but it is crucial if you want to keep your finances secure.
You could make a plan to diversify your portfolio by sector (residential, industrial, commercial), geography (within a district, city, state, or country), or investing strategy.
To achieve investment success, you must develop a real estate goal around portfolio building and a diversification strategy. You should know what kind of properties you want to buy and when you want to add them to your portfolio.
5. Set a goal for growing your network
Set a goal for growing your real estate network and building your circle of influence. Developing connections is key to success in any field of human endeavor. As an investor, you should have an established network of buyers, sellers, agents, attorneys, and property managers.
You should also make it a goal to meet people who aren’t directly involved in real estate to give you a broader view of the market and market movements. This can include tourism professionals, financial experts, and demographers.
Growing your network helps you gain more insight and understanding of real estate. In addition, you meet new people and get creative ideas for optimizing your investment strategy.
6. Set a goal for growing your team
If you want to grow your business past a certain level, you will need to build and grow your investment team. The success of your investment career will then depend on who you select for your team and how right they are for the job. Your investment team will likely consist of at least one real estate agent or professional that can help you find inventory, a real estate attorney, a mortgage broker, an insurance agent, an accounting professional, a contractor, and a repair team.
You need to clearly define who you want on your investment team, their roles, and responsibilities, and how to measure and evaluate individual performance. You will need to invest a lot of time and effort into building a strong real estate team, but once you’ve done so, it will be well worth it.
7. Set a goal for investing in yourself
We generally understand investing in assets. But scarcely do we talk about investing in ourselves. It’s largely based on the same concept. If you invest in a business, you potentially increase the value of the business, and make more profit over time. Likewise, if you want to improve aspects of your life, you should invest in yourself.
Jim Rohn says, “learn to work harder on yourself than you do on your job. If you work hard on your job you can make a living, but if you work hard on yourself you’ll make a fortune”.
Committing to personal development means using stakes to compel focus and action. For example, instead of setting a random goal to workout more, you would instead book your workouts three weeks ahead with a personal trainer.
Similarly, you’d invest in courses and coaching to tackle specific business or personal challenges using a step-by-step approach. You can also invest in one-on-one training and live instruction where you can be held accountable. The effects of being happier and balanced in your personal life rolls over into your business.
As a side note, one of the benefits of signing up with RealWealth is that you will be connected with a dedicated investment counsellor to coach you on any type of real estate deal and help you make the right investing decisions.
8. Set a goal for working less
Some investors prefer being directly involved in the day-to-day running of their business while others would rather build their business up to the point where it can run with minimal direct input from them. Regardless of which end of the spectrum you fall to, you need to set a goal for working fewer hours and running your real estate company with a more hands-on strategy.
For example, you could make it a goal to hire a property management company once the number of properties grows past a certain number. You should also consider hiring a virtual assistant to help with lead generation and call handling.
9. Create a goal to optimize your investment portfolio
As you acquire properties and build your investment portfolio, it is imperative to take the time to ensure that you aren’t managing any of your assets sub-optimally and throwing away profit. Setting a real estate goal for optimizing your investment portfolio is a crucial step in building a profitable business.
You should set this goal early on in your portfolio-building efforts to maximize your real estate profit. It should be a feasible goal grounded in reality, not one based on picturesque conditions. For example, a goal to double your monthly rental income in three months in a suburb with a high vacancy rate is largely unrealistic.
Listed below are some of the ways you can ensure that your portfolio remains optimized and profitable:
- Regular Maintenance: Frequent preventive and corrective maintenance will reduce the number of complaints you get from tenants. This will also keep your property safe, secure, and profitable. Properly maintaining your buildings will help ensure that you remain in the real estate business for long.
- Proper Tenant Screening: Take the time to screen your tenants to prevent any regrets and/or avoidable loss of profit. Don’t skip tenant screening just because you want to fill up a vacant apartment quickly.
- Diversify your Portfolio: Diversifying your real estate portfolio protects you from market volatility and maximizes your growth potential.
10. Set a retirement funding goal
Lastly, you should set a goal to fund your retirement. Since you can’t work forever, you need to have an appropriate sum saved up for retirement.
The general rule of thumb is that you should save 10%-15% of every paycheck in an investment account like a 401(K) or 403(B), if you have access, or a traditional IRA/Roth IRA.
Whatever your real estate investment strategy is, whether it is flipping, wholesaling, rental properties, or REITS, it needs to be optimized to yield enough returns for retirement.
What Does SMART Goals Mean?
SMART is a benchmark for effective goal setting. The acronym was popularized by George T. Doran in 1981. SMART goals are:
- Specific: Your investing goals should be clearly defined. This includes the expected outcomes, who will be responsible for achieving them, and the steps that need to be taken.
- Measurable: The goals must be set in such a way that certain criteria can be used to determine that they have been achieved. This implies that the goals themselves must be quantifiable.
- Attainable: Your goals must be achievable. You must be certain that you can accomplish the set goals with the resources at your disposal.
- Relevant: Your goals should be relevant to your needs as a real estate investor to ensure you build the level of financial freedom you want to attain.
- Time-bound: Your goals must have a set date for completion.
An example of a SMART real estate goal would be “to increase monthly rental income by 30% from $10,000 to $13,000 in six months.”
How To Set Real Estate Goals That are Realistic
Now that you know what SMART real estate goals are, you need to know how to set them. The following steps will help you create goals that are realistic and attainable:
- Look inwards: You need to consider carefully what you want and why you want it. You should generally avoid impulse decisions when setting long-term goals for your real estate business.
- Figure out current cash flow: Your current cash flow is an important factor in deciding how much you want to make. Once you know how much you make currently, you can choose other streams of income to open up so you can hit your target.
- Create a vision board: A vision board shows who you want to be and where you want to go. It serves as a way to give your dreams clarity and motivates you to achieve your goals.
- Keep tracking your results: Tracking your results lets you know how far you’ve come and how far you still have to go.
You should always set SMART first year real estate goals. Definite, realistic goals that are relevant to your business and have a specified time for completion will keep your eyes on the mark and keep you from burning out early on.
Proper goal-setting is critical, regardless of where you are in your investment journey. However, this can only get you so far. You need to set your goals, make a plan, and devote enough resources to achieving them.
Realwealth wants to guide you through every step of your real estate investing journey, from finding and assessing profitable properties to hiring the right team. Sign up now!