Many people wonder what amounts to a goal or an objective in the real estate business. The truth is, you may not get a complete answer to that. People have different goals and objectives when they invest in real estate.
One goal that is common among all investors is that of getting a return on their investment. It does not matter whether this is achieved through positive cash flows, capital gains, wealth protection or savings on tax.
Real estate is usually a long-term investment that needs adequate planning in the early stages to ensure long-term success is achieved. As time elapses, these goals and objectives are bound to change.
So that means for you to maintain their credibility and viability and the ability to update them without financial losses, you have to set a strong foundation.
Real estate business goals can either be short-term or long-term.
Short-Term Vs. Long-Term Real Estate Investment Goals
As you consider your real estate investment goals, one of the first things you will want to do is to ask yourself whether the investment you are making or want to make is intended to be long-term or short-term.
Do you just want to get into the industry and make one-time profits then exit the scene, or are you going to hold onto it and reap from your growing portfolio for a couple of years?
Whether short-term or long-term, the best goals are those that spring your real estate business forward, and those you can manage and sustain with the resources at your disposal.
Short term goals could be listing a certain number of properties per month, or sending out five newsletters every fortnight. Since these may seem ridiculously small, they can have a lasting impact on your business.
If you are more futuristic in real estate, however, you may consider making long-term goals. You can project what number of staff members you would like to have in the next two years, or how many geographical boundaries you would like your business to encompass in five years.
Whether long-term or short-term, your investment goals must be SMART; an acronym used to guide goal-setting in real estate.
SMART Real Estate Investment Goals
A recent Harvard Business University study showed that 83% of people do not set goals, and 92% of those that do fail to achieve them. The main reason why most people fail to achieve their goals in real estate is that they are not SMART:
Let’s get a bit into the details of these.
Every business goal you set in real estate must be as specific as possible. Clearly define all the terms of the goals, and the methods you will adopt to achieve them.
You can make use of a checklist written down to make sure you do not miss any details, and check out each stage of the goal you have accomplished. The aforementioned Harvard Business Study points out that writing down goals makes one 14% more likely to accomplish them.
Measurability here brings out the idea of being able to track your progress. This helps you stay motivated and keep your eyes on your goals.
If the goals you have set have metrics, you will be able to know how much advancement you have made and how much work is still left. You will be able to meet deadlines. You can easily be distracted if your goals are not measurable.
It is good to be optimistic, but more often than not, people set business goals that are overambitious and near impossible to achieve. Your investment goals must be realistic but challenging.
They should push you hard enough to strain your resources a little, but not to a point where the resources are not enough to help you accomplish your goals.
To make sure your goals are attainable, consider if you are financially ready for them, consider the challenges you are likely to face and if the timeline you have set is enough to achieve them.
This is simply to say that the goals you are setting need to be in line with the current state and the desired future state of your business. It is good to dream big but being too ambitious is harmful to your business.
Do not get this wrong; ambition is one of the most amazing traits of successful investors, but people do not achieve success overnight. As you dream of a successful future, remember relevance plays a key role.
Deadlines are not things we like, but most of us need them nonetheless. Set a date or a specific period over which you would like to achieve your goals.
Saying you want to increase your knowledge of commercial real estate investment by the end of the year is quite different from deciding you will read one book on commercial real estate investment per month.
Creating a target date is one way of staying focused and being able to track your progress. In between the milestones, make sure you look back and assess your progress. Celebrate wins as well.
Now that we have a sneak peek of what real estate goals should look like, let’s review some of the general/ common real estate goals and objectives investors may have.
Earning Rental Income
Real estate investors often purchase property intending to earn passive income through rent collection. Smaller investors may begin by acquiring one property and use the rent earned to offset the mortgage.
You need to find a property where your monthly expenses are lower than your monthly rental income. You will also be better off if you considered markets that have appreciating rents; your property will keep increasing in value over time.
Investors sometimes seek markets that are closer to theirs so that they can individually manage the properties, or they consider different markets in which case they hire a management company or professional to take care of the daily management of the property.
Once you start acquiring rental properties, you may find yourself purchasing more properties, to the point where you have a large stable passive rental income stream.
Keep in mind that the more properties you have the more work you have in managing tenants and carrying out repair and maintenance works among others.
You can decide to buy real estate and resell it at a profit with or without making improvements to the property. Improvements may include home rehab, land improvement, etc.
Investors may even decide not to make any improvements and just speculate in anticipation of a profitable sale based on different market conditions.
Such market conditions include real estate bubbles and the fact that real property is likely to increase in value over time.
One way to maximize your profits in real estate is by acquiring new development. This way you get to buy the property at the lowest price that will ever be offered since you buy in very early into the sales cycle. As the developer gets closer to closing, the prices of the units are likely to increase.
Purchasing new properties comes with some level of risk. At such an early stage it can be challenging to determine the level of demand the property will attract in the future.
So having this option as one of your goals will demand you to focus more on the assessment of its measurability and achievability.
This is usually popular among investors who are seeking to reduce their risk. Maybe you have spent much of your business life focusing on other asset classes such as stocks and bonds. Adding real estate into your portfolio gives investors a perfect chance for extensive diversification.
Several investment options exist in real estate. You can invest in commercial, residential, and industrial property. You can invest in established markets or up-and-coming markets.
You have plenty of options to have a diversified portfolio with real estate.
Real Estate as Leverage
When investors seek loans, lenders prefer that they have collateral they can seize in case the investor defaults in offsetting the loan.
Leverage uses borrowed capital to seek a return on investment. In this case, the investor is using a mortgage for this purpose. It is favorable to use mortgage financing when property values and rents are increasing.
That means you have to adopt a smart investment strategy and perform due diligence. When the market conditions are favorable, the value of the real property will increase, causing an increase in an investor’s net worth on paper.
The investor is then able to borrow more money and make additional investments.
Besides being a great way to create passive income and diversify your asset portfolio, real estate has many tax advantages that come with it. Some investors could plan their investments in such a manner as to tap these benefits.
Some investments such as rental property present you with the ability to deduct some tax expenses. These deductions may include property insurance, mortgage interest, property tax, advertising expenses, etc.
You can also enjoy a tax shield by depreciating the cost of the property over time. Depreciation is the reduction of a property’s loss in value over the asset’s expected life.
It accounts for the reduction in value caused by physical obsolescence through wear and tear, functional obsolescence, and economic obsolescence.
When you sell the property for a higher consideration than it was originally bought for, the profit you earn will be subjected to capital gains tax, not income tax.
Capital gains tax is usually lower than the income tax. You can even use tax-deferred or tax-free methods to avoid the capital gains tax.
Real estate investments come in different shapes and scales. Whether you are focusing on creating passive income through monthly rental earnings or investing in a multi-million condominium, there is something for everyone who wants to share in the massive wealth in real estate.
However, before taking that huge step into real estate, it’s very important for you to first have a clear picture of what your objectives are.
While real estate goals and objectives may be varied and of different timelines, you should have enough information for you to start planning on how you want your investment portfolio should look like.
Research goal-setting techniques and understand how real estate investment works. Get to know what options you have and how you can turn these options into your next source of wealth.
New investors more specifically need to start slowly and avoid rushing into big investments. It is very easy to get tempted to rush through when you see other investors making a lot of money from real estate.
Take caution and tread carefully! Make short or long-term objectives when making your investment decision and make sure they are SMART and in line with your reason for investing in real estate.