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.