Why are YOU Investing?

Investing in real estate for the first, second, or even tenth time can be intimidating.

It can also be incredibly rewarding when done correctly—and for the right reasons. Before you start browsing long-term buy and holds, vacation rentals, fix and flips, or real estate investment trusts (REITs), answer this: why are YOU investing? 

What are your real estate investing goals? Do you want to be an active or passive investor? Are you simply looking to diversify your assets, or do you want to make a full-time career out of it? 

This post will explore the basics of real estate investing for beginners through the lens of why you are investing in the first place, then show how SMART goals can get you on the path to success.

We’ll help you: 

• Identify your why
• Understand your why
• Set SMART goals and objectives
• Plan your exit strategy

Let’s get started!

Why Are You Investing in Real Estate?

The basis for your real estate investment strategy isn’t what you’re investing in, but why you’re investing in the first place. The answer to that question will help you forge the foundation you need to formulate an effective strategy and invest with purpose.

There are plenty of reasons to invest in real estate, including:

• Earning passive income or additional cash flow
• Starting a new career
• Leaving the nine-to-five, W-2 lifestyle
• Achieving financial independence
• Planning for retirement 
• Saving up for your kids’ college fund
• Diversifying your portfolio
• Building a legacy
• Creating generational wealth
• Numerous tax advantages

Investing in real estate can help you achieve these goals and many more! 
So, what’s your why? If you’re unsure, that’s okay! Let’s dive a little deeper:

Understanding Your Why

Simon Sinek’s Start With Why is one of the most influential books on leadership in recent history. The key takeaway: “People don’t buy what you do, they buy why you do it.” Great leaders frequently begin communicating why they do things, then how they do them, and finally, what they actually do. 

While you may not be a Fortune 500 CEO, the lesson is applicable to real estate investing. Your why is your driving force, and your how and your what are your means to achieving it. 

For example: “I want to create generational wealth by getting steady cash flow from several multifamily properties.”

• “I want to create generational wealth,” — Your why
• “By getting steady cash flow,” — Your how
• “From several multifamily properties.” — Your what

If Simon Sinek doesn’t help, others discover their why by combining the who of their life with the what of their life. 

Your who can be your spouse, your children, yourself, etc. What you do for these people can get to your why.

For example: “I want to pay for my kids’ college by flipping houses…” 

• “I want to pay for my kids’ college,” — Your who
• “By flipping houses,” — Your what
• “…Because it will free them from financial burden and help make their lives easier.” — Your why

If you’re still struggling to identify your core motivation, it’s time to channel your inner 3-year-old and ask yourself “why?” until you get to the answer. 

For example:

Q. Why do you get out of bed?
A. Because I have to work.

Q. Why do you have to work?
A. So that I can make money and build my career.

Q. Why do you want to make money and build your career?
A. So that I can save more, make more, and retire early. 

Q. Why do you want to retire early?
A. So that I can travel the world while I’m still young and healthy. — That’s your why.

Setting SMART Goals and Objectives

Now that you’ve honed in on your reason for investing, it’s time to create SMART goals to set yourself up for success. If you need a refresher, SMART goals are: 

• Specific: Identify your goal. What do you want to achieve, and how?
• Measurable: How will you track your success to ensure you’re staying on course?
• Attainable: Is your goal pragmatic? Is it something you can realistically accomplish?
• Relevant: Does this goal fit in with your why? 
• Time-bound: What is the defined timeline for this goal?

The clearer and more realistic your SMART goals are, the more likely you are to accomplish them. For example, saying, “I want to start a house flipping business next year,” is not a SMART goal. 

“I want to start a house-flipping business next year to save extra money for retirement. I want to flip three houses in the next twelve months—one every four months—and average a net profit of $12,000 per house” is a SMART goal.

• Specific: You want to flip three houses in the next twelve months.
• Measurable: You want to flip one house every four months.
• Attainable: If you have an efficient power team or have the skills to rehab a property, this is a pragmatic goal.
• Relevant: Your why is to save extra money for retirement. Earning an additional $36,000 next year will help you do that. 
• Time-bound: Your deadline is twelve months from now. 

You can set multiple SMART goals as long as they’re relevant, and adjust them as needed. If you fall behind (e.g., if the first flip takes you eight months, not four), update your timeline accordingly. 

Most importantly, don’t be discouraged if you fail to meet your goals. You’ll learn a lot from your first real estate investments, and the more you learn, the better you’ll get! 

Plan Your Exit Strategy

Like a story, the best-made plans have a beginning, middle, and end. Are you going to sell your rental properties or give them to your kids? How much money do you need to retire? Your real estate investing strategy will evolve over time, but you should have a clear exit plan.

Let’s say you’re setting a FIRE goal (financial independence, retire early). To calculate your FI number, multiply your annual expenses by 25, then account for things like taxes, penalties, and market fluctuations. 

Thankfully, Fidelity has an FI calculator that helps determine your FI number based on 250 Monte Carlo simulations with a 90% confidence rate. All you have to do is answer the following questions:

• How old are you?
• What are your current monthly expenses?
• How much do you want to budget for each month upon retiring?
• Currently, how much have you saved in all your accounts?
• How much are you putting into each account (weekly, monthly, or yearly)?

Your results will provide a starting point from which you can build the rest of your plan. Play around with this calculator to see how much you need to make or save to achieve your end goal.