Measuring Long-Term Success as a Real Estate Investor

Excel in real estate through measured success.

Every journey begins with a single step, and real estate investing is no different. Now that you’ve gotten your feet wet and learned a few lessons from your first investment, it’s time to grow your mindset and portfolio.

Whether you’re an active investor looking to achieve financial independence or a passive investor wanting to earn extra income, expanding your business requires changing your goals. 

If you just want to earn a little money and call it a day, that’s fine. However, if you’re interested in long-term success, you’ve got to think a little bigger.

Congratulations on your early success! Now it’s time to scale.

How To Tell If Your Real Estate Investment Was Successful

Successful real estate investing can be measured in many ways, and your definition of success may differ greatly from someone else’s.

Successful investors usually have a goal in mind before investing in real estate and key metrics they use to measure that success. Some investors define success as earning steady cash flow from monthly rental income. Others are more interested in their cash-on-cash return, which calculates what percentage of your initial investment you made back this year in cash flow. If your goals are more long-term, you may base your success on your internal rate of return (IRR), which estimates your investment property’s potential profitability for the duration you own it. You can also measure success based on how much your investment property appreciated since you purchased it. Equity is the primary driver of wealth, after all.

Everyone also has their reason why they decided to invest in real estate. Did you become a rental property owner to earn consistent cash flow and supplement your income? Did you purchase a single-family home as part of the first step to becoming a full-time real estate investor? Did you and your potential new business partners try flipping starter homes? If so, did you enjoy working together, and would you do so again?

As a successful real estate investor, it’s important to describe what makes a good investment in your own words. Additionally, it’s time to think bigger and reassess your strategy and goals if you want to maximize the potential of your real estate investing business.

Defining Your Long-Term Real Estate Investment Goals

Earlier in your SMARTER journey, you had to define why you invest in real estate and set SMART goals. Now that you’ve gotten your feet wet, you can review what you’ve learned and adjust your personal, professional, financial, and market objectives.

Personal and professional goals

Your initial goals were either personal (e.g., saving up for your kid’s college fund, planning for retirement), professional (e.g., thinking about starting a new career), or a combination of both (e.g., working to achieve financial independence).

Now that you’ve got some experience, you can reevaluate a few factors, like your time commitment and how active an investor you want to be.

Different investments require varying time commitments. If you renovate and flip properties, you’ll likely log more hours than if you are the landlord of one or two rental properties. Monitor how much time you’re investing in your real estate ventures. Are the returns worth the time and effort you put in? Are you comfortable dedicating that amount of time to them?

Also, can you streamline any processes to make the most of your time? For example, suppose you’re marketing your short-term rental property on Airbnb or VRBO. In that case, you can save time by using pricing software to stay aligned with daily rate fluctuations and auto-messaging software to respond quickly to rental inquiries. Both types of software can save you a few minutes every day—and that time adds up!

Additionally, you’ll want to evaluate whether you need to be active or passive to achieve your real estate investing goals.

• Active real estate investors are moderately to heavily involved in their investments. Think house flipping, being the property manager of their investment properties, or real estate wholesaling. No matter the project, active investors have some degree of control over their investments. Consider working with a property management company to scale as an active investor. The time you save is well worth their cut.
• Passive real estate investors aren’t in control of their investments. Instead, they give someone else their money to invest on their behalf. Think real estate crowdfunding or investing in publicly-traded REITs on the stock market.

How active or passive of an investor do you want to be? Has this changed since you began real estate investing? If so, how?

Financial goals

Let’s say your first rental property earns you $250 in net operating income or NOI (what you earn via rent and other tenant income after your monthly mortgage payment, property taxes, etc.). That’s a positive cash flow of $3,000 annually, not including tax benefits. If you spent $30,000 on the property, your cash-on-cash return is 10% for the year ($3,000 / $30,000).

That’s not bad for a new investor, but if your goal is to build wealth and earn enough in passive income, you’ve got to scale your real estate business.

Suppose your investor-friendly real estate agent finds you good deals on three more properties just like it, and you find ways to increase your NOI from $250 to $300 after calculating the average rent of all four properties. Better yet, after your initial capital investment of $30,000 for your first property, you’ve found ways to reduce that investment by $2,500 per property. Your initial investment is $112,500 [$30,000 + ($27,500 x 3)].

Now you’re earning $1,200 monthly after collecting rent and paying bills, or $14,400 annually in cash flow with a cash-on-cash return of 12.8% ($14,400 / $112,500). Not bad!

Real estate market goals

Another way to scale your investing is to diversify your portfolio by exploring new markets and investing in different real estate types.

Don’t limit yourself to local markets. Successful real estate investors are constantly looking for new, hot markets. Here are a few ways to identify excellent investment locations:

• Population growth: If a city or town is experiencing a population swell, there will be an increase in housing demand.
• Shorter listing periods: If people buy property faster, it may indicate that more people want to move there.
• More creatives: Artists, musicians, and others look for affordable neighborhoods to move into, causing a huge demand for rental properties.
• Declining crime rates: Safety is a top priority for families searching for somewhere to live. Check out crime rates in the neighborhood you want to invest in.
• Popular by proximity: Is the neighborhood adjacent to other hot neighborhoods? Take advantage of current trends by investing in real estate close to where everyone else is moving. People will eventually spill into your neighborhood as well.

Don’t limit your portfolio diversification to just new locations. Invest in different property types as well. If you started with single-family homes, give multi-family a try, or invest in:

• Commercial real estate
• An industrial space
• Office buildings
• Mobile home parks
• Self-storage facilities
• REITs
• Crowdfunding opportunities
• Real estate-secured debt

Remember, every investment type has pros and cons, so do your homework before diving in. Research is key!

The more diverse your portfolio is, the more secure it is. The theory is that if a market or property type falls out of demand, the rest of your portfolio can absorb the loss. Think of it in terms of tenants. You’ll lose your rental income if you have one tenant and they move. However, if you have 10 tenants and one of them moves, you’ll still receive rent from the other nine. It’s not a perfect analogy, but you get the idea.

Adapting Your Real Estate Investing Strategies to Meet Your Goals

The initial reason why you got into real estate investing may stay the same, but your strategies and goals will change and evolve based on the experiences you have and the knowledge you acquire along the way.

How you identify a successful real estate investor may also evolve. Instead of measuring cash flow, you may become more interested in measuring cash-on-cash return or IRR. Your goal might be to earn a 10% cash-on-cash return now, but five years from now, you might not even look at a property unless you think you can get 12% on it.

The same logic holds for other investment types. Your initial goal might be to fix and flip three houses a year and net $12,000 per flip. However, as you become a more successful real estate investor, you’ll identify undervalued properties that can yield larger margins, and ways to increase your value add while reducing your bottom line. You might decide to work with a power team to flip 10 houses yearly. Suddenly, instead of earning $36,000 annually by flipping three houses at $12,000 per flip, you’re making $150,000 annually by flipping 10 houses at $15,000 per flip.

Regularly Monitor and Adjust Your Real Estate Investing Strategies

Here are a few more tips when changing your strategies and updating your goals.

Routinely review your performance

Regularly review your account statements to clearly understand how your portfolio is performing and its overall value. If you’re working with a property management company, ask for monthly reports on rent collection, expenses, and profit and loss. These reports will help you track your progress and identify any areas that need adjustment.

Even more importantly, ensure you understand why your accounts are performing as they are. There are plenty of factors that impact your real estate investment’s performance, including:

• Market conditions
• Socioeconomic conditions
• Length of your investment
• Interest rates
• Type of year
• And much more

Factor additional expenses

Don’t forget to factor in transaction fees and taxes when calculating cash flow, IRR, or whatever your preferred metric is. Also, make sure you’re adjusting for inflation. The value of a dollar decreases over time. $1,000 today won’t have to same purchase power as $1,000 five years from now.

Optimize your processes

The more you streamline, the more time you’ll have to focus on scaling your business.

Once you can justify the cost, start working with a property management company that will handle all things tenant-related. Also, grow your network of investor-friendly real estate agents, other investors, general contractors, house cleaners, buyers, sellers, and whoever else you may be working with as you grow. They can save you time and money by doing what they do best.

Also, automate whatever you can, using things like:

• Pricing software that analyzes what hotels and rentals charge so that you can remain competitive
• Auto-messaging software that guides tenants and guides through their rental experience
• Leasing software that makes drafting lease agreements and collecting rent and security deposits a breeze

Watch market trends

Stay current on the latest trends that impact your real estate investments, such as housing supply and demand, rent prices and average increases, home value fluctuations, up-and-coming neighborhoods, desired amenities, the stock market, changing economic conditions, and much more.

Be SMARTER With Continuous Adaptation and Growth

The SMARTER Real Estate Investing System helps everyday people like you become real estate investors, then provides them with the tools they need to continue to grow.

Every journey begins with a first step. Now that you’ve taken yours, it’s time to learn from your experience, repeat the cycle, update your strategies, and capitalize on your success.