Setting Realistic Goals for Real Estate Investing (SMART SYSTEM)

A lot of people love the idea of real estate investing. Although it is an attractive avenue to obtain wealth and prepare for retirement, it is important to educate yourself and create specific goals before diving in. I have met a lot of people that have the idea to get started, but it seems as though that's is all they have, the idea. So I thought it could be helpful to share some insight on setting obtainable goals to get started.

Forbes (I know, another Forbes article) recently published an article that describes the SMART system to help concentrate an investor's real estate goals to get started. One of the main key points emphasizes SPECIFICITY. Real estate investing  is incredibly broad, which is one of the best things about it, so it is important to choose which facet an investor wants to focus on to get started. Ask yourself some important questions:

1. How much time do you really want to spend? Are you wanting to make this a full time venture, or supplement your current income stream and diversify your retirement savings?

This is important to ask if you are thinking about fixing and flipping as your way, which is incredibly time intensive and can take a lot of up-front capital, which leads me to the second question:

2. How much capital are you wanting to commit up-front? Investing in SFR homes is a relatively low cost way to get started, especially while the interest rates are so low.

The article then goes on to differentiate between Non-specific goals and Specific goals. An example of a Non-specific goal would be, "I want to make money investing in real estate." A specific goal would be, "I want to purchase 10 single-family rental properties in the next 36 months that generate enough cash flow to replace my current income." You can see that the latter provides much less concentrated direction then the former.

Another important factor when assessing the viability of your goals is weighing the ability to measure your goal. Ask yourself: Can this goal be quantified? Here are the examples Forbes gives:

Unmeasurable goal: '"I want to be the top real estate investor in my area."' "This goal is unmeasurable because it doesn't really mean anything. A top investor could be the one who closes the most deals or the one who has the most monthly income."

Measurable goal: '"I want to purchase four investment properties with a 6% or higher annual rate of return on investment."' "While this may seem so simple, that is the beauty of a measurable goal. The point is to have a benchmark to measure against." 

This allows the investor to track their progress towards reaching the measureable goal. Also, the goal must be attainable. It is important for an investor to create goals within their individual abilities and not spread themselves too thin. Not only can this set an investor up for disaster, but it can completely ruin their outlook for the investment vehicle for good. 

Unattainable goal: I am going to make $125000 on my first investment. Although this amount is a possibility, it is not certain and can be affected by multiple market dependent factors. This is also lofty for a beginner.

Attainable goal: "I want to acquire an investment with positive cash flow over $150 dollars a month on average with modest appreciation potential." In this example, the investor has more power over the outcome of reaching the goal. They can choose the right market and entry price for the investment.

Additionally, an investor needs to make sure that their goals are realistic. It is easy to make unrealistic goals when an investor is excited about an investment opportunity.

Unrealistic goal: '"I want to manage all my rental properties and fix-and-flips to cut down on costs, all while working a full time job."' Not only is this unrealistic, but it is almost impossible while continuing to make money from current employment.

Realistic goal: '"I want to maximize my profits through partnering with the best team of property managers."' "It is still possible to achieve positive cash flow while working with a property manager. If the numbers add up, an investor can still realize positive cash flow while outsourcing the day-to-day work to a property manager."

This is important because you need to value your time when considering this option.

The final step in the SMART System is that an investor needs to set a timeline for the goal. If there is no way to time the goal, then it is not feasible.

Untimed goal: "I want to research as many turnkey markets as I can." There is no expiration date on this goal. How are you going to measure a goal with no timeline?

Timed goal: "I want to research 6 turnkey markets by the end of of this week." This is something that can be measured and timed so the investor can stay on track.

Although there are BS articles out there about investors that have made millions "overnight", they are not reliable sources. Even if said investors did make millions in a short amount of time, they spent adequate time preparing goals that helped them get there. 

At KC Metro Homes, we help our clients reach these goals and provide back-end systems to help them track their progress. Be sure to partner with individuals or companies that will help you reach your goals and maximize your profits.