All Forum Posts by: Ashley Wilson

In the spirit of Goal Setting, here are my top 5 Tips for ensuring you set goals with the highest probability of success.

1. Problem: So what? - At a high level often people set goals that don’t align with their overall life goals. For example when someone wants to have financial freedom and spend more time with family, but then sets a goal by creating a heavy active income stream that involves their personal involvement daily. In essence, they created another job for themselves. Even if they were to achieve this goal, they get demotivated with burnout and the eventual realization they aren’t working towards their goals, but away from them.

Solution: First define your life goal. A little trick I like to do when helping people with figuring out this question is to think about what their perfect day looks like. Then build a life and set goals around increasing the number of perfect days you have each year, instead of decreasing them.

2. Problem: Alignment - this is hands down the most common mistake that I see. People set goals with one metric and milestones with another. Having milestones (or checkpoints) is needed when having larger goals to ensure you are on track and keep you motivated. The problem comes into play when those milestones are not good indicators of one’s progress towards a goal. For example, let’s say someone sets an annual goal of cash-flowing $120k ($10k/month) a year in passive income, and then sets a quarterly milestone of acquiring 20 units. In this example, the person could acquire 20 units a quarter and not hit their annual goal. Solution: Use metrics that are consistent between your annual goals and quarterly milestones. Taking the earlier example, if you want to cashflow $120k a year, one way you could break it down is by setting a monthly target of acquiring one asset a month that cashflows $10,000. This allows you to focus on finding properties that align with your overall goal.

3. Problem: Too many goals - personally, I feel that the ideal number of annual goals is three. Often people set too many goals which always reminds me of the Chinese proverb, “If you chase two rabbits, you will not catch either one.”

Solution: In the hundreds of people I have coached and mentored, having a smaller set of annual goals has not only correlated with a greater success rate but also a faster timeline of achieving those goals.

4. Problem: Set & Forget - Most people know the importance of an accountability partner when it comes to goal setting. Often people meet at the beginning of the year and report on achievements to date. Very few analyze the ROI of their efforts and adjust their strategy of achieving their goals at each meeting. And even fewer people seek to improve their ROI on BOTH the things they are not achieving and the things they are achieving. This often leads to complacency which is seen by the trail off of attendance at these meetings.

Solution: You are not going to like what I am going to say here, but it really comes down to your self-discipline, which is why this is probably the hardest aspect of achieving your goals. If you struggle with this, it is even more reason why making sure you follow all of the other tips I have provided is critical to increasing your chances of hitting your goals.

5. Problem: Not having a mentor - piggybacking on the concept of an accountability partner, most people underestimate the value of a mentor. Whether an individual consultant or a mentor through a program, mentors provide the foresight and support you eventually need because of their experience. This contrasts greatly with most accountability partnerships, as a mentor is typically more respected as an authoritative figure. This is why mentorship can be so powerful in helping people achieve their goals.

Solution: Get yourself a mentor. You can opt for an informal or formal (paid) mentor. While not every mentor is a guaranteed path to success, proper vetting through referrals, review of a mentor’s track record, and alignment between the mentee and the mentor can shine some light on whether or not this relationship is a good fit. At the end of the day, mentors matter…especially if you pick the right one!

Every year 70-79% of adults set goals, with only 36% pursuing them past January and a depressing 6.5% past June. With only 6% of people achieving their goals, why even set them in the first place? Could I change your mind if I told you that 80% of people who work with mentors achieve their goals? But, I didn’t write this to tell you that you can’t achieve your goals without a mentor, because you absolutely can. While your chances are higher if you have a mentor, your chances will also increase if you execute tips 1-4. Like anything, everyone is different. Some people are so motivated to achieve their goals and will stop at nothing to achieve them. Others have goals that they would like to achieve but don’t have dire consequences if they don’t. Pick a strategy that works for you, and If you are truly motivated to achieve your goals, then following these tips could have 2025 be your best year yet!

Two Disclaimers: 1. Before everyone comments there is more to underwriting than projecting exit cap rate and it varies by market, know that I already know that, and this post is regarding a general concept and a question posed get your thoughts. 2. I originally posted this a year ago and I am happy to share the results in a comment on this post, but before I sway anyone's opinion I would love to hear your thoughts...

So with that said, historically the industry accepted standard for underwriting a projected exit cap rate is the market stabilized cap rate plus a 10 bps for every year held. The reason for this is because there is a possibility for interest rates to expand and/or market conditions to soften. For example if you are buying a value-add property at a 4 cap, but the market stabilized cap is a 5, and you are holding for 5 years, you would expand the cap rate to a 5.5 exit cap. (I am not saying that is how everyone does it, but that is a general industry accepted standard). This industry standard has been adopted over the past several years, and during that same tenure cap rates have compressed mainly due to a decrease in interest rates. In other words, using that same example above, when people have recently exited they were able to exit at 4.75 or lower in some cases! I have continually preached (since 2018) that cap rate compression (and interest rates) is what landed the historic 20+IRR returns, not operations, which is why so many people have been, and are still, in hot water right now with being forced to perform via strong operations.

Today, we find ourselves in a much different situation. As interest rates continue to hold steady at an inflated rate, cap rates continue to as well. The question is whether or not the interest rates will continue to rise, stabilize or (dare I say) fall. I don't have a crystal ball so I don't know the answer, but I would suspect at some point over the next 3-5 years the interest rates will come down again. That period of time also just happens to be the industry standard hold period for a value-add. So the question I have for all of you, is if you believe the same to be true how do you underwrite the exit cap? I think we could all agree there are basically three answers:

A) Stay the course - keep adding 10 bps for each year held based on stabilized market cap rate

B) Take a little risk - use the current market stabilized cap as the exit cap too

C) Throw caution to the wind - use a cap rate that is less than the current market cap (*If you pick this answer what method are you using to predict a cap rate)

Which answer would you pick and why? Can't wait to hear your thoughts!!

@Hadar Orkibi personally I think every cycle is unique, not only in the reason for each stage's existence (for example Covid's influence, lending practices, etc.) but also for the recovery period. I have studied several metrics tied to this for example the rebound of unemployment, population growth, crime rate etc. and there doesn't seem to be a playbook on timing of any of these factors unfortunately.

I do agree with you that we are near the bottom, and based on recent data some may even believe that we have already bottomed...I have thoughts on that, but I will save that for another post. 

With respect to Little Rock, I actually didn't get my data from Crexi, but that is interesting to hear, and honestly not very surprising based on economic contributors in that market and surrounding metros.

Thanks for commenting!

Great post @Arn Cenedella!!! I agree with you 100%!

For your question you posed, two factors would influence my decision: 1) my opportunity costs - in other words what other options do I have at the time, and 2) My stage of life - at points in my life I have been willing to take a bit more risk, and have had bandwidth to take on that risk, and others I am not so willing to take the risk and do not have the bandwidth. 

Thank you for your response, you clearly have mastered the game of real estate!

The holy grail investing strategy is when one can perfectly time the market. Numerous investors have collectively made millions, scratch that, billions by getting in at the bottom of a market cycle and exiting at the top. Sounds easy, right? Not exactly.

Before we launch into the strategy, I want to start with a little story to set the stage. Several years ago, I started investing in multifamily properties in Houston, TX. There were a lot of things I did not know about the business of multifamily, however, the biggest “A ha” lesson I learned was actually about economics. I always knew that our economy experienced market cycles, but I never realized these market cycles could vary by asset class and location. In other words, the US, as a whole, could be at the top of the market (i.e. thriving), but multifamily in Houston, TX could be in a recovery stage. This is actually not a made-up example, but the status in 2018 when I got into multifamily investing. In fact, Houston and Little Rock, AR were the only two major cities where multifamily was in a recovery stage.

So what are the market cycles, and what do they mean? Since my expertise is in multifamily, I am going to explain each cycle with respect to the multifamily asset class. Starting from the bottom, Recession, construction slows down and even stops. Next is Recovery, where construction starts to pick-up slowly and vacancy begins to decline. The third stage is Expansion with construction ongoing and vacancy declining. The last stage is Hypersupply where construction is continuing but at the deficit of vacancy.

Knowing the market cycles is the first step, knowing what to do within those market cycles is where major profits can be found. While it may seem daunting to identify what one should be doing, it is actually quite simple. This is because market cycles typically follow the same flow - Recession, then Recovery, then Expansion then Hypesupply, then Recession again. Of course there are exceptions, for example COVID which disrupted the cycle schedule, but most of the time cycles remain pretty consistent. What is less predictable is the timing. Typical full market cycles are 8-10 years, but it could be longer or shorter. But if you stay on top of what is occurring within your given market and asset class you still can master the timing.

So what do you do? You prepare for the next market cycle in the existing cycle. Specifically, as it relates to multifamily, in Hypersupply you start to become liquid. The reason is twofold. First, the beginning of Hypersupply is normally a seller’s market so your properties can command top dollar if you exit early. Second, Hypersupply is often followed by Recessions. Recessions tend to have distressed sellers so there are a lot of deals to be scooped up if you have liquidity to take action. With respect to the other market cycles this is what I would personally do to exploit the upcoming market cycle:

Recession: Network and Educate! Surrounded by deals, build up your arsenal so you not only have the knowledge to take action, but the resources both from a capital and a human power standpoint to capitalize on the situation. In my opinion there is no better time to educate yourself, because while numerous people may be exiting the asset class, few are spending the time learning how to profit in it.

Recovery: Acquisition Mode and Develop! Armed with the knowledge and a little momentum from finding deals, continue to find more deals and lean-in to the economies of scale you are creating. Whether it is to build out your own in-house PM company, renegotiate vendor contracts on your properties with your new unit count as your bargaining chip, or just build out a more robust administrative team, now is the time to do it to support your needs for the next market phase. The benefit here is coming out of a recession will allow you the pick of the litter for staffing since most companies would have laid off some pretty good employees during a recession. Another opportunity is found in development. If you time this well, and develop mid-late Recovery phase, your projects should be coming online right at the height of the demand depending on the market.

Expansion: Look for positions for sale. While you could still acquire and develop, do so with caution. Most people have a hard time determining between the Expansion and Hypersupply phases so you do not want to be caught in Hypersupply just starting to position to sell. Since multifamily requires trailing data to sell, typically a minimum of 3 months, building that data during this phase can be very advantageous to position your property for a sale in the next phase, at the height of the market.

Today we are arguably in a Recession phase in the majority of multifamily markets. Clear signs of cooling rents, vacancy upticks, investors vacating the space, foreclosures, capital calls are major indicators of this happening nationwide. As competition in this space cools down, the remaining players who stick it out and new players who enter the asset class will have the greatest chance of being the next class of top performers. Warren Buffet said it best when he said that investors need to be, “fearful when others are greedy, and greedy when others are fearful”. In other words, there are few people right now continuing to network with brokers, lenders and investors. Citing excuses like we have no deals to discuss, as the number one excuse for not having those calls. There are even fewer people educating themselves, citing excuses like the timing isn't right. The problem is building relationships and educating yourself on multifamily takes time. If you don't invest in those two activities now, you will be behind.

There has never been a better time in the past 10 years to build connections and educate yourself on multifamily. Simply put, when has there been a better time for you to educate yourself at the bottom of the multifamily market cycle and then be armed with the knowledge and connections to participate on the upside? Today is the day, so what actions are you taking to get in the game?

At least once a week I get told by someone that they are thinking about investing (whether passively or actively), but they are not ready to start yet. The majority of people I talk to are actually pretty knowledgeable and are in a position to invest. So why are they not investing? I think the answer is for multiple reasons: analysis paralysis, bandwidth, or just simply failure to pull the trigger. Regardless of the reason, the delay in investing actually creates a compounding effect impacting one’s potential ability to reach the full investing benefit.

The easiest way to understand this is by looking at the Rule oF 72. The Rule of 72 calculates the time it takes to double your investment. Mathematically, you take the expected interest rate and divide it by 72 to get the number of years for your investment to double. For example, if you expect to get an 8% return, you would take 72/8 which equals 9, meaning it will take 9 years for your investment to double.

So let’s say you invest $50,000 when you are 20, with an investment kicking off 8% interest, at 38 your investment will grow to $200,000, at 47 $400,000, at 56 $800,000, and 65 $1,600,000 (as long as you reinvest your initial investment’s returns). Whereas, if you wait to start at 30, and let’s say you have a better rate of return at 9%, starting with the same initial investment of $50,000, at 38 you have $100,000, at 46 $200,000, at 54 $400,000, at 62 $800,000 an at 68 $1,600,000. In other words, even with a better rate of return, starting later can influence when you achieve the same end result.

I recognize this is an extreme situation, and one can easily find investments that yield higher returns. My response to this is if the individuals are hesitant to invest in the first place, the likelihood of that same individual waiting to invest later and then pick an investment with a higher risk profile (which often comes with investments that yield higher returns) is possible, but maybe not as likely. Thus, if someone wants to invest in a more conservative investment, but still be able to grow significant wealth, investing early is the solution!

What were your hangups when you first started, or from getting started, in investing?

@Evan Polaski excellent points!

@Chris Seveney I agree in some respect but I don't think bringing pm in-house is a guarantee that you won't have turnover. The reality is that pms have a very tough job. They are expected to do sales, customer service, management, accounting, marketing, people management, etc. and be paid what you would pay, in any other business, for just one of those positions. I am not saying they do all of those positions full-time, but to find someone who is capable to do all of those positions successfully and not get burnt out with the current pay expectations it is difficult to achieve regardless of a 3rd party or a sponsorship team being at the helm. 

I think most people commenting want to discuss in-house vs 3rd party, which in my opinion is always a good debate because I think we can all agree it's situational.

My intention of this post wasn't to debate that, as the debate already has an obvious conclusion, but to speak to the why behind the recent movement. It is my opinion that sponsorship groups that are struggling right now, but believe bringing pm in-house, are going to be in for a surprise when it doesn't solve all of the issues that they had hoped. Further, I think it is going to be even more surprising when it creates new and unknown issues that they didn't originally foresee.

@Arn Cendedella 100% agree with you! I have always said when people look to invest they typically look at returns first, market second, the team third, when in reality it is the team that can make or break a deal, market second and the returns last. 

@Gino Barbaro I would argue in some ways you were smarter:) You got the difficult aspects out of the way first!