by Ismael “Rey” Reyes
To explain what SMART Goals are and how to set them towards Real Estate Investing, let’s use a hypothetical example. Flashback to New Year’s Day 2019. It’s the New Year, and the holidays are coming to an end. You had an amazing time, but along with the celebration came 20 additional pounds onto your already somewhat overweight frame.
To correct this, you set a New Year’s Resolution: lose 50 pounds in 3 months, and finally get that dream body. This sounds great on paper, but do you have a plan of action and the determination to see it through? Is it achievable? Fast forward to February, and you’ve only lost 5 measly pounds. After reflecting on your goal, you determine that your New Year’s Resolution is unrealistic and unachievable, and you proceed to devour a bacon double cheeseburger.
Fortunately, there is a method of setting both lofty and achievable goals that will ensure that you make strides on improving your quality of life.
Fast forward to today, and I’m sure that there are many of you aspiring to make positive economic changes in your lives with New Year’s Resolutions. While a bit cliché, establishing concrete goals is a crucial step on the path to success, especially when it comes to making real estate investments. There are several methods that can be methodically implemented in order to ensure that your investment goals are achieved, or any other goal for that matter. The one I will be discussing is S.M.A.R.T. – Specific, Measurable, Achievable, Relevant, and Time-Specific Goals – which provides criteria to guide in the setting of objectives and formulating future endeavors.
S – SPECIFIC
Firstly, you should set a Specific goal, which includes establishing the 5 W’s: who, what, when, where, and why. For example, you could decide that you want to invest in a 50-70 unit, 1970s-build, multi-family property this coming year inFloridain order to earn a stable form of passive income. Be sure to not only identify these factors but to document them as well.
M – MEASURABLE
You should then proceed to ensure that your goal is Measurable. That is, make sure that you numerically track your progress. Doing so not only facilitates future planning but also provides you with the necessary confidence to follow through with the task at hand. It also facilitates adjusting your plan if necessary. Using our previous example, you’d be able to track your investment’s progress by logging your passive income when you receive it. Some other aspects to consider in terms of Measurable components of your goal areCash on Cash(CoC) andAverage Annual Rate of Return(AAR). Typically, we see CoC of 8-9% and an AAR of 15-17%. Instead of saying that you want to have a high CoC/AAR, give yourself a realistic and actual percentage to work towards.
A – ACHIEVABLE
The next step is to evaluate and make sure that your goal is Achievable. While I’d generally advise you to shoot for the stars, everyone should know their limitations. One should always identify constraints in regards to goal setting, financial ones for example. Let’s say you have $150k to invest in a multifamily property. Having this amount of capital should lead you to the conclusion early on that buying a property that costs more than approximately $750k (20% down payment) will require you to partner with other investors or require seller (or other creative) financing. Understanding these limitations will ensure that lofty aspirations turn into feasible accomplishments.
R – RELEVANT
Following this, you should ensure that this goal is Relevant to you. Is it really worth your valuable time? Is there another goal that is potentially more beneficial? Should you be investing in single-family houses at 5 – $10k per investment and give yourself a part-timelandlord/asset managementjob? Or is it better to passively invest $50k on a multifamily property, giving up some control but not worrying about landlord and asset management duties? How long will it take you to reach your investing goals one single-family property at a time? These are questions that you should consider before moving forward.
T – TIME-BOUND
Lastly, it’s essential to set deadlines, which makes your goal Time-bound. Setting clear deadlines will allow you to identify which tasks must be performed before others. For instance, you could set a deadline for finding identifying 3-4 investment locations by the end of January. Next, you set another deadline for establishing a team of local professionals to work with. As you can see, if you don’t meet the first deadline, you’ll never get to the second one.
In conclusion, If you set SMART Goals towards real estate investing, you will be better able to move forward successfully. Feel free tocontact meif you’d like to discuss some SMART goal ideas or if you have real estate investing questions. Remember, every long journey begins with a first step – make this first step the best step possible.
