Consider the process of finding your current home. You likely had specific criteria, such as location, school district, commute, and the number of bedrooms. When investing in real estate, having clear goals is just as crucial. Without them, you risk being swayed by enticing opportunities that don’t align with your objectives.
Let’s explore why defining your goals is essential and how it shapes your investment strategy:
Goal Example #1: Investing for Cash Flow
Meet Sarah: Sarah, a full-time working mom, seeks to escape the daily grind for more time with her kids. Her goal is passive income of $2,000 per month to cover living expenses. To achieve this with an 8% return, she needs to invest around $300,000.
Strategy: Sarah prioritizes cash flow. Investments with projected returns below 8% are discarded, focusing on opportunities with 8% or higher returns.
Goal Example #2: Investing for Appreciation
Meet Alex: Single with no children and strong cash flow, Alex is fascinated by potential appreciation. They accept the longer payout horizon and higher risk associated with markets like New York and San Francisco.
Strategy: Alex embraces the risk for a chance at appreciation. They look for value-add deals in appreciating markets, understanding the potential upsides and downsides.
Goal Example #3: More Time with Family
Meet James: James values family time over a demanding job. His goal is to generate enough passive income to work part-time, providing him with quality moments with his loved ones.
Strategy: James focuses on investments with steady cash flow and manageable time commitments, allowing him the flexibility to prioritize family.
Goal Example #4: Pursuing a Passionate Hobby
Meet Morgan: Morgan is passionate about a specific hobby but finds it challenging to dedicate time due to a hectic schedule. Their goal is to invest in projects that generate enough income to scale back on work and indulge more in their hobby.
Strategy: Morgan looks for investments that offer a balance of cash flow and potential appreciation, providing financial support for pursuing their passion.
The Hybrid: Investing for Cash Flow AND Appreciation
For the Majority: Many investors prefer a mix of cash flow and appreciation. They seek hybrid investments that offer ongoing cash flow to cover living expenses with potential appreciation.
Strategy: Investors with hybrid goals look for opportunities providing both cash flow and appreciation potential. This balance suits those who aren’t solely focused on one aspect.
Know Your Goals
Real estate syndication opportunities often dazzle with visuals, making it crucial to know your investment purpose. When a deal aligns with your goals, you can confidently focus on the numbers, bypass appealing aesthetics, and make informed decisions without hesitation. Defining your goals is the compass guiding you through the sea of opportunities in real estate syndication.
