REI Guide Part 1: What do I want?
What does my goal life look like? When do I want to achieve it? And what am I willing to do to get it?
What do I want?
What does your ideal life look like?
The first part of this guide is about about developing a mindset conducive to success in real estate investing. You will be asked to think deeply about what you want, when you want it, and what you’re willing to do to make it happen.
Maybe you work too many hours and you’d like some passive income so you can take a step back from the day job. Maybe you’d like to pay off debt, retire early, travel more, or help pay for your childrens’ education. It’s important to note that this program isn’t going to make you a millionaire overnight so dispose of that idea now — however, given the right combination of time, resources and effort, there’s no limit to what you can accomplish with Real Estate Investment. It is doable with a lot of work, and help from professionals. If you aren’t that ambitious, that’s fine too.
Your personal goals will depend on a number of factors, such as your desired lifestyle, your resources at hand, the amount of time and effort you will put into the project, your risk tolerance, and your timeline. Whatever it is you want to achieve, we will make sure your goals are reasonable given these factors, and we will guide you towards a plan that is measurable and practical.
What Am I willing to do to get it?
Will you pull the lead out to achieve your dreams?
A useful way to think of REI is as a three-pronged scale which balances work, money, expertise. What we need to do is find a balance of the three inputs that matches your abilities and goals.
The balance is different for each person and depends on your own situation in life. For instance, If you have money saved up and would rather do less work, you can pay someone to do almost anything you unable or unwilling to do. Conversely, if you are willing and able to invest time but don’t want to spend a lot, you can save some money. A word of caution though — too much of this, and REI becomes more of a ‘job’ rather than an ‘investment’. Successful real estate investors, especially those that reach scale, know when to hire out certain jobs and when to handle other matters themselves. You don’t need to have exact answers to these questions just yet — let your intuition guide you.
The third major factor in REI is expertise; if you’re a relative novice to the game, it is wise to hire the relevant professionals to help guide you. This is especially important with the aspects of REI that you may not be familiar with. Think of professional expertise as an insurance policy against ignorance, and remember — what you don’t know WILL hurt you in this game.
If you want to figure things out on your own rather than hiring a professional to handle tenant screening, maintenance, etc., just be prepared to get stung if you make a mistake. Getting a room / unit rented out when you have a lot of applicants can be an arduous process. This is especially true if you aren’t sure what to look for in a tenant, or if you are unfamiliar with standard leasing procedures. If you’re willing to persevere and figure it out as you go, I congratulate you on your tenacity and wish you good luck.
Lastly, you should also consider your risk tolerance. Riskier properties can increase your long-term potential growth, but they can also see bigger losses in the short term compared to ‘safer’ properties. The greater the risk, the greater the potential reward. To illustrate that point, check out this disclaimer we borrowed from investing platform, Wealth Simple:
During the 2008 market downturn, a growth portfolio would have lost 25–40% of its value and would have taken about 3 years to recover. In other words, you’ll need to be comfortable with some large downs along the way that can sometimes last a couple of years. The key to successful long-term investing is making sure you don’t panic or sell during those down periods
When do I want it?
Are you a sprinter or a marathoner?
Real Estate differs from a standard security in obvious ways but it is similar (conceptually at least) in that it can pay you back in more than one way.
There’s the most commonly-understood strategy of ‘buy low, sell high’, which we call appreciation. This works great if you have the time to wait for the asset to appreciate, or the willingness to put the work in to make it worth more, and is always made easier and less expensive with knowledge and experience.
like dividends on a stock, real estate can also pay you in cashflow. Any income (rents) in excess of expenses (mortgage, utilities) is positive cashflow which you can draw off of to fund your lifestyle, other investments, or reinvest in the same asset to increase its value (we cover that here). Calculating cashflow is a subject unto itself which we will cover in-depth later in the guide. Right now all you have to consider is whether you’d prefer a steady drip of a little bit of money at a time, or if you’re willing to wait a bit for a larger lump sum later on.
A longer timeline means a less intensive workload and less money up-front. If you’re looking for a lower level of income over a longer time frame, the project an be set up to more or less look after itself. In order to achieve a higher level of income in a short time frame, the project is going to require a lot of work and will more than likely involve higher risk exposure.
Next Steps
The way you structure your deal will determine how you get paid; or rather, how you want to get paid will decide how you should structure your deal. It is a matter of balancing getting paid now vs later, balancing money vs work, and matching a project’s risk to your tolerance of the same.
At the end of this part, you should have a general, intuitive sense of your own desired balance of time, money, expertise, and risk. With the knowledge of what you want to get out of this project and what you’re willing to put in, we can move to some more concrete advice in Part 2.
