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Real Estate Investing: 3 Steps for Long Term Planning

We live in a very fast-paced, instant gratification world. Waiting things out, playing the tape all the way through, and patience are not popular ways of approaching things for many. But, when it comes to Real Estate Investing, if you can’t wait it out, it might not be the right fit for you and your financial goals.

For most real estate investing scenarios, returns won’t happen until years down the road. So unless you are only focusing on Fix and Flips (6 to 12-month return) or you are a wholesaler (returns as fast as a few weeks), plan to put some long-term planning in place for your success. I know, I know, the market is hot right now, and everyone is getting into real estate investing. Some are making a killing, fast. But we know this hot streak won’t last forever, and it is for those down times when your plan will be the most important.

With over 20 years under my belt in this industry, here are the three steps I live by regarding long-term planning:

Set a Realistic Goal

Let’s say you want to have $2500 per month in positive cash flow within five years; back into those numbers by looking at the average cash flow per rental property. Let’s say the average is $250 in positive cash flow per property per month; then, you need ten properties to reach your goal. With that in mind, you would then need to buy 2 properties per year over the next 5 years to make the $2500 in positive cash flow.

Revisit Your Goals and Portfolio Yearly

If the past several months don’t have you convinced that things can change without warning, nothing will. Goals are not valuable to anyone if you aren’t evaluating them and regularly comparing them to your real estate portfolio. A property you own might have appreciated to the point where it makes sense to sell, giving you cash to make more investments in new properties or your existing properties. Expenses may have changed over the year on a rental property necessitating a rent increase. Look at the numbers and recalibrate when necessary.

Be Prepared to Wait

Real estate appreciates at roughly 3% per year on average. Some years it’s up 20%. It is down 20% other years, which is why an average of 3% is the number I use when I evaluate a new investment. If you need the property to appreciate by 6% – 8% per year to make the numbers work, it is probably not a suitable investment. I pass on 70-80% of the deals I look at because the numbers simply don’t make sense for me. When should you expect to see returns? Real estate investment trusts (REITs) and other commercial property investment companies frequently target properties with a five-year outlook potential. As an individual investor, it might make more sense for you to look at it over ten years. (You will know since you are evaluating and recalibrating every year). 

Real Estate Investing requires goal setting, long-term planning, and patience if you are to be successful. And as always, make sure you surround yourself with trustworthy professionals, like mortgage brokers, lenders, rehabbers, inspectors, real estate agents, etc. If you are just getting started, make sure to look here for tips on building your network.

If you or someone you know is looking for hard money lending options, contact me by clicking here or calling 248-385-3750.