Take a moment to think about the process that you used to find the home you’re currently living in.
You likely had a checklist that included a specific area, school district, commute, and the number of bedrooms you were looking for. If you were looking for a three-bedroom with plenty of green space in mind for your growing family, it’s very unlikely you would have settled for a one-bedroom high-rise condo, even with a great view.
Well, it’s the same type of situation when you’re investing in real estate. Before you even begin to consider potential investment opportunities, it’s imperative you know WHY you’re investing and WHAT you’re looking to get out of it.
As I planned for my journey into entrepreneurship it was important for me that I chose investments that have the ability to cash flow and not only appreciate in value. By doing this I was able to have a healthy stream of passive income while I focus on building my business. This passive income supplements my savings and enables me to not have any income during the start-up stage of my business.
Clear goals are important – without them, you’ll easily be swayed (or paralyzed) by beautiful photos and well-marketed opportunities that don’t actually align with your investing goals.
As we walk through these examples, see if one resonates with you. With clear goals in mind, you’ll know just what to do when the right investment opportunity comes along.
Investing Goal Example #1: Investing for Cash Flow
Katie is a mom who has a successful copywriting freelance business. She has a team of copywriters and she coaches others who want to be freelance copywriters.
While her business has been soaring financially, she wants to use some of her profits to generate another stream of income outside of her business.
So, she has started exploring real estate syndications and has discovered that she can create passive income of about $2,000 per month that she can either save for her retirement or use towards monthly living expenses, this would give her the freedom to experiment more in her business.
Finding investments that will provide steady cash flow now would create another stream of income for her and enable her to be selective on the jobs or projects she does take on and spend more time with her children.
If Katie requires $24,000 per year ($2,000 per month), she would need to invest roughly $300,000 if expected returns are in the 8% range.
$300,000 invested x 8% cash flow returns = $24,000 in passive income per year.
With this knowledge and these numbers in mind, Katie should focus on cash flow first and foremost. That means that any investments with lower projected cash flow returns should automatically be discarded, and any opportunities reflecting 8% or higher should really get her attention.
Investing Goal Example #2: Investing for Appreciation
Jesse, meanwhile, is single with no children, has excellent cash flow, isn’t necessarily interested in generating additional income streams, and is more interested in potential appreciation.
He’s seen how property values have experienced huge upswings, and he loves the idea of investing in large coastal cities like New York and San Francisco. He’s aware of the higher risk and the longer amount of time he’ll have to wait until payout, but he’s okay with that since his current cash flow situation is strong.
Even if his investment doesn’t appreciate as much as expected, that’s alright with him. He’s more interested in the “chance” that it might.
Common investment advice is that these types of investments are riskier and that you should always invest for cash flow. However, there are investors with a higher risk tolerance who will voluntarily take on the risk for the possibility of appreciation.
In this case, Jesse is aware of the pros and cons, knows that there are winners and losers in this game, and looks for value-add deals in appreciating markets to increase his chance for high returns.
The Hybrid: Investing for Cash Flow AND Appreciation
If you didn’t really feel comfortable in either Katie’s or Jesse’s shoes, that’s okay! That just means you’re among the majority and that you’d like a mix of cash flow AND appreciation.
Hybrid investments that provide some cash flow throughout the project in addition to the potential for appreciation do exist! Don’t be afraid to seek that sweet spot – where you get ongoing cash flow to cover living expenses, plus the potential for appreciation later on in the project.
Know Your Goals
The investment summaries for real estate syndication opportunities are purposely made to attract your attention with pretty colors and beautiful photos, which is exactly why it’s important to know your purpose for investing in the first place.
When a deal does come along that aligns with your goals, you’ll be able to confidently flip past the gorgeous pictures, focus on the numbers, and pounce quickly, without second-guessing yourself.
Want to Invest with Lisa?
If you are interested in learning more about passively investing in apartment buildings, click here https://lisahylton.com/partner-with-lisa/ to sign up to learn more about upcoming opportunities.
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