What Is Your End Goal in the Real Estate Game?

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At some point, we all look forward to that time we can spend on the beach, in a hammock, or even working until you drop over dead.

Most people want to get to a comfortable retirement plan, and be able to do what they want to do, with no one telling them when to go to work or what to do.

You can retire earlier, and live a better lifestyle with Real Estate, if you are planning ahead.

In order to retire comfortably, you will want to have at least $40K in annual income, and no house payment.  And many people will want or need much more than that, or may have to move to a lower cost area.

Social Security will give you some, if you have been paying into the fund.  You still need some investment income to help you live in a more comfortable lifestyle.  Sure you can get by with less, but washing plastic silverware and using a piece of tin foil multiple times to save money is not my idea of an ideal retirement.

Your Real Estate Goal

At some point, you need to have a goal that all your real estate selling, buying, investing, managing, and maintenance will give you.

There are a lot of real estate investors out there that keep chasing one-time deals. They buy, sell, list, appraise, manage, develop, and trade anything to do with RE that they can, just to make a buck.

Related: Follow These Five Steps to Achieve Your Goals!

Some people give up sure income and the permanent cash flow of a rental, in hopes of getting another ‘deal’ on a flip.  They will acquire a rental when they have enough cash.

Property flipping is a great way to make money.  But if it is lifelong income you are looking for, flipping only works if you can save enough money to give yourself some investment income.

Property flips are great ways to get some cash quickly, especially if you can get in with minimal down.  You can do zero down deals, and when you time it right, you can sell a property that you technically do not even own.

Two closings on the same day, one to buy a property in the morning, and another to sell that same property in the afternoon is a sweet deal.  But you cannot keep flipping forever.  With property flips, you have to be there.  You generally cannot do it remotely.

Selling homes to buyer clients is a transactional game.  Once the transaction is over, the cash flow is over.  Sure, you get some residual goodwill, for a possible next listing or sale, but the next deal is dependent on you being not only there, but having the physical and mental abilities to do the task.

Why Listing Homes Doesn’t Work

Driving buyers around looking at properties is a time consuming process, and a sure way to have an income stream that stops as soon as you do; it is not lifetime income.

Listing homes is definitely a decent path to lifelong income, but your listing income stream will dry up after a few years, even with the most solid client base, unless you actively work at it.

Related: Passive Real Estate Investing: How to Have a True “Four Hour” Real Estate Workweek

Once a property is listed, it can be on auto-pilot, and you can collect your commission from Tahiti, but what about the next listing, or the listing ten years from now?

Property development can be great.  Take a piece of property, subdivide it, and sell the lots.  Maybe even coordinate with a builder and get some homes built on the lots, and get even a larger piece of the pie.

There are some hoops that need to be jumped through, and some initial investment, but selling a no-maintenance lot once a year can generate some solid income – that is until the land runs out.  Unless you saved a large chunk of the earnings in an investment account, you still need to get the next deal.

The Importance of Saving Money

In all the above cases, unless you have been diligent in saving your money, you still need to complete more deals to generate lifetime income.  If you want to slow down, you need a sizeable amount of money in a retirement account that you can draw from.

Assuming the 4% rule, if you want to have $4,000 per month or $48,000 per year, you need about $1,200,000 in your accounts to generate that much income.  That is a large chunk of change, and some people would say an impossible amount.  In reality it is very realistic amount, and can be done, but there are easier ways.  And $48,000 a year is not a lot of money.

Long term real estate investors purchase rental property, and rental income is generally forever, or at least as long as you want it.  If you want your rental properties to generate $48,000 in income, you need to invest considerably less than $1.2M.

If have purchased correctly, you may be getting a 15% cash-on-cash return.  That is, you only need $320,000 invested to get the same amount of annual income.

In addition to the cash flow of a rental, some people manage their own property, and save every last dime.  Some do their own maintenance on their rentals, either out of a sense of satisfaction, or a way to save additional money.

They do this to build up their equity, and establish a separate passive income stream faster.  They can use this extra money to get their next rental.

Managing and maintenance jobs can be done by anyone, but it’s your property, and you can hire yourself to do many of the tasks if you want.  You do not need to work at Target for $8 an hour; you can hire yourself for $50 an hour.

What Saving Can Do for You

This should be extra income, on top of your 15% cash-on-cash return, and not the way you make money on your rental.

You need to be able to leave those jobs too, if you want to.  With enough passive income, you can hire an employee, or hire a company.  It’s your choice.

If you are using rental income for retirement, be sure to allocate at least 45% to 50% of your rents for expenses, not including your mortgage payment.  In this 50% amount, assume at least 10% of your rents will be allocated for maintenance.  If you do not spend it on the rental, put it in a reserve account.

Many investors mistake deferred maintenance for profit.  At some point, this comes back to haunt them; and it opens up a new opportunity to a different investor.  If you have an older building, it is not unusual to spend 20% of your rents refurbishing your property until it is back in solid condition.

Once you have a solid passive income going, you can then relax.  There is no need to continually chase deals, but if deals come your way, you can grab them.  You can retire early, or keep going.  You can spend it all, or leave a legacy.  You can do whatever work you want, or not do any work.  But if you never set your end goals, you will never achieve them.

What is your end goal in the Real Estate game?

Be sure to leave your comments below!

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About Author

Eric is a 54 year old, soon to be former, computer professional. He started several years ago to replace his “work income”, with other alternate streams. He is well on his way to retirement at age 56, and is currently making more money at extracurricular activities, than he is working at his full time job. Whether that is Financially Independent, or just old fashioned entrepreneurial spirit, is in the eyes of the beholder.

21 Comments

  1. Mohammad Asaduddin(Asad) on

    I have been following the long term hold plan for some years and has worked to an extant. Finding a good manager/maintenance person has been a failure so far. I am on the sixth employee now. I own 16 rental houses.

    • Congrats on your success! Finding a decent property manager is difficult. I find it is better to focus on quality tenants and do the management myself.

      If you are distant from your properties, it is much more difficult. I may convert mine to farmland, via a 1031, at some point in the future as I get older. I have to believe farmland, although it has less ROI, is easier to manage than residential tenants…

  2. Erik,
    As a rental (and occasional flip) real estate investor since 2004, you can really hear the voice of experience in this post. Every word, and investment comparison rings true.

    I am on the same path as the one recommended here and while I am currently in the pay off mode of my last 2 of 6 rental properties, I have been seriously considering adding to them instead of putting the freed up monies in a dividend growth portfolio. The difference is that I may save the cash and buy them without mortgages.

    The debt payoff is intense and exciting. It’s awesome to use free cash flow to accelerate the mortgage payoff process. I’m blogging about my experiences.

    Good post! Keep it up.

    • Thank you for the comment!

      I follow your blog too, and it’s great to see a fellow investor in RE. I have 2-duplexes and 1-four plex paid off, and am considering paying off another 4-plex soon. Leverage is great, but guaranteed cash flow is better.

  3. Eric, very well thought out and written. My ex partner went bankrupt flipping. I think it’s far better to get a RE license instead of spending a lot of time finding/ chasing for that great deal.

    I don’t want a silent partner like Uncle Sam taking half my profits when I do ALL the work. When I was young, each acquired rental was like a big pay raise, it took a while, but now I own the company:)

    I don’t want to live from paycheck to paycheck, buy and hold is the only way. No boss telling me what to do, can not be fired, two 6 months vacations a year with pay.

    P.S. Eric, it’s a toss up between owning farmland or a Mobile Home Park. Been working on that one for many years.

  4. Thank you for the comment!

    As I am finally able to see the light at the end of the tunnel and being able to leave my full-time job, buy and hold is the way to go. I will investigate the Mobile Home Park thing, I have been considering them for a while too.

  5. Good goal. Got into real estate in 1970 with 8 units for 24k, not so good area. Bought 12 units in 1984 n sold in 2001. Got CVS n sold, now got Walgreens, no toilet NNN for 25-75 yrs income. Fix rate for 25 yrs, so no refinance headache. COC only 4.5% but meets my income goal. Quit job at 50!!!

    • Great Job. The only thing I wonder of you are only getting 4.5% COC return for a RE investment, is the risk worth it? Or are you saying you bought NNN stock, and are getting 4.5% dividend?

      • No risk, Walgreens is BBB rated, besides get 8% principal reduction, with total return of 12.50% on my investment down. Guarantted 25 yrs payment n loan too., after that return will be 35% for may be upto 75 yrs, if they renew lease.

      • OK, got it. You have a commercial building that you lease to Walgreens and a great return on your investment. Hopefully you have a good solid long-term lease, and the property (and neighborhood) maintains it’s quality that Walgreens needs.

        • Yes 25 yrs lease guaranteed by Walgreens. They have good standard to maintain the building and landscape. Also, large depreciation write offs too.

  6. Chris Newman on

    Great article, Eric!

    I’m actively involved in “close-in farmland” investing near Seattle, which is offering both some sweet short term arbitrage profits on a few deals, as well as even more opportunities for an ongoing inflation-proof income via share-cropping “local organic food” with returning military combat veterans. I’m just about to cash in on my first investment parcel (without losing the land) and have had my offer ($100k @ 50% down with seller financing) accepted for a nearby 10 acre Asian pear orchard that also comes with 400′ of river waterfront that’s already permitted for a commercial marina.

    In any event, I’m very much interested in learning all that I can about investing in local farmland, for both the short and long term, and am finding little information, much less a group of like-minded investors with whom to network.

    Have you thought about doing an article on the local-farmland sector?

    Also, I just turned 65, I’ve spotted far more deals than I can follow through on by myself – it would interfere with my sailing plans as I move into retirement. I’m not interested in bird dog fees: There aren’t so many good deals that I’ll give them away cheap. Ideally, I’d like to start a local farmland investment group that would let me mostly phone it in from my 40 years of research and experience, while younger folks do the field work and grow the group’s assets. Any suggestions on how to form such a group?

    Thanks!

    • Thanks for the comment!

      I do not know much about farmland now, but you can bet I will do my homework when I get ready to convert.

      I have a few deals here that I know might be great in the long run, but I am now starting to wind down, not ramp up… And I am not going to chase a deal.

  7. Mehran Kamari on

    Great article! I’m turning 32 this year and I want to have replaced my W-2 by the time I’m 35. I’m about 1/3 of the way there so far! Retiring early and being free to do what I want to do with my time is the goal. This isn’t end game thinking yet, just my first major milestone!

    • It is not that hard to do, but it takes time. 35 is a bit aggressive, as you will soon find out, but it depends on what risks you want to take, and how much you are satisfied with.

      At one point, I thought that if I could make $50K in outside income, I would quit my regular job. Then I would get a raise at my real job, and I would have to up the ante. I didn’t want to go down in my standard of living.

      I kept going, and now I am almost ready to quit my job, I am just building up some additional reserves. Keep working hard, pick up as many side gigs as you can to build capital. Work as many hours as you can now, so you do not have to work as many when you get older.

  8. Thanks for this. The end goal is so critical to keep in front of you. Without it, so many get tired of the headaches and throw in the towel right before they start seeing the true financial benefit. I see it all the time. Congratulations on successfully crafting your retirement so early – no small feat….you are in rare air!

  9. You make some good points. We live in a society that values instant gratification and keeping with the Joneses. Both are detrimental to building wealth. It takes a lot of discipline to focus on the long term.

    To me, the end goal is about having choices, financial security for my family and peace of mind. Your article is a good reminder that it doesn’t happen without setting goals in the first place.

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