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Great Portfolios Don’t Happen by Chance: Here’s How to Put Together Your Plan

Erion Shehaj
5 min read
Great Portfolios Don’t Happen by Chance: Here’s How to Put Together Your Plan

Fast forward two decades from today to a beautiful, sunny day on the first of September. You wake up in the morning at your own pace, coffee mug in hand. After checking the morning news, you see that your tenants have deposited five figures of rent money in your account. You remember when you had to work 50+ hours a week to earn that kind money at your day job. Then you proceed to spend the rest of your day doing what you love to do.

Now back to the present. What would you say are the odds that the above scenario will materialize in your life completely by chance? That you will just go about the next 20 years doing what you’ve been doing, and one September morning, you will wake up to a fantastic real estate portfolio? I’m no statistician, but I could give you a range: between zero and zero!

Don’t get me wrong — like the majority of successful professionals that earn substantial incomes, you will likely own a couple of rental properties. They will produce some income and perhaps even give you a good return on your initial investment.

But there’s one sure thing: Great real estate portfolios don’t happen by chance. They must be assembled through rigorous planning and flawless execution.

This isn’t an opinion or a personal belief. It’s a simple matter of mathematics. The only way for a real estate portfolio to produce a six-figure income is for it to contain enough asset value (unencumbered by mortgages) so the yield on those assets creates that desired income. In order for your portfolio to contain that asset value, you must first acquire it within a tight schedule. That’s because you must allow sufficient time for the de-leveraging process to occur within your investment timeframe. The acquisition of these assets within a tight schedule requires the convergence of all your focus, investable resources, and activity.

The Difference Between Mediocre and Extraordinary

Do you want to know the difference between the investor who ends up with a couple of rental properties and his counterpart who wakes up with a killer portfolio? The difference is that the investor who succeeds has an exact plan — a thoughtful strategy that outlines action steps.

Related: 3 Feasible Game Plans For Quitting Your 9-5 to Invest Full Time

Up to here, it’s hard to argue with the logic. But the question every investor asks me is this: What exactly is in an investment plan?

Probably the most important characteristic of each investment plan is that it must be yours. Because each investor’s situation is unique, you cannot build a template and fit everyone in that same box. Some real estate investors have lots of time (they start young) but struggle with saving the capital to invest. Others have all the capital they need but need to provide for more than just retirement income (i.e. kids’ college). Still, others want to accomplish their goals while quitting their day job halfway through their investing timeframe. Each situation brings unique challenges and opportunities.

However, I think it’s a great question that deserves a good answer. Since there isn’t a one-size-fits-all template, I can offer you a general “anatomy” of a bulletproof investment plan outlining all the steps I’d take to put it together.


Current Financial Situation

The first thing you must do when putting together an effective plan is to get clear on where you are. In your investment plan, we start by providing a clear picture of your current financial situation.

We compile a net worth summary to give you a sense of your own personal balance sheet. In those reports, we hold your assets (retirement accounts, residence, real estate investments, brokerage accounts) against your liabilities (mortgages, car loans, student loans, credit card debt) and get a sense of your current net worth. Just like a business balance sheet, a net worth summary is a snapshot of that moment in time. Where it becomes powerful is when you look at your net worth through the years and know with certainty that you are building wealth through your investments.

In addition, we compile a current year cash flow summary. Think of this summary as your personal income statement. In this summary, we compare your income (w2, bonuses, investment income) to your expenses (house and car payments, food and transportation, lifestyle, savings, etc.) and calculate your current surplus capacity (i.e how much money you should save at the end of the year).

Priorities and Goals

Now that we know where you are, we have to get clear on where you want to go. What would your investing efforts need to accomplish in order to be considered a success? We look at your goals through the prism of investment priorities. What’s most important to you? Are you looking to:

  • Maximize your net worth?
  • Create retirement income?
  • Pay for the college expenses of your kids?
  • Leave a legacy?
  • Secure your current financial position?

The path you should take will vary depending on your investment priorities.

Then once we’ve set the goals and priorities, we must determine if the current path you are on will get you there. Wouldn’t it be nice to fast forward and see where the current investments you have made will lead in the next 10-20 years? We can accomplish this by making some assumptions on ongoing contributions (i.e 401K contributions) and applying an average rate of return going forward. Most of the time, we find that there are serious shortfalls in reaching those goals if we continue on the same path. But isn’t it better to know now that you can actually change course now rather than later, when it’s too late?


Related: How to Avoid the Dreaded Shiny Strategy Syndrome (& Keep Your Retirement Plans on Track!)

Gap Analysis

At this point, we perform a detailed gap analysis to pinpoint the areas the new strategy will need to address. Some of the questions we try to answer in our gap analysis:

  • Do you currently carry adequate emergency funds? If not, we need to set aside some of your capital to make sure you can sleep at night while executing on your strategy.
  • Do you currently carry adequate life insurance? Anything can happen in life, so you want to make sure you don’t leave yourself and your family exposed should the worst happen. To be clear, we don’t sell life insurance so we would simply point out that you need to shop for it.
  • Will your current rate of contribution to education investments lead to the accomplishment of your college savings goals? If not, we explore different options
  • Will your current retirement investments provide the retirement income your need? If not, we can’t continue on the same path.
  • Do you currently have sufficient capital to execute on investment property purchases? If not, we must account for it and address it in our investment plan.

Bulletproof Investment Plan

The moment of truth is here. Now we get to address all the gaps we uncovered in the gap analysis through a concrete, step-by-step action plan.

Emergency funds and life insurance protection not adequate? We take specific actions to correct them.

College savings rate will not lead to a fully paid education? We suggest the exact increase to contributions or paying for college through alternative investments.

Current retirement investments will not produce the retirement income you need? We lay out the exact schedule of acquisitions of quality real estate investments that you need to make and when. Then we break down the cash flow numbers for your portfolio and show you the capital growth phase where you apply the domino strategy or accumulation method to de-leverage your portfolio. Then we lay out the exact payoff schedule of your assets so you can see when each property will be free and clear and what your income will be at each point in time. Finally, we summarize all findings and show you in an empirical and unequivocal manner why the alternative path we are suggesting leads to measurably better results than the current path you are pursuing.

How are YOU planning out your portfolio?

Leave your questions and comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.