{"id":103904,"date":"2019-11-11T09:00:51","date_gmt":"2019-11-11T16:00:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=103904"},"modified":"2023-08-09T10:48:52","modified_gmt":"2023-08-09T16:48:52","slug":"the-vital-question-investors-forget-to-ask","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/the-vital-question-investors-forget-to-ask","title":{"rendered":"The Vital Question Investors Forget to Ask: Does Your Strategy Support Your Ideal Life?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4555998121\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n<p><span style=\"font-weight: 400;\">A few years ago, I had an interesting conversation with an investor. She was just getting started building a real estate portfolio to create a passive income stream. After we spent quite a bit of time on tactical \u201chow\u201d questions, the conversation turned to questions about strategy and vision. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s when she hit me with the classic job interview question: &#8220;Where do yo<\/span>u see your b<span style=\"font-weight: 400;\">usiness in five to 10 years?&#8221;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">My answer was <\/span><em>not<\/em> <span style=\"font-weight: 400;\">what she expected. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">&#8220;That\u2019s a good question, but it\u2019s the wrong question to ask. I don\u2019t plan for the growth of my business and then fit the rest of my life around it. I plan for the kind of life I want to live and then build my business around it.&#8221;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Often in life, we don\u2019t take the wrong path beca<\/span>use we don\u2019t know the answers to the questions we face. It\u2019s because we correctly answer the wrong questions.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106445\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/investment-philosophy.jpg\" alt=\"investment-thinking\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/investment-philosophy.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/investment-philosophy-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><br \/><em><br \/><strong>Related:<\/strong> <a href=\"\/renewsblog\/go-small-or-go-home\" target=\"_blank\" rel=\"noopener noreferrer\">Why the Massive Real Estate Empire You Think You Want Won\u2019t Give You the Life You Imagine<\/a><\/em><\/p>\n<h2>What&#8217;s the End Goal of Your Investing?<\/h2>\n<p><span style=\"font-weight: 400;\">It\u2019s the same with real estate investing. So often we get caught up in the \u201cinvesting game\u201d that we completely forget its purpose. The human mind loves participating in games, keeping score, competing with others, catching up and overtaking competitors, and so on. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you\u2019re an analytical type, you might track the metrics of performance for your portfolio. <\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">How are we doing cash flow-wise, and what\u2019s our cash-on-cash return? <\/span><\/li>\n<li><span style=\"font-weight: 400;\">Is our net worth growing year over year? <\/span><\/li>\n<li><span style=\"font-weight: 400;\">What\u2019s our return on the equity we have in our portfolio? <\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Tracking important metrics is generally a good idea\u2014one that has the additional benefit of making you feel like a good steward of your money. But that\u2019s where the game metaphor can backfire on us. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Our brains have a tendency to optimize and maximize what we focus our attention on. As a result, we start optimizing and maximizing the metrics we\u2019re tracking: the returns. <\/span><\/p>\n<p>While I\u2019m a big believer in the usefulness of tracking your numbers, I think it\u2019s the correct answer to the wrong question. I believe that the main purpose of real estate investing is <em>to help you underwrite a good life, not to maximize returns.<\/em><\/p>\n<p><span style=\"font-weight: 400;\">Think about it this way: If you build a \u201creal estate empire\u201d that keeps you chained to the location of your properties, is that any different than that current job you hate? If what you <\/span><i><span style=\"font-weight: 400;\">really<\/span><\/i><span style=\"font-weight: 400;\"> want is the time and flexibility to travel like a local (as opposed to a tourist), wouldn\u2019t a smaller portfolio serve you better? If you are shooting for a life free of financial stress, does a multimillion dollar debt load serve that purpose\u2014or would you be better off with fewer paid-off properties? <\/span><\/p>\n<p><span style=\"font-weight: 400;\">These seem like philosophical musings, but they have real-life implications, because the questions you ask impact the decisions you make and the direction you take.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-81833\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/life-on-half-income.jpg\" alt=\"life-on-half-income\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/life-on-half-income.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/life-on-half-income-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Case Study<\/h2>\n<p><span style=\"font-weight: 400;\">Let\u2019s look at a simple case study to illustrate the point. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Imagine a real estate investor with a real estate portfolio worth $800,000 and corresponding liabilities (mortgages) on those assets of $300,000. As she considers her options over the next five to seven years, she could either a) focus all her efforts on paying off her mortgages or b) cash out part of her equity and re-leverage it to acquire more assets. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">What\u2019s the right call? It depends on the question she\u2019s asking herself. If the question is, \u201cHow do I maximize my investment returns?\u201d then she should choose to cash out and re-leverage. Unless you have made some very poor purchasing decisions, leveraged returns should always outpace un-leveraged returns. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">But if instead her question is, \u201cWhat will help me create the passive income I need without the management strings that will keep me from traveling a good part of the year?\u201d then she should choose to pay off the debt. &nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So many real estate investors I meet operate as though they\u2019re a portfolio manager at some financial firm that&#8217;s performance on the job depends on the returns they deliver and how those returns stack up against competitors and benchmarks. You might not know this, but you don\u2019t have to operate that way. You have a choice. &nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can decide to operate as if you are a life architect hired to build the life of your dreams for yourself and your family. Then, once that vision has been set, you use the appropriate strategies, assets, portfolios, and returns as tools to underwrite that life. <\/span><br \/><em><br \/><strong>Related:<\/strong> <a href=\"\/renewsblog\/crafting-lifestyle-real-estate-business\/\" target=\"_blank\" rel=\"noopener noreferrer\">Investing NOW So You Can Have the Lifestyle You Want LATER? You\u2019re Doing it Wrong.<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">We should own investments that help us underwrite the life we want to build instead of allowing the pursuit of those investments to own us. <\/span><span style=\"font-weight: 400;\">At first glance, it might seem like a subtle difference, but in fact it\u2019s a significant mindset shift\u2014a single decision that impacts all the decisions that follow.<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>How do you gear your investing toward the lifestyle you want? What success metrics do you track?<\/em><\/p>\n<p><strong>Comment below!<\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p>We should own investments that help us underwrite the life we want to build instead of allowing the pursuit of those investments to own us. At first glance, it might seem like a subtle difference, but in fact it\u2019s a significant mindset shift\u2014a single decision that impacts all the decisions that follow.<\/p>\n","protected":false},"author":800,"featured_media":118416,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,7119],"tags":[],"class_list":["post-103904","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/103904","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/800"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=103904"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/103904\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118416"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=103904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=103904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=103904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}