The Most Important Variable To Your Investing Goals And Strategies
I love helping people gain financial independence through real estate and I spend a lot of time guiding newer investors into buying their first deal or simply into figuring out what investing strategies are the best fit for their goals.
Until most people pick up “Rich Dad Poor Dad” by Robert Kiyosaki or stumble upon BiggerPockets.com or the Bigger Pockets podcast, they don’t realize how many options there are for careers and investing outside of grinding a nine-to-five with a 401k match for forty years. When I found those three resources I was a full-time professional youth minister with a side hustle and a pension. Now I’m in real estate full-time as an investor and a sales agent with no pension!
So with all the opportunities available to us within the real estate industry, what is the most important thing for us to consider when we decide which investment strategies are best suited for accomplishing our goals? Our event horizons.
No, I’m not talking about black holes in outer space, so let me explain. All real estate investors are looking ahead to some point in the future by which we want to have considerably improved our lives and the lives of those around us. Some of us are looking to make drastic changes in the near future, like getting out of a dead-end career in the next couple years. Others are using real estate to ensure financial growth and security for when they retire or when they pass their wealth to their heirs. These major moments in life (new career, retirement, etc.) are our event horizons: the times by which and after which we want life to be very different and much better than it is now.
I’ll use myself as an example. I was first introduced to real estate almost seven years ago, so while my goals may seem aggressive, I’ve been working on them for quite a while now. My two event horizons are the end of 2021 and the spring of 2037. By the end of this year my wife and I will be able to maintain our current lifestyle without my wife needing to earn a salary. This means that I will have replaced our combined pre-real-estate incomes by 200% by the end of this year. My daughter (first and only for now) will graduate high school in 2037. And if she’s anything like her mother, she’ll get into every college she applies to and most of them will be prestigious and expensive. Before that happens though, I will have accumulated the assets required to pay for her and her future siblings’ higher education without affecting the lifestyle my wife and I plan to enjoy when our kids have left the nest.
How soon you plan to arrive at your event horizons is the most important factor in deciding how to invest in real estate. One of my horizons is approaching very quickly and it’s income- (or cash-flow-) driven. In order to replace solid and steady W2 salaries with real estate I spend about half of my focus on more transactional activities. By “transactional” I mean that my profit or income is driven by the act of transacting on real estate. As a sales agent I get paid when a property sells and I represented the buyer or the seller, or I referred one or the other to another agent. While it can be nerve-racking for a brand new agent to know they’ll have to wait at least 90 days before they can bank a commission, a full-time career in real estate sales offers the opportunity to build your own business and generate a large income within a few years.
Now that I’ve been in the game for several years I also engage in wholesaling and the occasional house flip. If you’re interested in learning more about these strategies, you can learn plenty by researching them on Bigger Pockets. My only recommendation for the sake of this blog post is that you treat these activities like you’re building a business; put systems in place that enable you to do more deals at once and keep all of your deals progressing profitably. Wholesaling and flipping are the two most popular transactional investing strategies because the payouts come within weeks or months and some of them can be quite large.
I should also mention that I’m still a house hacker seven years into the business! My wife and I owner-occupy our second small multifamily (the first had four units, this one has three) and we’re using the rental income from the rented units to offset our housing expenses. I recommend house hacking to almost everyone who is getting into real estate, it’s the best possible way to marry short-term income goals with long-term appreciation and cash flow. Speaking of long term....
My second event horizon won’t get here for another 16 years, but I won’t be ready if I don’t prepare now. I am building my long-term cash flow and my net worth through buy-and-hold apartment investing. The residual income from these investments pales in comparison to what I make spending the same amount of time in transactional activities, but I only have to buy a building and get it performing one time in order to lock in that residual income forever. And each time I buy and hold my residual income continues to grow. These properties appreciate in value and in cash flow as market cycles come and go, and the cash flow and equity I’ve built up by 2037 will more than pay for a couple college educations and however my wife and I want to live as empty nesters.
Two recommendations here for buy and hold investing.
- Treat this like a business as well, and spend time putting the systems and processes in place that will save you time and help you build in the long term.
- BRRRR investing really is the best way to accelerate the process of building wealth and cash flow. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat, and BP has several great resources on it, including a great book by David Greene.
I’m wrapping up my third BRRRR deal right now; It’s a 24-unit property that I bought with a partner about 18 months ago. We’re refinancing it in such a way that we can be certain we’ll have it paid off before our daughters graduate high school. We project that either refinancing the property in 2037 or simply applying all the cash flow from a paid-off 24-unit property will more than cover two college educations.
Hopefully at least one of my event horizons relates to you! If you’re looking to make big life changes soon, I encourage you to work on house hacking and transactional investing. If you’re playing the long game, seek out opportunities to get your capital working for you in properties that you can expect to perform for you for many years. Either way, and whenever your event horizon is, I’m sure you can accomplish your goals with real estate!