How to Forge a Foolproof Path to Reach Your Investment Goals

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Decades ago during a seminar in Dallas, Jim Rohn asked his audience a seemingly simple question:

When should you start building a house?

The attendees weren’t quite sure what he meant, so there were a few moments of awkward silence. Then, after scanning the room with his eyes, he offered this gem of an answer:

As soon as you have it finished!

What he meant, of course, is that before you start constructing a house, you must first have it finished — on paper. You must have exact plans with exact specifications that can be executed by the builder in order to end up with the house you want.

“If you forego the plan and simply start laying bricks and randomly building walls,” Jim quipped, “they might take you away to a safe place.”

The audience laughed, and you may be laughing as well. After all, who would start building a house without plans?

Here’s a fact that might shock you: In real estate investing, the overwhelming majority build their “house” without a concrete plan!

One sunny day, they just step outside and start putting up walls. Their portfolio has no foundation, no load bearing structure, no plumbing system — just a couple of random “walls” built over the years. Just a couple of properties that the investor picked up with the optimistic hope that they could resemble a house someday.

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

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The Right Time to Make a Plan

We’ve all been told that taking imperfect action is better than taking no action at all. And usually that’s pretty good advice.

But an investment portfolio is a complex structure comprised of many interdependent parts. Some of those parts cannot be built later in the same way that the foundation cannot be built after you’ve built the walls.

If you’re just getting started, you may be tempted to think that big plans are for big shots, and you’re just at the beginning. “I’ll buy a couple of properties, and when I’ve grown my portfolio, then I’ll make a plan,” you might think to yourself.

That’s exactly the wrong way to go about it.

Build a solid plan at the outset, even if you can’t possibly see how you can achieve it. This plan will provide the “placeholders” for your assets of the future.

Then execute with patience and purpose.

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5 Key Questions Your Investment Plan Must Answer

The main purpose of an real estate investment plan is to provide clarity and actionable steps to accomplish your income goals. In that context, your plan should answer the following 5 key questions:

  1. How many properties must you acquire to achieve your income goals?
  2. How much capital will your acquisitions require?
  3. How long will it take to complete your acquisitions?
  4. How long will it take to pay off all your assets?
  5. What will the portfolio net worth and income be when you arrive at your destination?

Long-term real estate investors are typically after one principal goal: investment income at destination. Further, investment income is a function of asset value and yield. Yield depends on the quality of the assets you purchase. If you opt for quality assets leased by quality tenants like our investor clients do, your yield on free and clear assets will hover between 6.5%-7.5%, give or take a percentage point. Therefore, the only thing you can truly control without sacrificing quality is the value of the assets you acquire and pay off.

Most investors who don’t reach their income goal share one thing in common: They didn’t buy enough assets to yield the income they wanted. A well-crafted plan would have shown them that from the start, and most importantly, it could’ve shown them the path to actually achieve their income goals.

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The “Living Document” to Help You Stay on Course

Most of the information on the “first draft” of your investment plan will be driven by educated assumptions. Since we don’t know the exact numbers of any future purchases you might make, we have to assume them so we can run a financial analysis. But then real assets will substitute your assumptions, and your plan should be revised from pro forma to actual.

And if you’re assumptions were pretty conservative like mine tend to be, this is actually a good thing. It usually means you might reach your goals faster.

Further, your plan will forecast the next 10, 15 or 20 years in a very linear fashion. But life is rarely linear, is it? Murphy announces that not only is he moving back in your secondary bedrooms, but he’s also bringing friends! Or on the opposite end of the spectrum, you get a big promotion, and now your greater income will allow you to move at a much faster pace. The greater point is that your plan is a “living document” — in the sense that it should be updated periodically to reflect the most accurate known numbers at the time.

Related: No Time to Write a Real Estate Business Plan? Here’s Your 30-Minute Solution.

Last but not least, the hardest part about a simple investing strategy is that you must stay the course for a long time. It’s hard to stay motivated and stay on the right track for 10, 15 or 20 years. The highest value that a well-crafted real estate investment plan provides to a long-term investor is crucial feedback on where you are in the larger picture.

Let’s suppose, for instance, that your plan calls for the acquisition of five small multifamily properties. Further, it says that if you make those purchases and apply the Domino Strategy to pay them off one at a time, your first asset should be paid off in five and a half years . The second will follow suit at four years. And so on.

If you’re six years into your plan and your first asset is free and clear, don’t you think that would signal that you’re on the right track? Wouldn’t it also provide the added motivation to carry on and execute on the other assets that follow? Conversely, if you didn’t have a plan, how could you possibly know that you’re on the right track if there no track exists?

Take my mentor’s sage advice, and build your “house” only as soon as you have it finished.

Investors: What does YOUR plan look like? 

Share your thoughts with a comment!

About Author

Erion Shehaj

Erion Shehaj is the founder of Investing Architect. I help successful professionals design and execute a custom Blueprint Real Estate Investing™ strategy so they can achieve financial independence, retire early and gain the freedom to live the life they always wanted. Side effects might include: Early retirement, wealth and piece of mind. Follow on Twitter if that's your thing.

14 Comments

  1. Jerry W.

    Actually I think your article is entirely wrong for all but wealthy investors. You don’t know what you don’t know. If you have to plan on how to build an apartment complex you will be better off trying to build a garage then work up. Until you try your hand at framing or pouring concrete of installing cabinets and counters you have no idea what type of work you are going to prefer doing. many VERY successful investors started in one area and continually grew to higher goals. If most folks plan out their entire path before taking any action they will be delayed from starting for years. Planing and goals are great, but your idea seems grossly overblown. Seems like having to learn to fly an airplane before you try a bicycle. I assume you are selling something.

    • Erion Shehaj

      Jerry

      The idea that very successful investors became so successful by “flying by the seat of their pants” is at best a rarity and at worst a myth. I agree that in life “we usually don’t know what we don’t know”. I never said you’d have to know it all to have a plan and that your plan has to be this set in stone, convoluted process such that you never get started. As a matter of fact, if you’re doing it right, your plan SHOULD change as you gather more experience and as life circumstances and needs change.

      And I’m pretty sure that Lesson 1 in airplane flying school is not: Learn to ride a bike 🙂

  2. Joel Palmer

    I think this article is really spot on. Sorry, Jerry.

    Sure you may not have every single detail of your plan figured out. I know I don’t. But I do have a very specific plan of what I want my future to look like. Something like “15 units of SFR or Duplex/multi-plex, and 3 vacation rentals. Bought within 10 years and paid off within 15.” Yes, there’s a bit more detail than that, especially when it comes to financial details, but that’s the basics.

    If I didn’t have some foundation plan, and went with something like the article mentions of: “I’ll buy a couple of properties, and when I’ve grown my portfolio, then I’ll make a plan,” then I’d have no true idea of what I’m doing.
    My current plan may be more of a vision than a detailed step-by-step strategy, but it keeps me right on track.
    Now, will that plan change over time? Absolutely. With every purchase or piece of information, I can tweak, modify, and improve my plan. I may even change my overall vision.
    But what I certainly need is a plan/vision/goal to get me in the right direction.
    You don’t need to know what the entire staircase looks like to take the first step.

  3. Toi H.

    I think having a plan is great, which I’m actually starting to work on. However, as Jerry mentioned, you dont know everything there is to know. For me, I have the larger picture of my end goals as a real estate entrepreneur but all the details in the middle are challenging because I’m still learning many investment strategies. Right now, I’m focusing on one step at a time with my end goals in mind.

    • Erion Shehaj

      Toi

      The plan is basically a magnet that pulls you in a certain direction. Of course, if you wait until you know every detail you will never get started. There I think we’re all in agreement.

      But frankly, if you’re going to bake a cake you need to know which ingredients you need, how much with they cost you and what’s the process for getting there. You can’t just start mixing random things and hoping to get a delicious cake somehow.

      And… now I’m hungry 🙂

      • Toi H.

        Erion, we are keeping you out of the kitchen (in all humor of course) ;-). A cake baker is always trying random mixes to develop a delicious cake. The cost of your ingredients will be based on various factors; the store you shop at, the area you live, the brand and quality of ingredients you desire. Once the recipe has been mastered the baker sticks with it and then creates another great recipe.

        I completely understand the intent of your article and think it’s a great piece. Building a business is definitely trial and error along the way whether you have a written plan or not. Please keep up the great work and continue sharing your experience, I enjoyed the article and reading all the responses. 😉

  4. Darin Anderson

    I agree with Jerry as well. The problem with the blueprint example is two fold.

    1. A blueprint is drawn up by an absolute expert in the industry. Someone with years of experience designing houses. Would you build a house with blueprints designed by someone who had never designed or built a house before? That is what you are asking the newbie investor to do.

    2. When a house is finished, it looks almost identical to the blueprints except for some minor cosmetic adjustments. You can’t start building a two story Victorian house and change it half way through to a rambler that is twice the size of the foundation you originally poured. Blueprints work because you know exactly what you are going to build, design it down to the detail and then build it. Real estate almost never works like that. The analogy doesn’t fit.

    I started 8 years ago with no long term plan. I simply set out to purchase a buy and hold property that would provide good cash flow and grow from there. After the first purchase I waited another year while I learned what was working and what I thought I did wrong. Then I started purchasing more. Still with no long term plan, just to buy more as the time / money / deals allowed. Along the path things changed and different opportunities presented themselves. I now have 17 single family properties and one small senior housing property. I am now starting to move towards senior housing facilities with a partner group. None of it was driven by a long term plan.

    I am not knocking long term plans. For me the details of a long term plan seem kind of like building sand castles at low tide. They don’t last long.

    It would be interesting to hear people tell their stories. I would bet there are more people on bigger pockets who are actively and successfully investing in real estate that didn’t start with a long term detailed plan than those who did.

    If you were suggesting having a long term plan once you have a few years experience and know what you do and don’t know then I think that would make a lot of sense. But for most newbie investors, I think it would actually be paralyzing, not liberating.

    • Erion Shehaj

      Darin

      First, I want to congratulate you on the success you’ve achieved – it’s no small feat.

      Now, I’d like to address your points:

      1. Blueprints require professionals – on that I’m 100% in agreement. What I didn’t do, is ask a newbie to become a professional overnight and be capable of doing detailed plans. What I did do is suggest some questions they should think about as they put together a simple plan.

      2. Your house analogy is not accurate because an investment portfolio is not a house but more of a development. You could start by “building houses” and then as your means, experience, expertise grows you could delve into “other structures”. Much like you did with starting with single family homes then branching out into senior housing facilities.

      “I am not knocking long term plans. For me the details of a long term plan seem kind of like building sand castles at low tide. They don’t last long.”

      That’s a very interesting way of NOT knocking long term plans. 🙂

      I love to hear people tell their stories – It makes all these debates on the best way to skin a cat a lot more real.

      • Darin Anderson

        This is an odd reply:

        “Your house analogy is not accurate”

        It’s not my house analogy, it’s yours. You spent the first section and half of the second using a house analogy. I agree its a bad analogy. That was my point.

        The long term plan issue was with the details, that’s what gets washed away.

        • Erion Shehaj

          Darin

          I can definitely see your point about the analogy. It was never meant to illustrate the entire process of putting together an investment portfolio but rather just the idea of interdependency of steps in the process.

          I should have been clearer in making that point.

          I appreciate your reading and commenting.

  5. Robert Steele

    I think Erion is spot on. Granted the house building was a poor analogy and I see that this is where some of the contention is coming from.

    I stumbled along for many years without a plan. I ended up making it in the end, taking 50% longer than I could of and I actually discovered I had aligned with Erion’s way of doing things towards the end quite by accident.

    If I could do it all again I would definitely start with Erion’s Blueprint Strategy.

  6. Andrew Nissen

    I enjoyed your article Erion and couldn’t agree more.
    I wrote the questions out and answered them completely, adding details and plans as they applied to our situation. Even with 10 years experience it always helps to sharpen the saw.
    Thanks,
    Andy

  7. Interesting read. Many people imagine their dream house, but a lot of it is abstract. It’s extremely important to put everything down on paper and revisit it a few times before the drawing of the exact plans. Like you mentioned, the exact plans with exact specifications are necessary for a builder to give you the house that you really want. Agree with what you’d written about creating an investment plan.

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