In the fourth quarter of the year, I always hear investors talking about closing the year’s investments strong and wondering what the next year will have in store for them.
This reminds me of a consultant friend of mine who said, “Predict the future by creating it.” Wise words indeed.
However, planning the future, instead of wondering what it will be, is often met with opposition. I am not sure what creates such resistance, but I find that when it comes to doing things like planning, many adults freak out.
At an education event I attended recently, the instructor asked us to do some mathematical equations. He said when he asks audiences to do anything with math or goal setting, they freeze up.
I have found what separates the successful investors from the “Hobbit investors” is indeed this one little step of planning your investment year.
Over the years I have picked up many things I can do to make the coming year stronger than last. These are the top 5.
- Do pre-tax planning: Start the year fresh by knowing what your tax liability for the previous year is going to be. No one likes the surprise of learning you have a big tax liability that you still owe from last year’s income tax. I know how dreadful it is to do taxes, especially when you owe money. You do it once a year, and you have no desire to spend any more time than required doing tax work. I learned many years ago from seasoned investors that pre-tax planning in the fall of the year is a great way to strategize your next year’s financial goals. After all, it is not how much money you are able to make, but rather how much money you are able to keep that is important. Visit your tax professional toward the end of each year and do a quick analysis of the current year’s income and expenses so you can strategize how to minimize tax liabilities. I remember being advised in the past to pull forward some of the repairs or improvements that I wanted to do on my properties in order to create deductions for the current year. My intent to save my cash to buy property for next year was better served as an investment today into expenses that would lower my tax liability for early next year, ultimately freeing up cash by not having to pay so much for taxes.
- Set goals and execute: Successful investors never just buy an investment property. They take seriously the events going on around the country and even around the world. They research the big picture and the direction of the national economy. They find the best local economy that can deliver on their agenda. They stay in a learning mode, create a plan and then stick to the plan. There is a distinct difference between the investors I work with who have a plan for their investment year versus those who just watch for property and try to invest when they find a good deal.
Do not get stuck in “analysis paralysis:” Setting your investment goals early on and identifying exactly what you want from the year’s investments will help you avoid the dreaded analysis paralysis that indeed plagues so many investors. The Internet is full of information, and it is easy during research to get pulled in many different directions. If you find yourself waffling on investments, you may want to ask yourself if you have a solid investment plan for the year.
- Spend money wisely: I always like to look over my budget as I plan the next year and trim the fat to see where I can come up with more investment dollars. Paying off any credit card balances that may be lingering around after the holiday shopping is a good start. Look at your installment accounts, car payments or department stores or anywhere you are paying interest. Every dollar you pay in interest is robbing you of investment dollars. If the interest payment is securing an asset, it has merit. If it is paying for a liability you want to find a way to reduce the interest rate or get rid of it as soon as possible. Also, take advantage of buying your investment assets early in the year. As the economy continues to rebound, interest rates will rise, so you will get the best leverage early on.
Keep cash flow as the center focus: As the inventory of available properties falls and prices rise, there are more equity investors looking for property appreciation. My favorite, too. Now, more than ever, with this equity objective in play, remember that equity tends to be more speculative in nature. Cash flow is more of a mathematical equation. I know – more math, right? The fail-safe of the investment is always cash flow. Equity may be the larger income stream when you execute your exit strategy, but the cash flow will ensure you make money until that point.
Follow these tactics, and I trust you will have a great investment year in 2016 and many years thereafter. Happy investing.
About the Author:
Larry Arth is the founder and CEO of Equity Builders Group, a Florida-based real estate investment group. A 36-year veteran of real estate investing, Arth also is an international consultant and speaker who each year assists hundreds of investors, both foreign and domestic, in realizing their investment potential. He analyzes locations for economic strength and for the largest and most sustainable returns and, most importantly, sustainable turnkey investment. His focus is offering turnkey investments to the passive investor.