It is critical for you as a part-time real estate investor, or weekend investor, to have goals or begin with the end in mind.
Investing in real estate is not a sprint, it’s a marathon. It requires patience, diligence, planning and persistence.
I know this is all very contradictory to what you might see in a 30-minute reality TV show over the weekend about flipping a house and making $100,000. It may be contrary to what you might hear or see in a 30-minute middle-of-the-night real estate investing infomercial.
But we are here to talk reality. That is what is important.
My business is as a HomeVestors franchisee and full-time real estate investor – once a part-time investor – and that is how I encourage you to build your business.
In the same way you build a house brick by brick, you are going to build your investment portfolio as a part-time investor house by house. It’s much the same way you use a blueprint to build a house with an end in mind. That three-bedroom, 2,000-square-foot, two-bath brick house with granite counters and hardwood floors doesn’t appear by magic; it takes a blueprint to get you there. But you know where you are going. You know what you want it to be when you are done, and you have a plan to get there.
You have to do the same with your investment portfolio. You’ve got to have a blueprint. You’ve got to know where you are going, or where you want to end, or what it’s going to look like when you get there.
At the most fundamental level, you have to understand how many houses you need to buy in order to achieve the end result of your investing blueprint. And your end result, for example, may be, “I am a part-time investor and I want to buy ‘X’ number of houses a year so that I can pay for my children’s college.” Or,” I want to replace a spouse’s income so he or she can stay at home and raise the children.” Or maybe, “I just want to save for retirement.”
Or, best of all maybe, “I just want to create a bunch of extra money that I can use as I please, when I please, so I can enjoy my life.”
You may have all different sorts of reasons for what you do, but I guarantee you are going to need a blueprint in order to get there and realize those objectives and goals, whatever they are.
How do you take your part-time real estate investing to create full-time freedom?
The definition of full-time freedom in the context of what we are discussing is, “When or how can I get my passive income from my real estate investing to exceed my active expenses?”
Passive income, greater than or equal to my active expenses, was my ultimate goal as a part-time real estate investor. When or how could I get to the point where the monthly income I generated and enjoyed exceeded the monthly expenses I had in order to achieve the lifestyle I wanted?
Let’s quantify that and make it real.
Many of you may have an initial goal, or soft goal, as a part-time real estate investor where you have determined, “I want to buy ‘X’ number of houses a year.” That may be one house a year, three houses a year, or that may be five.
That is what I call a one-dimensional goal.
You need a 3-D goal
The serious and successful part-time investor will take that one-dimensional goal and turn it into a three-dimensional goal. We all love 3-D. It’s always better, it’s more real, more fun and much more entertaining. Your real estate investment goal as a part-time real estate investor should also be 3-D.
If your ultimate goal is to get your passive income to be equal to or greater than your active expenses in life, then you are going to need a 3-D goal to get there.
The one-dimensional goal you have right now may tell you that you want to buy three houses a year. Let’s add two more dimensions to that.
The second dimension is, “How long are you allowing yourself to purchase three houses a year? Three years? Five years? The rest of your life? Do you know?”
Then the third dimension is, “What type of income are you trying to achieve by buying that number of houses for that number of years? Do you know? Do you have a blueprint to get there? And do you understand what the end state is going to look like?”
Investing is a marathon, and you’ve got to know how to navigate that marathon course. It’s a long course, and you can easily take a wrong turn or stop for a water break and never finish the race.
You’ve got to have a blueprint or a 3-D goal to achieve that goal of your passive income from your real estate investments exceeding your active expenses.
So let’s look at a real-life example
Let’s say your goal is, for simple round numbers, to generate $100,000 a year in passive income.
Maybe that is what you make today with your current job and your objective is to replace your current income, which is great. Maybe you don’t make that today with your current job. You would like to. And you have determined that real estate is the way to ultimately generate $100,000 a year in annual income.
Both scenarios are realistic and excellent scenarios.
So let’s say we are out to generate $100,000 a year from our real estate investment portfolio as a part-time real estate investor. And, let’s say that the average rental house we buy and invest in as a part-time real estate investor generates $300 a month in cash flow.
Remember cash flow is what’s left over each month after you collect rent and pay your expenses of principal, interest, taxes, insurance and any other expenses such as maintenance or homeowners dues.
In our scenario we are going to assume we net $300 a month in cash flow after all those expenses are paid for that individual property – $3,600 a year in annual cash flow, which is very realistic and not uncommon. It will vary depending on your market. But it is a good center cut, or average, for rental property in the United States.
So if you are trying to generate $100,000 a year in passive income off your investment portfolio, and each individual house generates $3,600 a year, that means to achieve your three-dimensional goal of generating $100,000 per year, you’ve got to purchase 28 total houses. That is the second dimension.
Our first dimension was the $100,000 a year in passive income. Our second dimension is that you need to purchase 28 houses, and all that leaves is the third dimension of our goal – how long you need to allow yourself to achieve this goal.
Let’s say for simplicity’s sake that you have a goal that within five years as a part-time real estate investor you want to generate enough passive income to cover your active expenses so that you can quit your job and pursue your other passions in life.
Let’s say you want to make $100,000 a year and you have determined in your market it is going to take 28 houses to do that, and you have determined in your life you have five years to do that.
Then that means you need to buy approximately six hours a year for five years to achieve $100,000 a year and generate enough passive income to cover your active expenses. That uncovers how you take your part-time investing and create full-time freedom. That is a three dimensional goal.
You now have enough passive income to cover all your active expenses. Keep in mind this wasn’t hypothetical, theoretical or speculative. This was practical and mathematical. And investors do it every day.
This is how successful investors start out as part-time investors and become full time investors. This is how part-time investors create enough passive income to create full-time freedom.
They can continue to work their job and enjoy the incremental income generated from their portfolio. They can leave their job, live off their real estate, and pursue another passion in life. They can allow a spouse to leave a career and stay home to raise their children. Or they can simply pursue their dreams whether they are philanthropic, artistic or charitable. Or perhaps this enables the pursuit of a totally new business in addition to the real estate business.
They can do so much because they have peace of mind that their monthly active expenses are covered by their monthly passive income. And it’s all because they generated, determined and set a three-dimensional goal. The number of houses they want to buy, over the number of years they choose to buy them, to generate the amount of income they need.
Here is a little benefit, too
We are sleeping well at night because we now know we have covered our monthly expenses with our real estate investments. We are pursuing the life, dreams and passions we want without the fear of losing a job or being unable to cover our expenses.
And there are also some other benefits.
Don’t forget those 28 houses you own, they appreciate – about 3 percent to 5 percent a year. So you are gaining wealth in addition to that cash flow.
Those residents you have in those 28 houses are working each month, each week, each day to pay down your principal on those properties. Furthermore, your CPA is going to tell you all about some nice tax benefits as a result of owning those properties.
So just like our goal is multi-dimensional, so are the benefits of owning that real estate. This is the true power of real estate – the ability to create long-term sustainable passive income and wealth. Keep in mind we were very mathematical and practical here. We weren’t speculative, theoretical or hypothetical. It’s very real.
Just the same way a 3-D movie looks real when you go see it, set your 3-D objective and you will be able to see what it’s going to take to get enough passive income to cover your active expenses and you will realize how your part-time investing can create full-time freedom.