You suffer through early morning gym workouts.

You hike-in 10 miles, in the dark, to get to your climbing route.

You catch every eddy on every river you paddle.

You even quit drinking alcohol (during training).

We do these things because we have clear goals in mind. It would be pretty hard to drag ourselves out of bed when the sun won’t be up for another hour if we didn’t have a clear purpose. 

Whether your goal is to catch that wave or to rock that bathing suit, getting out of bed to train our bodies is easier with a clear purpose.

Well, it’s the same type of situation when you’re investing in real estate. 

Before you even begin to consider potential investment opportunities, it’s imperative you know WHY you’re investing and WHAT you’re looking to get out of it.

Without clear goals, you’ll easily be tempted (or paralyzed) by the next hot opportunity and well-marketed offerings that don’t actually get you closer to your goals.

As we look at some examples, see if one resonates with you, or pieces of one. With clear goals in mind, you’ll be confident when you select a path to grow your wealth and you’ll reach your goals quicker.

Investing Goal Scenario #1: Cash Flow or Income Generation

Jane works full-time in the corporate world while hitting the mountains with her family on the weekends. Her kids have just started to carry their own packs so they can hit longer trails. 

Her income provides for a comfortable life, but the weekday slog in commutes, frozen meals, and other daily hassles makes her start craving weekends by the end of Monday. She’s ready to get more time back.

With an additional stream of $2,000 passive income each month, she could fully cover her family’s current living expenses. With those covered, she suddenly has the freedom to quit her job and spend more time prepping for and tackling those long hikes with her kids.

Finding investments that could get her a chunk of money (or a return on her original capital) quicker could allow her to pay herself a monthly income sooner.

If Jane requires $24,000 per year ($2,000 per month), she would need to invest roughly $300,000 if expected returns are in the 8% range. She’d only need $240,000 if expected returns are in the 10% range. Or how about $200,000 if she could find a return of 12%. 

$300,000 invested x 8% returns = $24,000 in passive income per year

$240,000 invested x 10% return = $24,000 in passive income per year

$200,000 invested x 12% return = $24,000 in passive income per year

With these guidelines and her goals in mind, Jane should focus on generating higher returns to convert to cash flow first and foremost. That means that any investments with lower projected cash flow returns should automatically be discarded, and any opportunities reflecting 8% or higher should really get her attention. 

The passive part is key here. Jane doesn’t want to replace the work she has to do at her 9-5, just the income she receives. She loves the idea of managing her investments for the family and taking a small role in partnerships to learn and grow. In fact, she plans to share these skills with her kids as they grow.

Investing Goal Scenario #2: Investing for The Big Win

Steve, meanwhile, doesn’t have any kids at the moment and loves working in his full-time job. He is drawn to the potential appreciation in his local market, a tourist hot-spot outside of San Francisco. 

He’s seen how property values have either skyrocketed up or at least never dropped, and he loves the idea of investing outside of other large coastal cities like New York and Seattle. He knows that there can be a higher risk associated with investing for appreciation. He also knows that he’ll probably need to wait longer until the payout. But he’s okay with that since his current cash flow situation is strong. His goal is to have a fat retirement.

Even if his investment doesn’t appreciate as much as expected, that’s alright with him. He’s more interested in the “chance” that it might. 

Many will advise that this type of investment is riskier and that you should always look for cash flow in your real estate investment endeavors. However, having a higher risk tolerance can also really pay off. These investors are more willing to voluntarily take on the risk for the possibility of appreciation. 

In this case, Steve knows the pros and cons because he’s done his research (afterall, he needed to be sure that this strategy would get him to that dream retirement he has planned). He knows that he could win big or lose big in this game. Steve also likely puts some of his investing dollars in something more conservative in addition to his appreciation plays.

Mixed Investing Strategy: Checking All the Boxes

Let’s be honest, most people deploy their investing dollars in multiple vehicles. That way, risk is mitigated and different tax deferral strategies can be deployed. 

If you didn’t really feel comfortable in either Jane’s or Steve’s shoes, that’s totally normal! That just means you’re among the majority and that you’d like a mix of cash flow AND appreciation. 

You may also want to offset some taxable income, or use a tax-deferred retirement account to grow your investing dollars tax free.

Different investments can provide combinations of each of these requirements – even cash flow AND appreciation (or a big win). And, the shorter your capital is held, the quicker you can use it for monthly expenses, even if you aren’t receiving your returns in monthly installments right away. This may be particularly appealing if the returns are better despite not having cashflow immediately.

Don’t be afraid to seek that sweet spot – the combination of strategies that works for your goals. There may be a number of options or one strategy that checks all the boxes.

Know Your Goals

People looking to partner with you to help you invest will attract your attention with pretty colors and beautiful photos, which is exactly why it is important to have a strong purpose for investing in the first place. You’ll need to look past all that and ask the real questions.

How is risk mitigated?

What are the tax implications with this investment vehicle?

What are the potential returns I can expect?

Once you have a clear vision of your goal, then as a partnership or deal arises you can clearly say yes or no. No flip-flopping between new and flashy opportunities that may not actually serve you and your specific needs. You can focus on the numbers and jump on the opportunity without second-guessing yourself.