How to Match Your Investments with Your Goals
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about merging your goals and choosing investments that match your goals instead of any deal that looks good.
Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.
Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream.
Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys.
Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John.
John Larson: Hello everyone. We are back with another episode of the Real Estate Cowboys podcast. This is your host John Larson. This week. Uh, I wanted to discuss, um, your investment philosophy or your investment plan with your goals and how to match that up. I think that that’s very important. I think too often people fail to make investment decisions with their personal goals in mind. You know, many people use a financial planner and they’re going to ask you some questions during your first interview about your financial goals, you know, and then from there they’re going to, that determines your risk tolerance. And this process, you know, determines what investment vehicles your financial planner recommends for you to invest in. But really there’s a problem with that. And the first problem is that the financial planner has their own interests in mind as well as yours because they make commissions.
Sure they want you to make money, but your needs aren’t their only consideration. Before you sit down with your financial planner, try matching your investments with your goals by going through the following steps. This puts you in a better position to have those important conversations with your financial planner, right? If you take the investment opportunities that are available to you and you match them up with your goals, then you will find yourself putting yourself in, in better situations, better investments, situations. Okay. Your investments always need to be in line with what your goals are, right? Is your goal to retire early? Is your goal to supplement income or replace income? Is your goal to uh, make it so your wife can stay at home with the kids, right? Is your goal to be able to pay for your children’s tuition? Um, is your goal to buy a boat in a few years and you’re gonna use your investments to build up cash flow to where then you can purchase a boat, whatever it may be?
Okay. We need to make sure that we’re aligning the investment opportunities that are available to you with your goals. Okay. And we say it all the time with our private lending opportunity. If your goal is primarily just cash flow and a very passive experience than private lending’s, right for you. If your goal is tax benefits, write-offs, you know, if your goal is to see equity growth through appreciation then maybe buying single-family homes is better for you. But you have to understand that single family homes are going to be a little less passive than a private lending opportunity. So it’s all about how much time do I have available to deal with these investments? Is it worth some of the headaches that can pop up with owning single-family properties? Weigh those options out.
The number one thing that you want to do is you want to build an emergency fund. Okay? Your immediate financial security should always come first. Before you invest make sure you have between, most people say three to six months of living expenses saved up. And then as your living expenses increase over time, be sure to keep adding to that emergency fund as necessary. Okay. The fund should be kept in a fairly liquid form to be liquefied within hours. It’s used for last-minute emergencies, so you don’t want to have to wait too long to access. Uh, I say all the time, don’t invest money that you can’t risk losing. Don’t invest so much that keeps you up at night there. There’s risks with all investments. Some investments are a little less risky than others, but you gotta make sure that you don’t overdo it. You don’t want to lose sleep over your investments. Okay?
The next thing is to determine your financial goals. Financial goals are typically going to be different than your personal goals and because of that, they should be considered separate. Financial goals should include things like saving a certain amount of money for retirement, paying for your child’s wedding one day, saving for a down payment on a home, or earning more salary at your job; a higher salary. You want to try and be as specific as possible in laying out financial goals. Instead of saying save money for a down payment, say save $20,000 for a down payment. Right? Put an actual number, a figure on that. This is going to give you a more defined target and allows you to know exactly when you’ve achieved that goal. Okay. If you don’t do this, your financial goals will be too vague to grasp. Your financial goals definitely help you determine the trajectory of your, your investment.
The other determining factor of the trajectory is represented by your personal goals. Okay, so some examples of some personal goals. Um, and these are going to be more subjective. They don’t have to be as specific, but they should definitely be realistic. Personal goals should be something like be financially independent. Acquire income through passive means, retire early, work from home. Okay. So now you want to do is you want to review your personal goals from time to time. Over the years your personal goals will grow and change. So you want to update your list. Now you want to start assigning figures to your personal goals as best you can. You need to try and assign a dollar amount to your personal goals. How much would you need to be financially independent? Exactly how much of your income would you like to be made through passive means?
So this is a couple things to start with, but you definitely want to start putting a finger on this. How much net worth would you be comfortable with to retire early? And these are going to be guesstimates, but that’s fine and you can adjust them as you need, but it’s very important to put a dollar amount on some of these things so you have a benchmark to work towards. If we just say, oh, I want to be financially independent, but we have no idea how much money we need to make in order to feel financially independent or be financially independent and you know, to be tough to achieve that goal, it’s just too vague.
The next thing you want to do is align trajectories. Okay? You want to align the trajectory of your financial goals with the trajectory of your personal goals to create a useful visual aid. This way you can see exactly what you need financially in order to achieve what you want personally. And so keep this visual aid handy so you can refer to it from time to time or make adjustments as needed.
Definitely evaluate investment opportunities. You want to evaluate all investment opportunities that are available to you given the parameters of your existing financial situation. In other words, you have a limited amount of money to invest. What investment options are available at that level. Okay. Like with our private lending opportunities, you need to be an accredited investor and you also need at least $50,000 to become a private lender. In one of our projects, most people come in at around a hundred thousand but 50,000 is the minimum. So you need that 50,000 in order to play in the private lending game. Okay. If you only have 30,000, well then maybe let’s start getting your feet wet with uh, you know, some single-family homes or you know, maybe you can loan that 30,000 in a deal where you don’t have to be accredited.
Okay. If you still want to kind of do the private lending opportunities, you know, you could file a Reg A. We do Reg Ds, but Reg A’s you could have anyone do, you don’t have to be accredited with a Reg A. So look for those opportunities if you still want the passivity of private lending, right? And you don’t want some of the headaches that come with owning single-family homes or maybe it’s just not the right time to buy single-family homes. Like in the Dallas market, for example, prices have gone up drastically. And property taxes have always been up, been pretty high here. But with the prices is going up, it’s causing the property taxes to go up as well. And you can only rent these houses for so much in some of these neighborhoods, you know. And so that’s really choked out the cap rate where investors at this point aren’t even really investing in single family homes for cash flow. They’re more so doing it for the tax benefits that are available. And you know the opportunity to still buy low in a market that’s booming because you believe that there’s opportunity for you to see appreciation with that property. Equity growth, right? Which you can then cash in or you could refinance and take that money and roll it into the purchase of another home and you don’t have to pay taxes on that, right? If you roll it into another investment so you do a cash-out refi and roll that money into something else, you’re not going to have to pay capital gains taxes on that money. You also want to make sure you know the time of returns on investments. Okay. Cause these can definitely vary. With equity syndications typically you’re not going to see your return for a year or two or three years, sometimes even longer.
Okay. But there’s a lot of tax benefits with the, you know, with equity syndications as well because at that point you’re pretty much an owner of the project. And so you’re taking advantage of depreciation, you’re taking advantage of, you know, uh, maintenance and rehab and things of that nature. So when you’re coming in on the equity side, you can capture those tax savings, but you’re not going to see immediate returns on your money or fixed returns on your money like you would with a debt syndication. Like I said, each investment is going to provide a little bit of a, maybe a different time frame on when you can expect to see returns. With the private program, you get monthly payouts. Right after we close on the property, the project, your money that was sitting in escrow is accruing interest and then you’ll start receiving your monthly dividends after close. So you’re getting those returns immediately.
With single-family rentals obviously, you’re also going to get a monthly rent check that’s distributed to you. So from the time you identify a property, you go through the closing process, 30 45 days, whatever it may be, you’re going to start seeing returns almost immediately. Okay. But like I said, with equity syndication, you’re not going to see returns immediately. They’re going to be possibly a year or more down the line, but you know, just make sure you understand these time frames. Okay.
With residual income investments, your returns will come in inconsistently, but they have greater potential to increase in amounts over time, right? We’ve talked about residual income opportunities on the show as well, but these require a little bit of time and effort and work. It’s not really passive income because you’re working towards getting this money in. But once you lay the foundation, residual income’s great, because you’re getting money each month that sent to you, right? So you might have to put in a little bit of work and time and effort in the beginning to build this residual income stream that could last for the rest of your life.
And another important thing would be to assess your tolerance for risk. Okay? Everyone has a different risk profile. How much risk can you tolerate and still have time in life to recover from losses? That’s important. This has to do with your age. If you’re in your early thirties you still have plenty of years to recoup losses from your investments. So maybe you might be willing to take a little bit more risk on an investment, but if you’re in your mid-sixties and you’re retired or just about to retire, you only have a few working years left to overcome any disastrous investments before it’s time to retire.
Okay. So with that, you know, you want to really position your money and investments that are going to be, you know, I would say less risky. Okay. Which is why a lot of, I feel like elderly people, you know in their fifties, sixties whatever it may be, like our private lending model because one, they self-direct their retirement accounts and loan from that. So then those payments are going back to them tax-free or tax-deferred. But they also feel like the risk profile in a private lending deal isn’t as high as it would be on, you know, maybe some of these equity deals where it’s not guaranteed income or you know, with single-family homes where obviously you never know what could happen. Large repairs could pop up, whatever it may be. A tenant can move out, trash the house, the house gets broken into. Um, it takes a while to get a new tenant and so you’re kind of bleeding at that point. Pay attention to that. You definitely want to make sure, depending on what age group you’re in and how many working years left in you, you have, you might want to adjust your risk profile and, and adjust the type of investments that you’re, you’re putting your money into. Right?
The second part of a risk tolerance assessment has to do with your personality. How comfortable are you with having your money in certain places? Are you comfortable being a landlord with a property manager in place to handle these day to day? Are you someone that manage these, these properties yourself, right? Like that’s not necessarily going to be passive at all if you’re doing the management yourself, even when you do outsource it to a management company, single-family homes aren’t the most passive investment opportunity available to you. Although people love to run around and say that they’re passive and my experience to really anything but passive, um because things can go wrong.
Okay. It’s not just like you’re collecting a monthly dividend by being a lender. You know, in those circumstances, we rarely talk to our investors. We provide updates on the projects. Um, they speak with my accountant maybe once a month when my accountant sends them a statement or emails them to let them know that their payment has been sent. You know, that’s about the only interaction you’re going to have with us through until it’s time to pay your money back and then, you know, you’ll have the opportunity to potentially roll that money into another private lending opportunity and keep it working for you or pull that money out. That’s really the only communication that you’re going to have with us, which makes it very, very passive. You got to ask yourself too, you know, are you comfortable holding stocks or does it make you feel a little nervous about how volatile the stock market can be and has been?
You don’t want to lose sleep over your investment decisions. Like I said, you want your investments to help you sleep more soundly. Really. Um, because you go to bed at night knowing that your money’s working for you. But, uh, you know, think about how you feel about your investments and how much risk you can safely assume. That’s very, very important. And now you all know the more risks usually associated with an investment, um, is going to yield higher returns, right? That’s just the way things work. Exploratory oil and gas opportunities pay large returns, but I just used the word exploratory. They have not found oil yet, right? They believe from a geologist or whatever it is, or research that there could be oil there, but it’s no guarantee. So you could potentially lose that money. Now it’s a tax write off, right?
But you’re losing that money. Okay. But, um, they’re promising the investors very, very high returns. But obviously, it comes with much more risk. So you definitely want to use these tips to match your investments. So investments, stocks, bonds, mutual funds, annuities, things of that nature, life insurance policies, whatever it may be because they’re paid on it. Not saying discount anything that your financial planner is going to say to you or advise you on, but just know in the back of your mind that there is some benefit to them navigating you and your money back into, you know what we would like to say Wall Street investments, right? And myself and the Real Estate Guys, if you listen to their podcasts and Keith Weinhold of Get Rich Education. We all talk about taking money from Wall Street and bring it Main Street.
And that means finding good team members and guys out there, guys, gals that have good opportunities on the real estate side. Because once again, real estate never goes to zero. Okay. And honestly, I believe that your money is much better protected in a real estate deal, in an asset and even an asset that’s cash flowing. Okay. You hear all the time on the private lending opportunities that you know, you always got to think who has the least amount of risk in any deal. And it’s, it’s the bank for sure because they hold lien on the property. And so on cash flowing real estate, right? Uh, an office building that’s cash flowing because there’s, they’re thinking themselves, okay, landlord, you want to default owner, we’re going to take back a, a building that’s completely, you know, it’s cash flowing, it’s making money and we’re going to repossess that, right?
We’re going to foreclose on it. You as the private lender, you take that same role, you know, so that’s a way to minimize risk in the investment. And then when you plant an office building in a market like DFW, where there’s 150,000 people moving here a year and it’s home to the most corporate headquarters in America, you know, you’d think to yourself, wow, this is, this would also limit my risk a little bit because I’m, you know, loaning on an asset a physical asset that’s never gonna go to zero in a market that’s growing exponentially year over year and is already home to the most corporate headquarters and is a super business-friendly state and city. Okay. So you should feel pretty good that we should be able to keep that property occupied, fully occupied and cash flowing, right? So if everything did go to hell in a handbasket and we’re not able to deliver on the investment, you foreclose on it. You take it, right?
So like I said, think about these different risk profiles. Find the investments, identify investments that are going to be better for you based on your personal and financial goals. Okay? And those are the ones that you go for. Those are the ones that you pounce on and be ready to take action when a good deal does come across your desk or come across your email, right? Because you don’t want to miss out on some of these opportunities, you know? So make sure you’re prepared. Make sure you have an emergency fund of money saved up. Make sure you have some liquid capital that you’re ready to deploy. Because like I said, and I have said, investors take action. Investors are ready to move. Good deal across my desk. I’m putting an earnest money deposit down. I’m signing that contract immediately and then I’m using my inspection period to gather the rest of the data that I need. In a hot market out here in DFW, I don’t have time to ask for all the due diligence and sit there with my team and look over all the due diligence because by that time the property’s already under contract and it’s gone. I can look at a deal very quickly. What is the purchase price? You know, are these triple net leases? Is there a common area maintenance built into leases? Are these just gross leases? What are they? I can look at that very quickly and I can make a decision within minutes on whether I want to lock this property up or not. And then like I said, use my 10 day due diligence period, whatever it may be to start gathering the rest of the information that I need. And if I can’t get that information at that time that I need, and if I can’t get that information in that time frame, then something’s up.
I’m either filing an extension for my, my, uh, inspection period, or I’m just saying, Hey, look, we’re going to cancel the deal. I’m in my option period. Give me my earnest money back. But you know, as an investor, be prepared to move quickly on a, on a good opportunity. Okay. So that’s my advice this week. Thanks for tuning in. Um, just wanted to touch on some things that I believe are very, very important for my listeners. And that’s definitely, like I said, lining, making sure that your goals are aligned with your investments. So if you found this information, you know, educational, like I said, you could go to RealEstateCowboysDFW.com. All of our past episodes are housed there. Or you can subscribe to us on iTunes and all the other podcasts outlets that are out there. We’re on everything.
And, uh, you can be updated every time a new podcast comes out, which is typically every Sunday, You know, go to Amazon. I have a book, the Passive Income Guide: What’s Your Return on Life, uh, by John Larson, foreword written by Keith Weinhold of Get Rich Education. It’s a very good book. Um, very quick, easy read, but there’s packed with information. It can give you a good grasp on how passive income works, how you know, what passive income options are available with real estate. Uh, so go ahead and you know, you can download the Ebook for a very affordable price or purchase the paperback book, have it sent to you. Um, so that’s a really, really good read or just go to our websites, RealEstateCowboysDFW.com or AREIUSA.com. We have all of our past blogs, great, great information there as well. And when you’re ready to take action, put in your information, a member of our team will reach out and let you know the investment opportunities that are available to you at this time. But, uh, in the meantime, this is all we have for this week. I hope everyone has a great week and is ready to take action and start, you know, working their ways towards financial freedom. And we’ll be back next week with another great episode of the Real Estate Cowboys podcast. In the meantime, always remember what your return on life, this is your host John Larson signing off. See you next week.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.