PODCAST EDUCATION

Real Estate Investment Goal Setting Using S.M.A.R.T

Episode 018

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 the S.M.A.R.T. system for real estate investing. Do you know what it is?

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Episode Transcript

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: Hey there, Real Estate Cowboys is your host, John Larson. Thanks for tuning into another edition of the Real Estate Cowboys radio show. This week we’re going to be talking about goals and goal setting. Um, I think it’s very, very important as an investor, anytime you’re looking at any investment option, you have to have some certain goal in mind. Um, is the goal to replace your wife’s income, is the goal to replace your income with real estate investing? Is the goal to help build your retirement accounts? Um, is your goal to build a rental portfolio to leave and pass on to your children? Is your goal to raise money or not necessarily raise money, make money through real estate and rental properties so you can help pay for your children’s college? As we do know that tuition is going up, it’s gone up over 200 percent since the 1980s. Insane. Um, so, you know, you have to have a specific goal in mind anytime you’re going into any sort of investment opportunity and real estate specifically.  

So the importance of real estate goal setting, especially when you’re a new real estate investor, it can be very easy to succumb to the Shiny Penny Syndrome as we call it, where we focus on the latest and greatest deal without seeing how this little shiny penny fits into our long-term goals. Many successful real estate investors use something called the S.M.A.R.T. goal system to set their goals. And so S.M.A.R.T. stands for specific, measurable, attainable, reasonable, and timed goals. So we’re going to go through each one of those, uh, and the S.M.A.R.T. system and relate it to real estate investing. And so the S.M.A.R.T. goal system starts with being specific, using the S.M.A.R.T. goal system can help any investor narrow their focus and get the most out of their real estate investments. So this is very important.  

So number one, the goal needs to be specific. The term real estate investing covers a wide range of investing styles. It can be a fix and flip; it can be wholesaling, it can be turnkey investing. Um, and then obviously different types, single family, multifamily, commercial. Creating specific goals can help investors stay on course. And so here are some specific ways to go about real estate investment goal setting. A nonspecific goal would just be simply saying, I want to make money investing in real estate. There’s no direction with this statement. It doesn’t tell you how the money’s going to be made. It’s just, hey, I want to make money in real estate investing. My brothers made money in real estate investing; I want to make money in real estate investment. Well, how are you going to make that money? So a specific goal would be, I want to purchase ten single-family rental properties in the next three years that generate enough cash flow to supplement my wife’s income so my wife can retire or I can retire. That’s a specific goal. And it also provides a timeline of when it will be achieved, and it provides a specific number of properties that you plan to purchase in that timeline. Okay.  

So the next thing you want to consider is, you know, a goal must be measurable. Everybody wants to make money on investments, right? But investors, don’t invest to lose month obviously. So a measurable goal is something that can be quantified, like a specific number of properties that will be purchased or the return on investment than an investor expects. So here’s some examples of how to get a measurable real estate goal. An unmeasurable goal would be, I want to be the top real estate investor in my area. This goal is unmeasurable because it doesn’t really mean anything. A top investor can be the one who closes the most deals or the one who has the most monthly income, right? A measurable goal would be, I want to purchase four investment properties with a six percent or higher annual rate of return. That makes more sense, right? That’s, that’s something that we can create a benchmark for and strive to attain. So if goals aren’t measurable, they simply can’t be met obviously.  

Right? Setting a goal that can’t be measured is just like setting an unreasonable and unattainable goal. It does more harm than good. So the next thing in our S.M.A.R.T. system, we’re on “A.” Goals must be attainable. So, and real estate investors, you know, you want to be ambitious. And being ambitious is the main trait that drives an entrepreneur to be successful really. But real estate investors need to remember to keep their goals within reach. Creating unattainable goals only sets an investor up for certain failure that may hinder their desire to try again in the future, and that is not what we want for our investors. We don’t want you to get discouraged and want to quit because I truly believe real estate investing is the number one investment option out there. The last thing you want to do is set goals that are going to set you up for failure and discourage you.  

So a good example of this is, you know, I want to make $100,000 on my first real estate deal. While it’s possible to make $100,000 on a real estate transaction, it’s not always attainable, especially for the first time investor, right? First time trying this out. Factors like market demand or property availability can impact this goal. But focusing simply on a number should not be part of real estate investment goal set. And the big numbers, specifically. Me going into my first deal, you know, I would just want to say, hey, I want to make a profit from this first deal. You know, doing your first deal and saying I want to make 50, 60, $70,000 because that’s what this guy did that’s done hundreds of deals or 50 deals under his belt. You, you can’t. You can’t. You’re new. You’re going to set yourself up for failure and disappointment on your first deal there’s a lot of learning that goes involved with that. On your first turnkey investment purchase, I believe there’s also a lot of learning that goes along with that. Many investors come to turnkey providers because they want the “passive experience” of investing in real estate, but like we’ve said many times on this show, if you’re working with a turnkey provider that works in distressed markets that aren’t growing in population, don’t have a growing economy and you’re buying properties in bad neighborhoods, you’re not going to get that passive experience. But for the first time investor who’s doing this for their first time, buying their first rental property, you really don’t know what to expect yet and I can see how a lot of investors can get dragged down that rabbit hole of purchasing a property based on the numbers that are spit out on a spreadsheet.  

And like I’ve explained on this show, many of times that’s not the route that you want to go. You do not want to start off with, what’s my cap rate on a property and specifically buy a property on whatever’s providing the highest rate of return on cash flow. Because like I said, in today’s market, the values are back up to where they were before the last crash. And so property values, they’re expensive, they’re high and they only rent for so much. And so that’s really caused these cap rates to become compressed. And so really the only areas in the US that are providing these high cash flow numbers and high rate of return on cash flow are going to be located. You know, the US is secondary markets, I would call them or even tertiary markets and I believe that those markets are going to, you know, run into some trouble in the next recession, which I believe is looming. So you just really need to be careful when investing in these types of assets. And so like I said, with these first attainable goals, you know, when you’re, when you’re, when you’re trying to make an attainable goal, I don’t think, you know, you need to put a specific number on something, especially if you’re the fix and flip investor and you’re more active, you know, just like I said, start off with, I just want to make a profit. Then once you get a few deals under your belt, then maybe set a certain goal that you want to meet in terms of profit. But I will tell you, being an active real estate investor, every time I say, okay, I want to make $50,000 on this property, here’s what we’re gonna do. We’re gonna buy it for X, our holding cost is this, our rehabs going to be this? It really never works out according to plan. There’s always something that comes up that’s unexpected with real estate investments. You know, a contractor can run off with your money, um, the rehab to take a lot longer than you expected. You start fixing the foundation and then all of a sudden have a plumbing issue arises. It costs more. Uh, there’s a lot of things that can, that can come into play. And so now you’re holding the property longer. It takes it longer to get on markets. Uh, additional expenses are coming up for the rehab. And then, you know, also once you get the property listed, maybe it doesn’t sell as quickly as you thought.  

You know, I’ve had issues with properties where I’m renovating them in the summer, and I believe that I’m going to get the property done end of July. Awesome. I’m going to be able to get this property to market by the end of July. It’s a family type of house. It’s really going to attract a large family, a medium to large family. You know you want to get that house on the market in the summer when you know, all the families are looking. Because once everybody gets back into school, this happens all over the US, you see the market kind of slow down a little bit, especially for that family style home. But back to goals. Unattainable goals. I want to make $100,000 on my first real estate deal. It’s possible to do it, like I said, but not always attainable. So I think that you should start off with a little bit more of a realistic goal. And an attainable goal would be, I want to secure a property with positive cashflow and potential for appreciation. You know that’s an attainable goal. The investor can control where they buy, and they can control the price that they paid for the home. All right, we’re going to take a quick commercial break, and when we come back, we’re going to finish out R and T of the S.M.A.R.T. goal setting process.  

And welcome back to the Real Estate Cowboys radio show. This is John Larson. This week we are talking about a real estate goal setting, real estate investment goal setting and using the S.M.A.R.T. formula to put your goals into place. Uh, and with S.M.A.R.T. we’re looking for specific, measurable, attainable, reasonable, and timed goals. So I believe that this is very important anytime you’re getting started with real estate investing or when you’re mapping out your new year’s goals for your investments and what your plan is for this new year, and so we want to make sure all of our goals are specific, measurable, attainable, reasonable and timed. And so we’ve already covered specific, measurable and attainable.  

Now we’re going to go into reasonable, so let’s get back to where we left off. Goals also need to be realistic. Goals can hurt an investor when they aren’t realistic. Unrealistic goals are a lot like unattainable goals. However, an unrealistic goal goes beyond out of reach and into impossible. So an unrealistic goal, an example of an unrealistic goal would be, I want to manage all my rental properties and fix and flips to cut down on costs all while working a full-time job. That’s not going to happen. Flipping homes is a full-time job. You have to watch your contractors constantly to make sure they’re getting things done in a timely manner, to make sure they’re doing it the right way, to make sure that they’re doing it the way that you want, right? When you have a vision as an investor, how you want a property to come out, you can’t just trust the contractor to carry out your vision. You need to be there consistently and explain what you want done. You know, you, you do have to play a role, I believe, in selecting the type of finishes, the tile, the cabinets, the countertops, the light fixtures, whatever you plan on doing with the exterior to give it curb appeal. Um, on my flips, I’m involved with all of that.  

I don’t let my contractors decide what they want to do to the outside. I have the vision that I have in mind, and I use that vision to carry out my goal with this property. I want to sell this property retail. I want to sell this property for as high as I can in this, in this area, the highest price per square foot in this area. Well, if I’m going to do that, I know I have to do some really nice high-end finishes in the property. I need to make sure that it’s really going to give that, that buyer that ooh and ah type of feel when they pull up to the property. You know, it’s got to make a great first impression. So I’m very, very, very much involved with that. And so yeah, that’s an unrealistic goal to say that you’re going to manage all your rentals and your fix and flips and then still work your job and if that is your mindset going into real estate investing, you’re going to get some bumps and bruises on the way, and you’re going to lose some money. You know, you have to trust, if you’re going to go the turnkey route, you have to trust the people that you’re working with. Trust the management company to manage your property professionally and give you good advice on your property. And if you’re doing fix and flips, you know it’s… You will find very quickly you have two or three flips going when you’re trying to work a full-time job too, everything’s not going to go according to plan, that’s for sure. So you know, no matter how motivated you are as an investor, you can’t add more hours to the day. This goal, it’s just not realistic. Attempting to build a real estate investing business without, with no outside support is just unrealistic. So a realistic goal would be, I want to maximize my profits through partnering with the best team of property managers. Great. That’s exactly. That’s a totally realistic goal. And on last week’s episode, we talked about 89 questions that I had come up with that you should ask a property manager. Maybe you don’t need to ask all 89. I just came up with as many questions as I could think, but when you ask these property managers these questions, and they give you the right answers, you’re probably working with the right team who’s going to be able to maximize your profits, you know, by being your partner, because the last thing you want to do is just work with any property manager. If you’re going the turnkey route, or you know, if you don’t want to manage your properties yourself because you have a job, and I can understand why you wouldn’t want to manage your properties yourself, you have to make sure that the property management partner that you have in place is the right team and has the right team to professionally manage your assets. Or they’re not going to work, and they’re going to give you a very bad taste in your mouth when it comes to real estate investment. Real estate investing can be so profitable and so great, but if you’re not working with the right team, it can be a very lousy investment and give you a very, very bad taste in your mouth. Trust me; I’ve had that taste. I’ve tasted it. It doesn’t taste very good. So back to realistic goals. So I want to maximize my profits through partnering with the best team, property managers. It is possible to achieve positive cashflow while working with a property manager. If the numbers add up, an investor can still realize positive cashflow while outsourcing the day to day work to a property manager, then that’s great, right? We want to see positive cash flow with our investments. We also need to understand that, hey, I’m working and I need to rely on a property manager to get that positive cash flow for me. So that’s a realistic goal. You know, that’s a realistic goal. So when taking part in any real estate goal setting, a reasonable investor should take inventory of their resources and set goals that correspond to the time and money they have on hand. That makes sense.  

Okay. Now we’re at the T in the S.M.A.R.T. system for setting goals, and T is time. So also goals must be timed. Many real estate investors work for themselves, so timing goals is critical. By setting time check-ins investors can ensure that they’re meeting their goals. Here’s some examples of how to create time goals when real estate goal setting. S,o an example of an untimed goal would be, I want to call as many leads as possible. You’re looking for a good opportunity to invest in. You’re chasing upleads, you’re wholesaling properties, you’re flyering properties to get good off-market opportunities, and you tell yourself, I want to call as many leads as I possibly can. This goal isn’t timed because there’s no end date. It’s a daily goal, a weekly goal. This goal isn’t timed because there’s no end date. Is this a daily goal, a weekly goal, a lifetime goal? In addition to it not being timed, the goal is also unmeasurable. So just saying, I want to call as many leads as possible is not goal setting.  

A timed goal, an example of a timed goal would be by the end of the month; I want to call 20 leads. This goal gets you actually two points. It’s both timed and measurable. Setting a monthly quota for leads is an excellent way to parcel out all the work that goes along with real estate investing. Chasing up leads is a big part of it. If you’re not going the turnkey route, and you’re going the active route, I mean, on my active real estate investment model, I’m getting property sent to me on a daily basis from wholesalers, real estate agents. We’re also fliering neighborhoods and hoping that leads call in. We’re going out, we have people that will go knock on doors, so you know, we might set a goal that, hey, I want you to knock on 100 doors today. That’s an example of a time goal. So time goals are especially important for investors who work in teams. We add a structure to the dynamic world of real estate investing. Many investors jump into real estate investing with a longterm goal of financial stability and independence and time goals offer a roadmap to achieve that goal. So that is the S.M.A.R.T. system. 

And taking the time for real estate goal setting, it can feel tedious, but it’s a crucial thing to being a successful investor. You know, without goals, you can’t reach benchmarks and achieve success if you have nothing to strive for. Your investment success will become stagnant, and you will become complacent. So that’s what we want to avoid with real estate investing and investing in general. You don’t want to get complacent. Um, I believe that every investor could do better. And I believe if you pull all investors, they’ll all say, yeah, I could do better with my investments. So I believe you know, each year you need to sit down and go through some goal setting for yourself and what you expect to get out of your investments for that fiscal year.  

And another tip that I would say is make sure you’re investing in markets and neighborhoods that can help you reach your goals. I don’t believe every market in America can help you achieve your real estate investing goals. Look at my clients in California, in San Francisco and San Jose and LA. You know, those markets don’t make sense for them to achieve their goals. So they look outside of California, invest in good markets like DFW, Houston, Austin, the whole state of Texas, or they look to the Midwest for some more affordable properties that have a higher proceed cashflow, or whatever may be. Or they are just trying to enter into some more affordable markets, right? Because buy and hold rental investments don’t make sense in California because the values are so high. And you don’t want to take excess risk. And buy too far outside of these cities or buy in really depressed neighborhoods where the numbers might look good on paper, but you’re not buying a piece of paper. You’re buying a home. And so goal setting, like I said, take it very seriously. It might seem tedious, but always map out new goals each year. So when we come back, we’re going to talk a little bit more about goal setting and some goals that I have even set into.  

Welcome back to the Real Estate Cowboys this is your host John Larson. We are talking about real estate investment goal setting and using the S.M.A.R.T. system specifically, and S.M.A.R.T. is an acronym for the type of goals that you should be setting, and it should be specific, measurable, attainable, reasonable. And we went over some examples of specific, measurable, attainable, reasonable goals. So I hope that you all found that to be very informative and gave you a good blueprint on how to accurately set goals for yourself and set yourself up for goals that you can attain. Just keep you on the path to really growing your real estate investment business and making sure that you’re always challenging yourself. And so I’ve also come up with some goals for 2018, and they’re personal investment goals and professional investment goals. And I’ll start with my professional investment goals for 2018 and one of them was to sell 250 single family rentals at least through my company, American Real Estate Investments.  

So that means buying, renovating, and selling, and then managing 250 assets for my investors. And we’re a little bit behind schedule on that one, but I hope we can finish off strong and get to at least that 250 home mark. Uh, I also wanted to add 350 single family homes to our management company, American Real PM. And so 250 of that 350 would come from our turnkey system at American Real Estate Investments, and then I also had a goal for my property management team to bring on a hundred more doors in our markets just from other, other landlords out there. So the total goal was 350. And we’re a little bit behind in that one as well, but we’re hoping to hit that 350 mark at least. Um, another professional goal, those of you who listened to the show or may know about my company, American Real Estate Investments, uh, we, we also raise money, syndicate money from our investors on a private lending model. We give our investors double-digit fixed-rate returns by being the bank and funding development projects here in the Texas market in DFW and Houston specifically. Uh, but we’ve developed land for single-family homes, we develop land for office buildings. We also have built office buildings, built single-family homes, duplexes, things like that. So we give our investors the opportunity to be the bank and fund those deals, um, and, and receive a fixed rate of return on their money. And then we use that money to do these developments. So it’s a win-win for both of us. And so I want to hit 5 million this year, $500 million additional, in capital raise to do projects like that. And we’re almost at 3 million. So I think we’re going to hit that goal. So I’m pretty happy about that. And then for my personal investment goals, uh, it was my goal to sell two of my properties in Michigan that have both appreciated; one appreciated 40,000, the other appreciated 50,000.  

I bought them back, uh, in 2010 to 2013. Um, and so they’ve appreciated quite a bit, but I believe a correction is coming for that market soon. So I want to sell now while the property values are still high, and there’s still a lot of demands and a lot of buyers in the market; Take that equity and then my plan is to buy three more Dallas properties this year with the money that I’m going to make from selling the single family homes in Michigan. I’m going to do a 1031 exchange and take that capital and use it to buy three more Dallas Fort Worth properties because I believe the appreciation potential here is just off the charts and off the charts and very low vacancies here and just all the great things going on with the economy, um, just trying to get a lot of my capital working for me in Texas. So that’s my goal for my personal investment goals. And um, like I said, I hope that you as investors have found this show, this week’s show to be very informative and has motivated you to create more goals for yourself so you can be even more successful investor or if you’re still new to this and you know, you want to get started, it’s great to set yourself some goals just to kind of jumpstart your business.  

And so if you like what you heard on the show as well, and you want to hear past episodes, go to the Real Estate Cowboys or RealEstateCowboysDFW.com. Once again, RealEstateCowboysDFW.com, a lot of great stuff on that website. Um, if you want to sign up for our mailing list, you can get exclusive listings for our passive income real estate investment options like single-family rentals, private lending opportunities, vacation properties in Belize, sign up to get on the mailing list to see those opportunities, those exclusive opportunities. There’s also a bunch of education on this site, webinars, videos. We’re adding more and more, and I know I’ve been saying this for weeks now, but my passive income guide is to be coming out shortly. I got my friend Keith Weinhold, Get Rich Education to write the foreword for that book. It’s great. Just got out of the editing. It’s just a very informative book, very, very good book for investors who are looking to get started in passive income, real estate investment options. Uh, so that will be out shortly. It will be able to purchase it on Amazon or through the website RealEstateCowboysDFW.com. I hope you all have a great week and thanks for tuning in and always remember what is your return on life. 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.