Why It’s So Important You Know Your Goals Before You Invest in Real Estate Syndications
There are two questions you should be asking yourself before you invest in a real estate syndication. “What are the goals that I want to achieve with my investments?” and “Why do I want to achieve them?”.
We all have goals in some form before we make a financial decision, right? Let’s take, for example, the process you went through to purchase the home you live in now?
You most likely had a “must-have” list like being in a good school district, the proximity to schools and amenities, a 4 bedroom home minimum, a yard for the kids and the dog, etc. So given your “must-have” list it would be unlikely that you would have chosen a one-bedroom apartment in the heart of the city, right?
So, my point is that when you are determining your real estate investment goals the process should not be that different. Before you start reviewing investments, you will want to understand your “What” and your “Why”.
By not having definitive goals that align with your principles and desired outcome, you may not be investing in the projects that will best help you to reach those goals and objectives.
As we discuss the following examples, try to envision which of these goals resonates most for you. Crystal clear goals will enable you to know when that right deal is presented to you, that it is the right deal for you to invest at that time.
Setting goals is the first step to turning the invisible into the visible – Tony Robbins
Investment Goal Example #1: Cash Flow Investing
Sarah is looking to semi-retire soon. She will still remain active in some work capacity, but she is ready to put her prime earning years behind her and start focusing on her creative endeavors.
So, she’d like to create passive income of about $5,000 per month that will cover a good portion of her family’s current living expenses, which would give her the freedom to quit her job. Finding investments that will provide steady cash flow now would replace her income and allow her to retire.
If Sarah requires $60,000 per year ($5,000 per month), she would need to invest roughly $750,000 if expected returns are in the 8% range.
$750,000 invested x 8% cash flow returns = $60,000 in passive income per year
With this knowledge and her understanding of what she needs to get there, Sarah should focus primarily on cash flow. That means that she should try to locate investments with that return in mind.
Investment Goal Example #2: Investing for Appreciation
Mark has no children and is single. Mark has regular steady cash flow and is not interested in retiring from his full-time job, but instead would like to concentrate on gaining appreciation through his real estate investing to capitalize on receiving large sums of capital as the assets go full cycle and are sold.
He has witnessed the huge appreciation upswings in his real estate market and he really likes the concept of investing in coastal gateway markets like San Francisco, L.A. and New York City. He understands that this play may take longer to see the appreciation he’s looking for and he is aware of the risks involved, but because he has a favorable cash flow situation currently, he is fine to wait for his payout at a later date in anticipation that the wait will be worth it.
Even if Mark’s investment doesn’t make the exact return he’s hoping for, he’s okay with that because he’s looking for a higher risk, higher reward type investment.
Most investment advisors will tell you to never invest for appreciation, and we never do, personally here at PCRP Group. However, going back to the goals that we talked about earlier, some investors have a high-risk tolerance, and therefore will be perfectly comfortable with a riskier investment profile.
In this example, Mark is seeking value-add deals in highly desirable, appreciating markets so that his opportunity for higher returns is much more likely. He has weighed the pros and cons of the investment strategy, and he knows that sometimes you win, and sometimes you lose, but he’s okay either way because of his high tolerance for risk and his objectives.
Investment Goal #3: The Hybrid: Investing for Both Appreciation and Cash Flow
If neither of these investment goals resonates with you, then you may like a hybrid model of investing utilizing both an appreciation and a cash flow strategy to your investment decisions for your desired outcome. This is typically what most people feel comfortable doing – combining the opportunity for appreciation AND cash flow.
One of the best scenarios for investing (for most people) is having steady passive income through cash flow from the real estate syndication during the hold-term of the investment where there is a strong likelihood that there will be some form of appreciation during the anticipated 5-7 year hold term.
So, because you as a passive investor get to share in the profits once the property is sold, this can be a nice windfall of capital that adds nicely to the capital that you have been receiving steadily in the form of cash flow distributions monthly or quarterly.
This hybrid model can be the best of both worlds – receiving cash flow to cover day-to-day expenses while having a lump sum distributed to you at the end of the project cycle.
These hybrid scenarios are exactly the type of opportunities we seek for ourselves and for our investors. The hybrid model is our sweet spot, and we love being able to bring these deals to our investors.
The Importance Of Knowing Your Goals
The investment summaries for these real estate deals are intentionally put together to entice and attract investors with glossy marketing pages and beautiful pictures of the property and a laundry list of desirable amenities. Because of this, however, it is really important that you are steadfast in understanding your goals and that you are always asking yourself “Will this investment move me closer to my goal?” And if the answer is yes, then it’s time to dig in, ask lots of questions and do your homework to make sure that this is the right investment for you.
When you are presented with a slick, glossy marketing brochure for a deal, you will be able to move right past that and get to the nitty-gritty numbers, commit to investing in the deal if it looks good not second-guess yourself.
Goals + Due Diligence + Commitment = Success.
Now, let’s get you committing to your goals, and we’ll help you Earn Passively & Live Abundantly! Until next time…
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!