I’ve had conversations with several investors recently, most being folks who are newer to investing in real estate and/or syndications.
And while each person is different, common themes and patterns emerge.
One theme that has surprised me is how few people have a written investment plan or defined investment goals or objectives. A lot of them seem to be shooting from the hip, investing in whatever sounds most interesting, has the prettiest pictures, or has the highest return projections on the pitch deck.
This (lack of) strategy is a recipe for disaster.
I anecdotally heard of an investor who put $100K into a development deal solely because of the projected 20%+ annualized returns. They assumed a check for $20K+ would show up each year.
After a year went by with no checks, they emailed the sponsor asking where their cashflow distributions were. The sponsor explained to the investor that in development projects, the majority of projected returns occur at the end of the deal (5+ years) and there’s very little cashflow in the meantime.
And it was at that exact moment the investor realized that what mattered most to them in their investments: consistent cash flow.
In other words, the development deal was a complete mismatch for the investor. It wasn’t a bad deal; it just didn’t align with their investment goals, which they had never taken the time to think through.
So if you’ve never paused and defined (and written down!) what you’re trying to achieve through investing, now is a great time to ask yourself a few questions.
Are you:
Looking for passive income?
Seeking to reduce your tax bill?
Trying to grow your wealth substantially?
Wanting to insulate yourself from inflation?
Trying to preserve the wealth you’ve built to leave a legacy?
A lot of people answer “yes” to all, myself included. That’s fine. But the next step is where the magic happens: force-rank them, most important to least important.
You now have the beginnings of a “buy box.”
Is passive income at the top of your list? Great. Now you can give a quick “no” to deals you see that don’t include a cash flow component.
Is wealth preservation at the top? Awesome. You should probably ignore that super-speculative alt-coin crypto fund your cousin told you about.
To summarize with an analogy: investing without defined objectives is like getting in your car and driving in a random direction. It might be fun for a while, and you might see some interesting things.
But you’re unlikely to ever end up in a place you actually want to be.