Getting your head right – 4.Knowing your endgame

Now if you’re a regular listener to our show, Everyday Property Investing, then you will have heard us ‘banging on’ about your goals.  What are your goals, are you actions in line with your goals and so on.  We mention goals so often for a reasons – you need to have one!

Most people start investing without a goal or they have a very vague goal that they haven’t really thought through.

Me included.

When I started investing I had a ‘mantra’ of ’15 by 50′ which meant that I wanted to own 15 properties by the age of 50.  But really, what does that mean?  I needed to dig deeper than that and work out what was my ‘endgame’ and how I was going to get there.  What specific strategy did I plan to implement?  What were my 15 properties supposed to deliver?  Now, I’ve actually changed my goal as I have evolved as an investor, but you get the point.   You need to, in the very wise words of Steven Covey (7 Habits of Highly Effective People) ‘Begin with the end in mind’ – your exit strategy.

You first important step is to work out what you endgame is.  I’m going to assume for most people, what they are looking for from property investing is that they are looking to achieve ‘financial freedom’, meaning that they are no longer obliged to ‘work’ for money to sustain themselves and their family to live.  Financial freedom is having the choice to spend your time as you wish to spend it.

How much money do you need?

So the first question is to work out how much money you will need to reach that point of financial freedom – and this will be different for everyone.  How much money would you need to live on per year?  Now you can be as extravagant as you wish, but that will only mean that it will take you longer to get to that point.  So really think this through – if someone said to you that you no longer need to work for a living but you need to live on, say $50k per year, is this enough for you?  Maybe you loath going to work every day, so $50k would absolutely be enough for you to throw in the job you hate.  Or perhaps you like your job, so you’d be happy to keep working for another 5-10 years extra to give you a better retirement salary.

Let’s assume that you decide that $100k is a nice round number – because, well, it is a nice round number.  And one that I reckon I could live on!  So, to obtain $100k per year, you’d need at least on of the following:

  • $100k of passive income from rental properties – let’s say  roughly seven fully owned properties fetching approximately $300 per week (assuming approximately 7% management costs and 5% maintenance and expenses per annum).
  • $2 million dollars in the bank (assuming 5% interest).
  • A cash flow generating development project or renovate and flipping strategy that was yielding at least $100k per year

So work out what you magic number is.

How do you plan to obtain the money  from your properties?

The second question is then how will you use property to achieve this:

  • Is your plan to buy many properties and then sell them all to live off the interest of the profit you have made?
  • Is your plan to live off the passive rental income from your investment properties?
  • Is your plan to buy, renovate and sell properties to build up enough money to retire?
  • Is your plan to develop properties for profit or develop and keep them?

What is your timeframe for achieving financial freedom?

This is a big question because the type of investing and property transactions that you will be involved in to reach your target by your timeframe will need to be aligned with the timeframe in which you want to achieve your financial freedom.

If you realistically want to quit your job in 5 years time then your strategy and methods will be very different to someone who has 15 years to make it happen.  You need to think this through very carefully.  Getting there faster can mean using strategies and techniques that may have a higher risk that others.  This may or may not suit your risk tolerance and risk profile.

What I have found for myself is that I initially chose one particular method (positive cashflow buy and hold), but worked out during the course of my journey that this method was just not going to get me there fast enough!  I then decided to introduce other methods to ‘fast track’ my plan (renovation and development).

Determined yet flexible

You need to be determined and committed to your goal.  Committed enough to weather the tough bits and to keep striving to reach it.

You also need to be flexible enough to assess and revise your goal along the way.  We all change and evolve as investors and as people.  For me, in my earlier investment journey I was committed to building wealth, nowadays, as I have evolved as a person, my priorities have changed.  I would be happier with much less if it meant I could spend time with my family doing what I loved – so for me, achieving financial freedom and buying back my time as fast as possible is what is most important and so my ‘magic number’ is lower than when I initially set out on this adventure.

Short Term Goals

We’ve spoken mostly in this article about our long term goal.

But it’s hard to move forward and put your goal into action when you’re looking at this ‘helicopter view’ – you need to get down and dirty in the details.  This means working out the specifics of what you need to do next.

Once you’re happy with your big goal you’ll need to think about all the little steps you’ll need to take in between and to identify a set of short term goals to work on that will take you closer to your endgame.

I’ve covered this in great detail on this site previously, so I’ll refer you to this three part series for mapping out the steps you will take to reach your goal:

 

Trackbacks

  1. […] our last Everyday Property Foundations series post we talked about knowing your endgame. So I’m going to assume at this point that you’ve considered your overall goal – […]

  2. […] goals. This is one of the reasons I am into Jane’s teachings, she really makes sure that you’ve thought through your endgame and then gives you practical steps for implementing your […]

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