I was recently talking with a young real estate investor about his long term investing goals. He shared with me that his long term goal was to acquire residential rental properties that would generate him $4,000 per month in cash flow. He said that he was not concerned about long term appreciation or what his cash on cash return was. His main focus was on getting to the $4,000 per month cash flow goal he had set for himself.
That conversation reminded me of a lunch meeting I had this past summer with my friend John who is a very successful retired real estate investor. John started investing in residential rentals as a young high school teacher. He was looking for ways to make some additional income during his summers off and his father had suggested that he start investing in real estate. After purchasing a few single family rental homes John set the ambitious goal of accumulating one hundred rental units. Additionally John’s goal was to have those properties debt free by the time he retired. Over time John transitioned from his career as a high school teacher to owning his own small residential real estate company. John is now in his 70ies and enjoying a great retirement supported by his portfolio of debt free rental properties.
During our lunch John jokingly shared with me that he was very disappointed that he did not reach his investing goal of acquiring one hundred rental units. He said “shucks I only made it to 93 units”. When he retired a number of years ago John did a little house cleaning with his portfolio of properties and sold off what he called the “dogs and cats”. He narrowed his portfolio down to retaining 55 units that were in the best condition and best rental locations. With assistance from his son, John and his wife still manage their rental properties. This debt free slimmed down portfolio of rental properties provides John and his wife with a very nice retirement income. You can do the math. John’s units here in Spokane, Washington are mostly single family homes, duplexes and fourplexes. They probably rent for an average of around $1,000 month. So John’s portfolio probably brings in gross rents of around $55,000 a month! Even after deducting for operating expenses this leaves John and his wife a very nice retirement income!
John’s goal was simple but clear. Accumulate one hundred residential rental units and get his mortgages paid off. He was not concerned about cash flow in the short term or about how much the properties appreciated over time.
I had the good fortune of meeting a real estate investor who became one of my mentors when I was twenty years old. His name was Frank. Frank encouraged me to set some simple goals similar to what my friend John had done. A few years later I set the goal of investing in one property every year. My focus at the time was not on cash flow but on accumulation. I wanted to accumulate a portfolio of properties. Over time I expanded that goal to working toward a portfolio of properties that would be debt free by retirement. So the simple goal of investing in one property per year and working to get my mortgages paid off. That simple goal has served me well over the years.
No matter where you are in your real estate investing journey it is important to set some goals to work towards. With 2018 quickly approaching now is the time to set your goals for the coming year. What do you want to accomplish in 2018? Where do you want to be when you reach retirement like John? Now is the time to plan and begin executing your real estate investing goals for the future! I wish you the best in achieving your goals!
Jeff K Johnson SIOR CCIM is the author of the real estate investing book “Cash Flow Forever” which is available on Amazon.