Am I Successful? How do I know? When will I have ‘Made It’?
As investor both those investing for a year as well as those that have been investing long term have these questions.
Sure you are making enough to pay our bills and live your life, but are you successful or would you have been better off staying at the 9 to 5 job you left or are planning to leave?
Jeff Watson recently posted an article to his blog about the Three Numbers that Matter the Most and these are probably the factors you need to consider.
His Third One is probably one you need to look at first:
“How much time am I able to spend doing things with family and friends?”
Now if you are just starting out in real estate investing, you may not yet have that time. So be sure to factor into your goals more time to spend with family and friends.
However, if have been at this a while and you have to say no to everyone when they ask you to go do something, then you have not yet made it.
So figure out how to automate and outsource some of the things. Sure you could be out there painting your own houses, but would not a professional painter be faster, do a better job and get the house rented or sold for a better price in a shorter amount of time.
His first factor is a good “number’ to look at, you can tangibly see that you have more cash in the bank or more equity in your houses and notes.
“Has my net worth increased year after year?”
We see so many new investors who want to wholesale 1 house a month and make $5,000 on each. This is a worth while goal, however, what are the plans for that $5,000.
If it is just to live on and quit your job, then you will not be gaining anything.
If however the goal is to wholesale 4 houses and make $5,000 each. Then take that $20,000 to buy a cash flowing note that will generate $300 a month for the next 15 years and then go out and wholesale another 4 houses to do it again. Then you are building your net worth and possibly you could find a way to live off the cash flow from those notes once you have enough in your portfolio so that you have more time to do more than wholesale 1 house a month for $5,000 and maybe just maybe you can earn more than $5,000 on a wholesale and sock it away in the bank.
His second is the one that most investors overlook:
“What is my effective tax rate?”
This is where the advanced investors get to. They finally hit the mother load of a deal that pays off a lot of debt, but then they have to put 1/2 of it away to pay Uncle Sam his share.
However if you have the this number in your head from the beginning, you can think about doing some of these $5,000 wholesales and cash flowing notes (or other strategy with similar results) with in an IRA. Possibly if you do 12 wholesales a year to buy 4 cash flowing notes, you might do 4 of those wholesales and one of those notes in your IRA.
Remember there is no taxes on the profits made in your IRA until you draw them out in a traditional IRA and there is no taxes period for the most part in a Roth IRA.
So the advanced investor wakes up one day and says, let’s do as many deals as I can afford or possibly do in my Roth IRA. He or she just has to have other income from real estate or other sources in the mean time . . . until that magic day when they can start taking money out of the Roth IRA, then they can do almost all of their real estate business in their Roth and take it out tax free.
So the moral of this story, learn how to invest properly so you can make a profit now and acquire assets that will pay out huge profits over the long term. Do as many of them as you can possibly afford in your Roth IRA and reduce the taxes you have to pay now by shifting some of your income to your IRA and reduced the taxes you have to pay over all by doing these IRA deal in a Roth.
Note that we talked about wholesaling houses and buying a cash flowing note, these could be just about any other real estate strategy that you are good at that would net similar results.