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Why It’s Critical To Know Your Goals Before Investing In Real Estate Syndications

12/27/2019

 
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​Take a moment to think about the process that you used to find the home you’re currently living
in.

You likely had a checklist that included a specific area, school district, commute, and the number of bedrooms you were looking for. If you were looking for a three-bedroom with plenty of green space in mind for your growing family, it’s very unlikely you would have settled for a one-bedroom high-rise condo, even with a great view.

Well, it’s the same type of situation when you’re investing in real estate. Before you even begin to consider potential investment opportunities, it’s imperative you know WHY you’re investing and WHAT you’re looking to get out of it.

Without clear goals, you’ll easily be swayed (or paralyzed) by beautiful photos and well-marketed opportunities that don’t actually align with your investing goals.

As we walk through these examples, see if one resonates with you. With clear goals in mind, you’ll know just what to do when the right investment opportunity comes along.

​Investing Goal Example #1: Investing for Cash Flow

David is a father of two who works a corporate engineering job full-time. While the income is great, the meetings, commute, and other daily hassles aren’t worth her time away from the kids.

So, he’d like to create passive income of about $2,000 per month that will fully cover his family’s current living expenses, which would give him the freedom to quit his job. Finding investments that will provide steady cash flow now would replace his income and allow him to be fully present with his children.

If David requires $24,000 per year ($2,000 per month), he would need to invest roughly $300,000 if expected returns are in the 8% range.

$300,000 invested x 8% cash flow returns = $24,000 in passive income per year

With this knowledge and these numbers in mind, David should focus on cash flow first and foremost. That means that any investments with lower projected cash flow returns should automatically be discarded, and any opportunities reflecting 8% or higher should really get his attention.

​Investing Goal Example #2: Investing for Appreciation

Jesse, meanwhile, is single with no children, has excellent cash flow, isn’t necessarily interested in quitting his full-time job, and is more interested in potential appreciation.

He’s seen how property values have experienced huge upswings, and he loves the idea of investing in large coastal cities like New York and San Francisco. He’s aware of the higher risk and the longer amount of time he’ll have to wait until payout, but he’s okay with that since his current cash flow situation is strong.

Even if his investment doesn’t appreciate as much as expected, that’s alright with him. He’s more interested in the “chance” that it might.

Common investment advice is that these types of investments are riskier and that you should always invest for cash flow. However, there are investors with a higher risk tolerance who will voluntarily take on the risk for the possibility of appreciation.

In this case, Jesse is aware of the pros and cons, knows that there are winners and losers in this game, and looks for value-add deals in appreciating markets to increase his chance for high returns.

The Hybrid: Investing for Cash Flow AND Appreciation

If you didn’t really feel comfortable in either Katie’s or Jesse’s shoes, that’s okay! That just means you’re among the majority and that you’d like a mix of cash flow AND appreciation.

Hybrid investments that provide some cash flow throughout the project in addition to the potential for appreciation do exist! Don’t be afraid to seek that sweet spot - where you get ongoing cash flow to cover living expenses, plus the potential for appreciation later on in the project.

Know Your Goals

The investment summaries for real estate syndication opportunities are purposely made to attract your attention with pretty colors and beautiful photos, which is exactly why it’s important to know your purpose for investing in the first place.

When a deal does come along that aligns with your goals, you’ll be able to confidently flip past the gorgeous pictures, focus on the numbers, and pounce quickly, without second-guessing yourself.

Comments are closed.

    Justin Grimes

    Ally in generational wealth creation & protection.
    Proud husband & father.

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Timbermoss Capital does not make investment recommendations, and no communication through this website or in any other medium should be construed as such. Investment opportunities posted on this website are "private placements" of securities that are not publicly traded, are subject to holding period requirements, and are intended for investors who do not need a liquid investment. Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Timbermoss Capital and may lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment. Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. Any investment information contained herein has been secured from sources that Timbermoss Capital believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor. Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed on this website, and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.
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