Mid-year is a great time for a checkpoint on how your real estate investments are performing. There are a number of key areas to consider as you evaluate the performance of your real estate portfolio. However, the common issue we see with clients is they don’t take a step back to build a 1 year, 5 year, 10 year or even longer plan for their real estate investments.
The following are some key considerations to consider as you plan your real estate investment strategy:
- Personal Living Situation – Your primary residence is a great source for capital under the right circumstances and a vehicle to create wealth. However, you might be in a stage of life where you are looking to buy a bigger home, relocate for work, or downsize as an empty nester. Your personal circumstances and plan to stay in your current home is a critical consideration in your planning strategy.
- Your Personal or Family Dependents and Income– Whether you are solo, with a partner, or sandwiched between parents and dependents this will vastly impact how much cash you need on a monthly, annual, or future basis. You will want to also factor in your stage of life and current income situation to ensure that real estate investments you make allow you to still meet your personal objectives.
- Need for Housing – Building upon the points above, you might want more housing (units) for your retirement such as a vacation home or perhaps you’d like to assist your dependents or family with getting into the housing market. The need for actual units of housing versus real estate investment exposure is a key consideration in your strategy.
- Tax and Estate Planning – There are numerous considerations here based on whether your income is derived from employment or a corporation and even if you are still earning active income. Similarly, your real estate investment strategy needs to fit into a broader estate plan and Will to ensure your assets are protected for generations to come.
- Cash Flow versus Capital Appreciation – Real estate investments can earn capital appreciation (increase in value) or payout cash flow to investors such as the income after paying off all expenses and debt payments. All things being equal, investments with higher capital appreciation potential have higher risk and may not provide cash flow to investors in the immediate term. Conversely, you could invest in a real estate asset that produces steady cash to investors which is sometimes called the “coupon clipper” strategy.
- Personal Ambitions versus Appetite for Risk – Everyone has a different appetite for risk, investment horizon, and their own personal ambitions. In terms of personal ambitions some investors prefer directly owning real estate investments and being able to know they own say 100 units while being comfortable with the debt leverage involved. Other investors are fine with passively investing in real estate and are more focused on the overall return versus how many units they might own.
- Portfolio Diversification – As part of your overall investment portfolio every investor will have their own comfort level for how much concentration they’d like in real estate versus other asset classes. Even if a real estate allocation is decided upon investors will vary with where they would like to deploy this capital and in which types of real estate assets.
At Finalyze Real Estate CFO Services, we work with our clients to help them build a real estate investment strategy that factors in your tax situation and benchmarked investment targets. We provide ongoing reporting and active asset management to help you stay on track towards meeting your real estate investment goals. Reach out today at Info@FinalyzeCFO.com or www.FinalyzeCFO.com to find out how we can help you reach your real estate investment goals.