GOALS FOR A NEW BUSINESS, FOR A NEW YEAR

It’s the start of a new year and, traditionally, time to start thinking about goals, but let’s not call them New Year’s Resolutions. Over 90% of all resolutions are never kept. Ever notice how it seems like all the gyms are advertising heavily in January and February? That’s because this is their busiest time of the year and the best time for recruiting. Most gym memberships are sold in January and February. By April or May most of those members have stopped going to the gym. They’ll keep the membership, thinking ‘I’m just on a break, I’ll get back in the gym later’. Of course, most never do get back. Part of the reason most resolutions are broken has to do with the way people set their goals. “I want to get into better shape”, or “I want to lose weight”. As for me, I’d just like to bend over and touch my toes without every vertebra in my back cracking. When I tie my shoes, it sounds like I’m making popcorn. If you go to the gym on January 2^nd and do a full workout, I’d wager you are in better shape then you were on January 1^st. Probably a lot sorer, as well. Don’t do a full workout your first day back in the gym. I’m an ex-gym rat so I know a little bit about the subject. You probably lost a few pounds as well. Did you achieve your New Year’s resolution? Well, yes, but probably not to the extent that you wanted. When setting goals, you need to give yourself quantifiable objectives. Instead of, I want to get into better shape, how about, “I want to run a mile without stopping to catch my breath”? Or, “I want to run a mile in under 10 minutes”! Or, “I want to bench press my own weight”! Those are goals you can measure, goals where you can actually see progress. If your goal is to lose 40 pounds and you lose 20 pounds you know you are making progress. Also, if you suddenly put 5 pounds back on, it tells you that you need to tweak your regimen. It is the same for setting goals in your business. Perhaps even more so.

When planning your business, you should have both short-term and long-term goals. Put them in writing. Don’t wait until January 1^st to establish those goals either. Write them down the day you start the business. Sometime in January or February, before the tax season, is a good time to review those goals, especially the short-term goals. Depending on how ambitious you are, you may want to review those goals again right after the summer. That way you can see how far you have come and start thinking about your goals for the coming year, as well as do some tax planning. You also need to be flexible with your goals, especially the long-term ones. Market conditions change quickly, as we have seen recently. You want to be able to react to those changes.

Here is a good example of goal setting. My partner, Kevin Oliver, and I did our first deal together in 2015. It was a triplex, and while it was in escrow, we formed an LLC so that when escrow closed in November, we were able to immediately place the property under that corporate umbrella. Then we sat down and said, OK, what’s next? We decided on a 10-year plan. At the end of those 10 years, we wanted to own 10 rental properties. Not doors, but properties. There is a difference. For example, the triplex we had just purchased represented three doors. We figured a combination of multi-family and single-family homes. Your short-term goals should work to help you accomplish your long-term goals. One of our short-term goals was to pick up one new property a year for the first five years. After that, assuming a solid positive cash flow, we could up the stakes and maybe pick up two properties a year. That would actually give us 15 properties at the end of our 10-year window so 10 properties in 10 years seemed fairly conservative we thought. In the spring of the following year, we picked up a manufactured home in Bodfish. In early 2017 we picked up a duplex. Later that same year, we picked up a single-family residential property. In 2019 we picked up another single-family. And in January of 2020 we closed escrow on another single-family residence, our sixth property in a little over four years, which put us well ahead of schedule. During that time, we also picked up a property, rented it out for eighteen months because we couldn’t get the price we wanted, and eventually sold it for a profit. And we also partnered with another investor to do a flip that showed a profit of just under $50,000. During those four years we also made it a habit to get together the first Saturday or Sunday of every month and review the properties. Were the rents being paid on time? What unexpected expenses came up? What did the properties need in the way of improvements or upgrades? All the little day-to-day decisions that need to be made while managing any property. It was here that we decided to turn the first single-family residential property we had picked up into a group home. While there is a bit more wear and tear on group homes, we were able to charge 10% to 20% more in rents. We were selective as well. The people we are providing housing for are guys that are coming out of rehab and trying to get back on their feet. We also provide housing for gentlemen with learning disorders such as OCD or ADD. These guys just needed a place to stay with supervision to help them with meals and paying their bills and such. The money for rent comes from the County Mental Health Department. This proved to be particularly foresighted when COVID hit as we were still guaranteed rent money on the group homes. I said homes because the residential properties we picked up in 2019 and 2020 were decided to be group homes from the very beginning.

I mentioned being flexible in your goals. When we started this in 2015, Kevin and I never envisioned anything like the COVID pandemic that hit in 2020. We were still looking for properties that year, but they were becoming more difficult to find. The market was changing. Then, two things happened in 2021 that really changed our focus. First, there was the huge run up in housing prices. Suddenly, we had a lot of equity. Secondly, I had decided to retire from my job as a machinist at the end of 2023. I wasn’t going to stop investing but I wanted to invest in a different way. I also wanted to take some time away from everything to do some traveling for a year or two. Kevin and I had been partners for a little over five years and, while we are still good friends, I think the partnership had run its course. Kevin is a few years younger than I am and he has ideas of what he wants to do over the next 5 to 10 years and those ideas are different from mine. We decided to take advantage of the market and our changing situation, looking at it as an opportunity to sell off properties and cash in on the equity we had accumulated. We sold both of the multifamily homes and the last single family we had picked up (effectively making it more of a long-term flip) in 2021. The two group homes will probably go on the market later this year, leaving the manufactured home up in Bodfish. That will eventually be moved into my Mad Hatter LLC. So, our 10-year plan became a six-year plan. We have acquired a lot of debt along the way and have been paying that down with each subsequent property sale. With the sale of the group home we purchased in 2017, we will pay down all of our debt and have some cash on hand. That leaves the second group home and the manufactured home, both of which we own free and clear. With the sale of the last group home, we are looking at between $350,000 and $400,000 that we have accumulated over a 6 1/2-to-7-year period. Sure, we have made a few mistakes along the way. Looking back, we would have done some things differently. We might have been able to push that profit to $500,000 or possibly pick up a seventh property. In the end, though, I don’t think either of us is complaining.

That was just a real-life example of how you set goals and follow through on them. Remember to write them in pencil. If market conditions warrant it, then change your goals. If you are too rigid you may miss out on opportunities. It’s really all in the details. I think the smartest thing we did was to have those monthly get togethers to look at the properties. We saw our personal goals were starting to diverge and we recognized the market was changing, it was no longer a buyers’ market. Rather than panicking, we saw this great opportunity. It meant throwing our ten-year plan out the window and selling everything right now to take advantage of those changing market conditions. But hey, it ended up being a profitable partnership for both of us.

What are the goals you want to set for 2022? Maybe you want to do a flip. It’s a tough market to do that because the margins are tighter, but I know people that are still making money on flips, so it can be done. In this market driving for dollars is probably the most effective method. Anything on the MLS is going to go fast and at a premium, even fixers. You need to find the deals before they become common knowledge. So, a short-term goal may be to drive neighborhoods and knock on doors on Saturdays from 10:00 until 1:00. Another short-term goal may be to meet and establish a business relationship with at least three wholesalers. One way to do that is attend local real estate meetups. I’ve said it before. Many times people buy these expensive real estate training courses, then they take the attitude of sitting back and saying, make me some money. Folks, that’s just not the way it works. If you want to make money in real estate, you have to hustle.

Maybe you’ve been thinking about real estate, and this is the year you decided to take the plunge. It’s interesting. I attend a real estate meet up the second Tuesday of every month. I was at the meet up for January and I met several people that were, not only new to the meeting, but new to real estate investing. I had the feeling that this is something they’ve been thinking about and, because the market has been so strong, they decided it was time to step in and do something about it. Actually, a better time would have been a couple of years ago but, really, there is no bad time to invest in real estate. If you are one of these people that is just starting out you may want to set some goals, such as team building. Find a good real estate agent that knows investment properties. Get to know some wholesalers. Find someone to act as a mentor. Start attending real estate meet ups in your area. If your accountant doesn’t have a lot of experience in real estate, you may want to switch to an accountant that does. When you start investing, pick a title company and become friendly with them and use them whenever you can. Read my blog about hard money lenders and banks. You should read some books about real estate investing as well. I’ve mentioned these before but they’re worth mentioning again. ‘The Millionaire Real Estate Investor’ by Gary Keller. ‘Rich Dad Poor Dad’ by Robert T. Kiyoskai. ‘Who Moved My Cheese?’ by Spencer Johnson. ‘Think and Grow Rich’ by Napoleon Hill. I highly recommend getting life insurance, especially if you have a family. A good life insurance agent also offers financial planning. This is important for two reasons. First, if this is a side hustle and you are earning additional income from it, then a financial planner can help you direct a portion of it into some retirement vehicles. Second, if you go into this full time there are no pension plans, and you want to start (or continue if your job had a plan) setting aside some of the money for retirement. I honestly wish I had paid more attention the ‘old guys’ that were saying pretty much the exact same things back in the day. They would lecture us before every mammoth hunt.

I will share some goals that I have going forward in real estate. My long-term goals are for the next five years. Actually, a four-year goal would probably be more preferable, but I like to plan in increments of five. I’m just stubborn that way. I say four years because there will be a lot of change going on in my life during that period, especially in years three and four. Also, the 5^th year does become something of an extra year, should I need it. Key to this is I am planning on retiring from my regular job at the end of 2023. In 2025 the wife and I want to travel around the country in an RV for a year or two. These short-term goals are designed to help achieve the long-term goals.

• Move the Bodfish property into Mad Hatter investments.
• Look into selling the Bodfish property. As a manufactured home I will probably have to undertake seller financing on the property, which really works out best for me. I have run the numbers and if I carry a six-year term at 5% I’ll make about $800 a month. I can play with those numbers some, work with a larger or smaller down payment and adjust the monthly payment as well. I am willing to go up to seven years on the note and I would like to make a minimum of $700 a month. That monthly number can be influenced by the size of the down payment. I am willing to make much less than $700 a month if there is a comparably larger cash down payment. The deal has to make sense for both the seller and the buyer. I’d like to sell it this year but if not, working a deal in year two or even year three would be acceptable.
• Buy an RV. You really can’t travel around the country in an RV unless you own an RV. To that end, I actually traveled to Quartzsite, Arizona last weekend for one of the largest RV shows in the country.
• Sell both group homes in 2022. Then do a 1031 exchange and buy a rental property in Colorado. This is going to be tricky for a couple of reasons. First of all, I own the group homes with my partner, Kevin, in an LLC. Since he is not joining me in the 1031 exchange, it makes the exchange complicated. I have already discussed options with my accountant. Probably, the easiest way to approach this, is to sell the property in the LLC. Then we use Kevin’s half of the profits to buy him out of the partnership. I then own the LLC by myself and I’m free to do anything I want, including a 1031 exchange in Colorado. If you read my blog, “Now That’s the Way to Do It”, you know about my buddy, Lucas, in Colorado. The plan, as it stands, is to use the 1031 exchange to buy an Airbnb in the Colorado Springs area. During the summer months we would stay at the campground Lucas owns, in the RV, and act as a campground host. We could also keep an eye on the Airbnb from a distance. During the wintertime we would travel around the southern part of the country. After a couple of years, in 2026 or 2027 we would settle permanently in Colorado Springs and move into the Airbnb.
• Prepare to turn the Bakersfield house into a second Airbnb or a rental. We really don’t want to retire in California. it’s really a bad state for retirees. When we leave the state, we are probably leaving it for good. We do have a lot of equity in the California house, and it makes better sense to turn it into a rental or even Airbnb, if it cash flows. We can sell it down the road several years when it is worth even more and we have reduced the mortgage. But this is one of those you really have to put down in pencil. When the time comes it just may make more sense to sell the property and cash out.
• I am also looking at ways to monetize this blog. I really do enjoy writing it and I want to continue to provide information like this for free. But if I can make a few dollars through advertising links and such then so much the better.

I am going to be very flexible in these goals as there are a lot of factors at play. For instance, right now my retirement portfolio is not performing as well as I had hoped. Then again, it’s done very well the last few years and I became spoiled. If it’s not quite where I want it to be, I could end up working another year or possibly two. As a contingency, though, I have also looked into doing some consulting work. I could very well end up doing that even if I retire at the end of 2023. The great thing about that is, I can work out of the RV and out of the state. Also, Lucas has offered me the chance to be a campground manager at his campground. Obviously, he needs to do something for the next two or three years until I retire. So that position may not be available when I retire in 2023. If we have the Airbnb in Colorado and it is profitable, if we are able to rent out the Bakersfield house, if the house in Bodfish is earning monthly payments from an owner financed sale, if I can pick up a few dollars each month from my blog, then we would probably just spend the summers traveling in the northern and eastern parts of the country. As to investing in real estate, once I have those three properties set up the way I want them, I don’t plan on doing any additional investing. But I say that with a grain of salt. Lucas is very young and a very active investor. If we end up managing his campground, I will be spending a lot of time with Lucas. I could easily see myself doing some business if the right deal were to come along. So, I think it more prudent to say, I will probably not actively look for deals, but I will also be in a position where I will see a lot of deals coming my way. It’s nice to be in a position where I can pick and choose.

I hope this shows you the importance of goal setting. I cannot stress enough how important it is to have written goals in your business, whether it is real estate, blogging, or woodworking. Always be aware of where you are and where you want to be. Treat everything as a potential opportunity. Be serious about your business and commit to it. You can do that without spending a lot of money.