Personal Finance 002: Importance of Goal Setting - 2019 Edition

Hello BiggerCashFlow subscribers! 2019 is just around the corner, and I figured, what better time to reflect on 2018 and set new goals for 2019? Soren Kierkegaard, a Danish philosopher once said, "Life can only be understood backwards; but it must be lived forwards."

I personally remind myself of this quote during the turn of a new year. As much as it is important to take action and pushing forward, its equally important to take a moment to pause, look back and smell the roses before you depart again towards your goal. By taking a moment to reflect, you can understand the journey that you took, some of the difficulties or roadblocks you may have encountered, and learn from those mistakes and pivot.

Once you have completed reflecting on your year, be sure to also celebrate your wins with your loved ones and also give yourself credit for progress made. Life, I believe, is more about the journey than the destination, and becoming the best you that you can be. Now lets take a look at how we can set our goals for 2019, and I will share some of my goals and how I plan to accomplish them.

Setting SMART goals:

If you have read some of my blog posts, you will notice I like to use acronyms to remember key details. One in particular I have used since grade school is setting SMART goals. SMART stands for:

SMART goal examples:

Example Goal #1: Plan and execute five real estate webinars this year with 100-plus attendees per event and 80% or higher satisfactory survey response.

This example is specific (five real estate webinars), measurable (number of attendees and satisfaction rate), attainable (the resources are available, requires your time), relevant (useful for scaling your business and promoting your brand) and time-based (within this year).

Example Goal #2: I will receive a promotion at my W-2 job within one year by achieving a 80% realization against my budgeted hours on my projects and receiving a strong rating for two consecutive review periods.

This example is specific (receive a promotion), measurable (strong rating and 80% realization), attainable (goals and promotion timeline has been discussed with supervisor), relevant (promotion at current job) and time-based (within this year).

Example Goal #3: I will pay off $10,000 of unsecured debt in 2 years by applying at least $500 a month towards the debt principal by reducing my discretionary expenses (clothing, restaurants, entertainment). 

This example is specific (pay off debt), measurable ($500 monthly payments towards reduction of debt), attainable (reducing discretionary expenses), relevant (saving for a rainy day/investment for future) and time-based (within two years).

Step 1: Write down your 2019 goals and objectives

The important thing about taking time to actually write down your goals is that you are more likely to retain that information in your memory. Also, it gives you another chance to remind yourself of "why" you do the things that you do in both business and your personal life.  Goals can be financial/career, spiritual, health-related, relationships, and educational related to name a few.

Step 2: Create a plan of attack

Once you have written down your goals, you have to create a game plan to meet those objectives. This step should be rather simple as you have thought about this while writing the "M" (Measurable) portion of your SMART goal. If you want to stay motivated, you can create small milestones that will give you the added confidence to reach the next level and so forth (snowball method). Break your measurement into smaller pieces (e.g. by project or task) so that it does not seem too arduous

For example, if your goal is to start a real estate podcast with 1000 listeners, you might want to break it into 10 actionable steps:

1. Think of a podcast theme and name

2. Research podcast format via online searches and listening to other podcasts

3. Purchase equipment needed to perform the task

4. Prepare scripts or outlines for 10 episodes

5. Create a guest list, each with a unique topic

6. Create intro and outro music and graphic design 

7. Record and edit your first episode

8. Launch onto iTunes, Stitcher, and Youtube

9. Create a social media presence (Youtube, Instagram, Facebook)

10. Post relevant content every other day to drum up interest for the next episode

Step 3: Track your progress

After you have clearly written down your goals and created a plan of attack, make sure you don't "set it and forget it." You want to track your progress and be accountable for your actions (or inaction). Things are bound to change all the time, whether it be personal, professional, or spiritual. Meaning that when life throws a curve ball, you want to be ready to pivot in the right direction.

For example, you may have wrote a goal to purchase a new turnkey rental property by the end of the year through a promotion and bonus that was expected in March 2019. However, lets say your company failed to meet their targets and you don't get the promotion and bonus. This may have been outside your control. As such, you will have to re-evaluate your circumstances and adjust to see what areas you can control to meet your goal of purchasing a new turnkey rental. If you leave things on autopilot too soon, you may find yourself brushing off your missed goal and blaming it simply on external circumstances. Don't do this, take control of your life and be in the driver's seat.

Remember that the smallest steps in the right direction is more important than sprinting in the wrong direction. It will take you even more time to reverse course and come back to the starting point. We all have our "down days" and tracking your progress timely can lead you to achieving the goals and resolutions you set this year.

In 2018, I took the #2018GrahamStephanGoalChallenge (video below) and found that it really pushed me to keep track of my goals and strive towards the best ME I can be:

Financial Goals:

• Buy 3 rental properties by the end of 2018, net cash flowing atleast $200/unit after all expenses and reserves (I am leveraging 20% down)

  • Ended up buying 8 rental properties across KC, Indy, and Little Rock by myself and 2 more with a partner for a total of 11 units! 

• Start a Personal Finance Blog and write 1 good content blog a week (aim: get 1,000 unique visitors/day)

  • Created www.biggercashflow.com to share my journey on personal finance, investing, and real estate.

• Get promoted to Manager by Dec 2018 or achieve 15% raise + bonus

  • Did not diligently track my progress and this ended up being pushed out to June 2019 . However, overall cashflow on my personal P&L increased by 20% due to my rental properties. 

• - Long term 2019: Have 5-6 rental properties and be a guest on Graham's Vlog 🙂

  • Currently have 8 personal rental properties and 2 with a partner

Non monetary:

• Start and complete a full p90x 

  • Did not start - starting January 2019! #HealthisWealth

• Read 3 books a month

  • Read about 20 books on finance, real estate and mindset (more blog posts to come)

• Achieve the CIA certification

  • Passed 2 parts (out of 3), taking last part in January 2019

• Have a kid (Bo Jr.)

  • In the works 😉
    

Here are my updated goals for 2019: 

Financial Goals:

• Increase monthly passive cash flow to $5,000/month

• Get promoted to Manager by June 2019 and achieve a 20% raise.

• Increase net worth by $150,000 through smart investments and savings.

Non monetary:

• Exercise consistently (p90x or other HIIT workout) atleast 3 times a week for a minimum of 20 minutes

• Continue to read 3 books a month

• Start a "BiggerCashFlow" Podcast and release 1 episode a week

• Post 1 blog post a week (personal finance, investing, and real estate)

• Attend 1 investor meetup a month or connect with an investor via Mastermind Groups/Forums

• Achieve the CIA certification by June 2019

• Have a kid (Bo Jr.)

Remember to think BIG and 10x your goals. The higher the aim, and the more action you take, the more likely you are to reach your target. I hope this helped you to reflect on the past year and set goals with a burning desire to achieve them in 2019. Please share your goals in the comments below and let me know how I can help you!

Real Estate 020: Purchasing Rentals All Cash vs Financing

One of the greatest advantages of investing in real estate is the ability use leverage, in other words, other people's money (e.g. bank, private investors, credit unions, etc.) to build your portfolio. When asking yourself the question of paying all cash vs financing a rental property, you have to consider the return on investment (ROI) and the risk involved in deploying your hard earned cash. Lets take a deeper look into the pros and cons into the two different strategies below:

Assuming that you have a lead on a $100,000 property, paying all cash for this deal may initially cost less as there are no financing fees (points), interest charges, appraisals, and additional closing costs. However, by deploying all $100,000 into one deal, you are essentially placing all of your eggs in one basket (e.g. one market, one home, one tenant, one rehab). When performing a "stress test" or "what could go wrong" analysis, you may be opening yourself up to potentially massive losses in this one deal. On the other hand, if you leverage your cash and purchase 4 financed properties ($20,000 downpayment + $5,000 closing costs), you will be spreading your risk across 4 different properties. Assuming both financed and all cash deals are expected to produce a 20% return, the financed option provides $60,000 more profit that the all cash method.

This analysis isn’t as black as white as stated above, as we all know quality beats quantity when it comes to investments. By purchasing 4 properties instead of 1, you may also be purchasing a handful of properties that are below your standards or have increased risks due to the volume of activity (e.g. multiple rehabs, tenants, property managers, and markets). Having one project may allow you to give more careful attention to the project and leave less room for error. Of course, this is also dependent on the strength of your team and the speed and timing of the market when you decide to scale. After analyzing the cash flow, deducting the debt service and other fees/costs involved in purchasing the home, you will note that your cash on cash return will be higher than the cap rate, as you are utilizing other people's money to purchase a bigger piece of the pie. 

There are also other hybrid ways to reduce risk when determining how to finance your rental properties:

1. Using short term loans to use the Delayed Financing Exception (DFE). The DFE is a Fannie Mae product where investors are allowed to purchase a home all cash and cash-out refinance their home within 180 days of first taking title on the property. The cash out portion is limited to the lower of the purchase price and closing costs of the new loan or 75% of the after repair value (ARV). This strategy may allow an investor to purchase a home off market at a deep discount all cash, and with a little bit of cosmetic upgrades command a higher appraisal value and cash out refinance before the tradition 6 months seasoning requirement for a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy. In this strategy, you increase your ROI by using leverage, but also decrease risk as you have less money in the deal through forced appreciation. 

For example: An investor purchases a rental property all cash for $50,000 that needs about $3-5,000 in paint, carpet, and finishings. The home is expected to appraise for $65-70,000 and cash flow $300/month after obtaining a mortgage. The investor is able to purchase this home at nearly 70% of ARV as it is an off-market deal from a motivated seller that does not want to invest the time or money to make upgrades and sell for a higher profit. After the cash closing, the investor is all in at $57,000 (purchase, light rehab, closing costs), and requests a DFE cash out refi 1 month after closing. The property appraises at $70,000 which means the investor is able to take a loan of $52,500 (lower of purchase price and closing cost of new loan vs 75% of ARV). As the investor recoups $52,500 of her initial $57,000 investment, she now only has $4,500 into a property that cash flows $300/month and her return on investment is 45%. 

Note: These numbers are taken from an actual deal of mine where I purchased an off-market deal through my property manager's contact from a retiring out of state investor. These types of deals are not easy to find, but if you do, will produce high yield, so network with people in your REI meetup groups, facebook, real estate forums, and let your brokers/property managers know you have cash to purchase. If they have a good experience working with you, they will be more likely to send you warm leads. Please remember that there are nuances with the DFE and specific requirements, so consult with your lender before deciding to pursue this strategy.

1. Snowball debt strategy. This is a method that is covered by Chad Carson in his book "Retire Early with Real Estate." By creating passive income through rental properties you are able to take the cash flow and start tackling the smallest amount of debt or debt with highest interest. This is the same strategy financial experts such as Dave Ramsey preaches when teaching his students how to eliminate consumer debt. 

For example: An investor has a $52,500 loan on a rental property (example above), that provides $300/month in cash flow after all expenses and debt service. Instead of using the cash flow for other expenses, the investor decides to re-invest that money into the same property to reduce the principal amount of debt and save on the overall interest. (Note: some investors may want to only do this when deciding to de-leverage their portfolio or when they cannot find a good investment during a downturn in the market. If you have a 30 year fixed interest at 5%, by chipping away at the loan, you will be slowly giving yourself back a chance to keep the 5% interest that would have gone to the financial institution). Now if you continue to do this over time, as well as start bringing the excess cash flow from your W-2, business, and/or other rental properties, the velocity of this money will be much quickly and you will have multiple paid off properties that are less impacted by market risk.

In summary, when personally looking at using cash or leverage to buy properties, financing investment properties appear to be less risky than paying all cash. Financing puts more risk on the lender (assuming 80% LTV) than the investor, since the lending institution picks up the higher loan to value portion of the deal. By using leverage, you would gain essential investor experience in working with a financial lender, and have them as a second pair of eyes on underwriting the strength of your deal. While working with a lender may require more paperwork and time commitment, there are significant rewards as you continue to gain experience and pick up additional rentals.

As always, please make sure you do your due diligence and talk to your CPA/Attorney/Financial Adviser before making any investment decision.

Good luck!

Book Review 007: Millionaire Booklet - Grant Cardone

The Millionaire Booklet

One of the first books I read by Grant Cardone, was the Millionaire Booklet - a short guide on how to become super rich. In this book, Grant attempts to simplify the process of becoming a Millionaire and super rich. He is a 100% certain that there are actionable steps that an individual can take to make this happen, regardless of the current economic condition, where we live, or what we do. 

Below is a summary of Grant's story and tips for becoming a Millionaire:

Ever since he was young, Grant made a commitment to creating wealth for himself and family for generations. Although he made this commitment at sixteen, he was broke at the age of twenty-five. In order to pursue his goal of becoming a Millionaire, he began to study the principles of wealth creation and applied what worked for him and did not. Through trial and error, he increased his savings to $10,000 and then to $100,000. He became a Millionaire in his early thirties and built over five companies that produce over $100 million in sales in each year.

Where do you get your financial advice?

Grant first debunks the myth that becoming a Millionaire is not a pie in the sky dream, and that the wealthy come from all walks of life, and that the reason most people never get rich is that they never even consider it a possibility. As these people are convinced by those close to them to simply be satisfied with whatever their financial situation is.

In addition, people fundamentally do not know how to get money, fewer understand how to keep it, and almost no one knows how to multiply it. He goes on to say that, even in one of the richest countries in the world, America, 76 percent of people live paycheck to paycheck, some 50 percent of Americans have no money for retirement, and 47 percent of Americans don’t have $400 for an emergency. He disagrees with the thought of saving your way to wealth like “don’t drink Starbucks coffee, and you will save $700 a year.” Per Grant, “you can save $700 a year for the next fifty years and you won’t be rich, you’ll just be old.”

The issue that many people face is where we get our financial advice. Most of the advice we get about money is from people close to us who either don’t have money or have given up on it. Some of the people we get advice from have never even thought financial freedom possible. Grant tells us to look beyond the noise and confusion about money and look at people who have created enormous amounts of wealth. These are the people we need to study and model our financial journey

Be on offense

Getting rich is mostly a game of offense, not defense like other people may have taught. You get wealthy by creating income producing assets and increasing cash flow not by cutting coupons and saving. Taking risks today is the way to eliminate risk, but you have to take risks at the right time. The middle-class is for those who settle for just enough rather than striving for prosperity. The middle-class life is a compromise. Grant goes onto say that when we compromise our finances, we become unable to help others, as we are struggling to simply take care of ourselves.

In his book, Grant shares that the first step to becoming a millionaire is to make a decision and that requires us to lose our middle-class mind and then get our millionaire mindset. It has never been easier to get rich, but it is still impossible if we don’t change our mind. For example, most people will produce or be in contact with a million dollars in their lifetime. Meaning, if we earn $50,000 a year for twenty years, we earn one million dollars. The purpose of doing this math is to simplify the objective. “Do the math to create possibility, then create strategy.”

Below are a few ways to a million dollars:

Salary $50k x 20 years

Salary $100k x 10 years

Salary $250k x 4 years

5,000 people buy a $200 product

10,000 people buy a $100 product

1,000 people buy a $1000 product

Stay Broke

When you start increasing your income, Grant tells us to stay broke. He has a policy to never, ever have money sitting around. Once he starts increasing income, he immediately moves the surpluses to sacred accounts that are out of his reach and marked for future investments. The real benefit of this strategy was it forced him to continue to produce and out-work his earlier results. There were months when he was making more money than he has ever made and he would push the entire surplus into his sacred accounts. When he did this, Grant couldn’t pay his rent even though he was making more money than he's ever made. He was forced to negotiate with his landlord for an extension on his rent. 

This state of staying broke forced him to continue producing new revenue. As Grant saw first hand so many people have financial success, then quit doing what created their success and then go backward financially. Staying broke forced him to keep reinforcing the actions that had already proven successful. Grant's formula for success is as follows: Idea + Hard Work x Time + Discipline = Success

Save to Invest, Don’t Save to Save

Investing money is how you will get super rich. He shares how he believes the only reason to save money is to one day invest money. Most people aren’t equipped to take advantage of opportunities because they don’t have the money, they don’t have the knowledge or the courage. People don’t create wealth because they never invest enough in a deal to get a big payoff. To do this, one must have a surplus of cash and confidence. When you know it’s the right thing, he advises that we go all in, as speed is power. 

We must have complete confidence in the investment and in our previous income flows so that, if the investment takes longer to work or even fails, we still can rely on our earlier flows of income. Grant is willing to go broke and exhaust all his cash knowing he is not putting his family or those who depend on him at risk because the earlier income flows can support him. 

The poor and middle class try to replace flows of money while the rich try to supplement (add) more flows. Grant explains that creating multiple flows of income is the holy grail of creating financial freedom and true wealth. The most common mistake he sees people make when creating multiple flows of income is walking away from the current flow. The next most common mistake is moving to secondary flows that are not similar to the first and then being unable to give both proper attention.

When creating your second flow of income, Grant advises us to monitor our current flow and never abandon the first flow. For instance, if you work at a company and earn a salary, keep improving on what you do for that company and look for ways to create a second flow parallel to what you are currently doing. Do it within the company you work for during the time you are at work. To create multiple streams of income requires commitment and especially discipline in how you use your time and money.

Repeat, Reinforce and Hyperfocus

Maintain a commitment to self-improvement even though it may mean that you need to change your environment (e.g. friends and family). This doesn’t mean we need to get rid of people, but it means you need to add new people. The old friends will just fall off as they will lose interest. If you want to make it into the club of wealth, you must add new connections and that means you need to reach up, not sideways and not down. Remember that you are the average of the five people you spend the most time with.

To add new people to your circle, make a list of people in your network that are super successful, on the move, who are interested in personal growth, active in charities, who invest time to improve the quality of their lives, and are not just complaining all the time. These are the people you should surround yourself with.

Favorite Quote: “Money seems to flow to those who give it the most attention and take the most responsibility for it.”

Good Luck!

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The Millionaire Booklet