As the year draws to a close, you’re likely to reflect. (And if not, you probably should!)
This is when most people, investors especially, get their ducks in a row and goals aligned for the coming year. Whether you reevaluate your goals and strategies yearly or quarterly, it’s invaluable to building lasting wealth. Passive real estate investors should regularly assess their goals to ensure alignment with their long-term objectives and market realities.
But how do you know things need to change? Here are the primary indicators to consider:
6 Signs Your Investment Goals Need Adjusting
Reason #1 – Changes in Personal Circumstances
- Income or Expenses: A significant shift in income or unexpected expenses requires revisiting your investment timeline or risk tolerance. Your ultimate goals may remain the same, but expectations and dates will need shuffling.
- Life Events: Marriage, children, retirement, or other life changes could impact your financial goals. You may need a new “fund” or trust to accommodate. The purpose behind owning properties in the first place may change!
- Health: Health-related factors can shift your focus from long-term growth to cash flow. Consider your immediate needs and likely projections.
Reason #2 – Underperformance of Current Investments
- Cash Flow Decline: If your properties generate lower-than-expected returns, you may need to reassess your portfolio. A bump in cash flow isn’t necessarily a reason to sell, but you’ll want to investigate to see what adjustments need to be made.
- Appreciation Stagnation: Is property appreciation on track? If property values aren’t moving enough in the right direction, switch gears and focus on portfolio diversification into different markets.
- Missing Benchmarks: If your investments consistently fall short of specific benchmarks (such as annual cash-on-cash return or cap rate), reconsider your strategy or targets. Always look for the root cause behind these outcomes before you make sweeping changes.
Reason #3 – Market Conditions
- Economic Changes: Sometimes, we need adjustments not due to any fault of our own but when the economy changes. A downturn, rising interest rates, or a shift in the real estate cycle can affect projected returns. Don’t panic – these are all normal, natural happenings! What’s important is that real estate investors pivot and adapt.
- Rental Market Trends: Decreasing rental demand over time can increase vacancy rates and affect the choice of potential residents.
- Regulatory Changes: New tax laws or zoning regulations could impact the profitability of your investments. Stay abreast of these changes and edit your portfolio accordingly.
Reason #4 – Evolving Investment Goals
- Shifting Focus: Sometimes, what you want simply changes. Real estate investors could decide to prioritize cash flow over appreciation, reduce leverage, or diversify into other asset classes. You don’t need to feel locked into a strategy that no longer serves your goals.
- Risk Tolerance: As you age or gain more experience, your risk tolerance naturally changes. You’ll understand yourself more and know better what you can stomach.
- Portfolio Size: Once your portfolio reaches a certain size, your focus may shift from growth to optimization and trimming fat.
Reason #5 – Feedback from Advisors or Partners
What do the professionals you rely on have to say? Passive real estate investors rely on professionals – many of them enormously experienced. Your portfolio and financial advisors are there to help you make the right decisions in service of your financial goals. Ask them for their feedback.
Further Reading: 15 Compelling Reasons to Consult a Financial Advisor
Reason #6 – You Realize You Want Something Different
Surveys are often unreliable not because people lie but because they don’t actually know what they want or need. You might discover your investment strategy wasn’t right for you after all, even if it made perfect sense in theory. It’s okay to shake things up if they no longer align with your desires.
Action Steps for Goal Adjustments
You’ve discovered in reassessing your real estate portfolio that things need to change. But what should you do? Here are some steps passive investors can take:
Step #1 – Reassess Metrics
Choose performance metrics to focus on, such as ROI, occupancy rates, cap rates, etc. Assess performance frequently after you make changes.
Step #2 – Diversify
Diversification spreads out risk, whether in geographical diversification or the number of properties in your portfolio. You may even want to supplement your real estate portfolio with different asset classes.
Step #3 – Adjust Time Horizons
Modify your timelines to be more realistic based on personal circumstances and market conditions. Sometimes, expectations must be managed.
Step #4 – Seek Professional Advice
Consult financial advisors, turnkey partners, or real estate experts to refine your goals. Those who know this business best can clarify the path to success.
Whether you need to seriously adjust your portfolio or not, regular reassessment and fine-tuning help investors stay informed and on track.
Looking to start earning passive income? Connect with one of our Portfolio Advisors today!
