Everyone would like to bring in more money, wouldn’t they? It would be great to increase our profit margins, whether it’s in business or in our investments. When it comes to setting and reaching new profit goals, it is certainly easier said than done. We would like to believe it’s as easy as saying we want to make more money this year and see it magically happen.
In reality, it takes more strategy than that. Where real estate investment is concerned, figuring out how to maximize your streams of income can be a challenge.
Here are some ways to navigate your financial goals every step of the way.
Best Practices for Setting and Achieving Profit Goals
Know Your Numbers
Before you can make definitive profit goals, you have to know where you are. It all starts with knowing your numbers. Your numbers don’t start and end with your income, either. Your revenue alone isn’t enough—you need to know your gross profit by taking into account your expenses. It’s a simple enough calculation: you just deduct the expenses of running your business (in your case, maintaining your investments) from your profits. That’s your gross income.
Once you know your gross profit margin, you can stack it up against the previous year. How have you improved? Or not done as well? It’s important to know where you are and plot your progress as it will help set the stage for your profit goals—ensuring that they’re realistic and tied to concrete numbers.
Figure Out the 'How'
Once you have some numbers, it’s time to start strategizing. How exactly do you want to go about increasing your profit margins in the upcoming year? For real estate investors, there are two primary ways to do this: acquire more properties to diversify your streams of income or decrease your costs and spending to increase your gross income.
You can either approach your goals from a perspective of “trimming the fat” and working on optimizing what you have and ensuring that everything works as an efficient, well-oiled and cost-saving machine, or you can simply increase your income through the acquisition of more properties (which costs money) or force appreciation through renovations (which costs money) or possibly raising rent, if timing and your market allows it. Perhaps you can employ a combination of both strategies.
Identify Problem Areas
Regardless of how you choose to approach your profit goals, one thing every real estate investor should do regularly is step back and look for kinks in the system: things that aren’t working as smoothly or efficiently as perhaps they should and, as a result, are costing you money.
It might be a property that is just not working out. It is in the red or not providing you the positive cash flow you need. You may be at a crossroads with it and it’s time to cut your losses and replace it with a better opportunity. On the flip side, it may be that you just need to be more vigilant so that you can nip issues in the bud as they arise. Oftentimes, things just get out of hand when we get complacent. If we’re constantly looking to identify potential issues, the less chance they’ll have to creep up and eat into our profit margins.
Get Specific, Get SMART
Effective goals are one thing: they’re SMART. You may have heard this acronym before and it stands for:
In order to set meaningful, actionable goals as a real estate investor, you have to ensure that they meet these criteria. If you want to increase your profits, you’ve got to be specific and in real ways. Can you measure success and track it along the way? What research can you do ahead of time to compare yourself to the competition? Do your goals lineup with where you’ve been and where you’re heading? And, last but not least...when will you do it?
These are all crucial elements to ensuring that your goals are actually meaningful.
Part of being a successful real estate investor is having momentum. There’s no stop-start balance of growth and contentment with stagnation. No: effective, successful investors know that when one goal is achieved, it’s on to the next. You have to be future-minded to succeed. That means as you approach the completion of one goal or big milestone, you’re already on track to the next.
You celebrate your victories but you don’t rest on your laurels. You know there’s still work to be done. You’re hungry for your own success—and that means always looking ahead and planning a new goal for even greater heights.
One of the best ways to ensure that you're staying on track with your investments is to partner up with a turnkey real estate provider who can help you make the best decisions for your investment future.
Preparation is key to success, so don't let obstacles get in your way! Check out our latest video: 11 Mistakes to Avoid as a Real Estate Investor