Legacy wealth doesn’t usually accrue in one investment. It takes several escrows over many years. This post is about apartment investment decisions, with an “s.” You will make those decisions as you make the learning journey of apartment investing. A well-honed decision process will increase the odds that you’ll make better investment decisions.

I believe that a great broker won’t tell you what to buy. He or she will help you understand your goals and values so you can make wise investment choices. He or she will help you grow in investing wisdom and improve your decision-making.

Learn the Market

Before you make any investment decisions, you should spend “windshield time” driving the markets to see the realities. Your goal is to learn what the people and properties are like in different areas. Then you can recognize a bargain and understand the implications of owning in various neighborhoods.

Clarifying your values and goals and learning the market set you up to make wise investment choices. They are the precursors for a lifetime of effective investing. You will also benefit if you use a proven decision-making process and develop your decision-making skills. Use a proven process that widens your view of what’s possible.

One of the simplest ways to improve decision quality is to consider several possibilities. Our team uses a simple chart to compare a few properties on several important dimensions. This provokes intelligent discussion. We don’t talk about the color of exterior paint. Instead, we talk about comparative value of neighborhoods and relative weight of unit mix versus price or age or some other measure. 

Know Your Values and Goals

Smart apartment investing decisions start with knowing your values and goals. When you know your values and goals, you’re more likely to make good decisions and less likely to make a decision you’ll regret later.

There’s another benefit. You or your broker may learn of a price reduction or rent increase or increased seller motivation or some other important fact. Such opportunities are fleeting, and you must act quickly to seize them. You can decide more quickly and with less analysis if you already know what’s important.

Each person, each investor, is unique. Some of us like chocolate ice cream, others like vanilla, and still others don’t like ice cream at all. Knowing what’s important to you simplifies decision making. When you know what’s important to you, you increase your odds of success. 

I’ve worked with many people over the years. The very best investors shared two things. They knew what they wanted from their investments and they were clear about who they were. Many investing books encourage you to articulate your investment goals. That’s important, but it’s equally important to know who you want to be and the legacy you want to leave.

It takes time and mental energy to clarify your values and investment goals, but it’s worth the effort. When you know what’s important to you and your investment goals, you can make better investment decisions more quickly.

5 Different Goals

Every investor has a unique situation and investing goals, but those goals tend to fall into one of the following five categories. Your goals may change when your situation changes.

• You may invest to build wealth. If this is your goal, you’ll seek properties you can renovate to add value. Then you’ll sell the property and move on.
• You may invest to maximize cash flow. This goal is often for people who are at least retirement age and content with their net worth. They’ve built a substantial inheritance, and they may have been deferring gratification for several decades. The extra cash will enable them to do things they’ve always wanted to do but put off.
• You may invest to achieve steady cash flow with almost no management. At “retirement age,” many households move equity out of apartments into buildings leased by a national business tenant with bond-rated credit.
• You may invest for pride of ownership. Some investors buy rental properties that demonstrate their wealth.
• You may want to invest in a “fallback property.” You could live there yourself if your circumstances crumble, or you could rent to your sister at a discount if she separated from her husband.

What Are Your Values?

I have done several values clarification exercises over the years. Usually, you must choose one value from each of a series of pairs of values. One pair might be health and wealth. Another might be being great at work and being a great spouse. At the end of the exercise, you can examine the profile of what you think is important. That’s fascinating, but the exercise isn’t over.

Ideally, the way you spend your money and your time will match up well with your stated values. Usually there’s a discrepancy. If you want your stated values and lived values to match up, you must change something. Then you can make investment decisions that reflect your values.

Review Your Decision Outcomes and Processes

You will hear people say, “we learn from experience.” We don’t. We learn from reflecting on our experience, learning the lessons we can, and changing our behavior in the future. It’s easy to fall into the trap of evaluating decisions solely on the outcome. Former professional poker player and author, Annie Duke, calls that “resulting.” You won’t improve your decision making that way. Savvy investors evaluate both the result and the process.

Terry Moore, CCIM is an investment real estate broker with a proven history of success in creating value, 1031 (tax deferred) exchanges, and building wealth through apartment investments. He has taught at UCSD, National University’s MBA program, the Appraisal Institute, SD County Tax Assessor, California Association of Realtors and is a National Certified Commercial Investment Member. For more information contact Terry at [email protected], call 619-497-6424 (Direct), 619-889-1031 (Mobile) or visit www.SanDiegoApartmentBroker.com. (License #0091851).