Effective Goal Setting – The Lesson of the Sugar Shack

Effective Goal Setting
Effective Goal Setting

Much has been written and spoken about effective goal setting as a means of driving oneself toward success.  The self-help gurus will have you narrow your goals to make them measurable.  They would then have you write goals down to make them “real” and to make yourself accountable – does this sound familiar?

These may be good suggestions for some people, but having tried this I couldn’t get away from the thought that there must be an easier way to plan for success.  I came to realize that having a specific goal is like driving a truck – you can move in the general vicinity, but there’s nothing exact about it. And the reason for this is not your shortcomings or mine, but life itself. If you’ve been around long enough, you know that nothing works the way we plan; sometimes better, sometimes worse, but never as we plan…

I quit making grand plans about 6 years ago.  At times, as I’m seeing all of the busy people making plans, I wonder if I am missing out on some incredible insight and wisdom.  But, I take solace in the fact that even Warren Buffet, the greatest investor of all time as far as I am concerned, reportedly has 3 trays on his desk: Yes, No, and Too Hard – which seems to validate the point of view that simple is good.  Bottom line – there must be another way, a better way, a simpler way to ensure movement in the direction of success than a rigid goal; but what?

AND THEN I RECEIVED THE ANSWER

Allow me to introduce you to Bob.  OK – his name is not really Bob, but I don’t think I want you showing up at his doorstep tomorrow morning 🙂

Bob and I go a little ways back.  Bob is my friend, business partner, and mentor, and Bob taught me more about effective goal setting than all of the books combined.  Bob has seen a lot and done a lot, and he has very little left to prove.  Along the way Bob decided that I am a stand-up kinda guy and that he’ll set some time aside to give me a few pointer, and since then, about once per month I show up at his “office”…

About 9 months ago we were sitting at a plastic table in a sugar-shack he owns overlooking a gorgeous woods and a pond he’d dug up.  For Bob this place is the personification of his nirvana…this is the setting he saw in his mind way back when – and here we were; sitting there.  For me it is always a treat to be there with Bob, partially because it’s serene, partially because the place personifies accomplishments of a lifetime of doing, but mostly because I always leave smarter than I was when I came (and a little tipsy usually).

WE WERE THERE TO DISCUSS A REAL ESTATE DEAL

For most people, it would take all of 15 minutes to cover the bases on a real estate.  But, those of you who know me best know that I tend to think in philosophical terms, and likely Bob is not very different from me in this respect.  Therefore, a conversation which should only take 15 minutes usually lasts 2 hours.  That’s just how we work, and that’s a good thing since I’m not too sharp and it takes longer than 15 minutes to cause me to get smarter – even for a guy like Bob…

Anyway – in the middle of all that, Bob fires off a thought which hits me like a ton of bricks and totally deciphers the essence of what it takes to succeed.  I’d been struggling with this for a while, and there it was – plain as day.  Are you ready for this, guys?  Bob says to me:

“Son – just make sure the deal you do tomorrow is better than the one you did yesterday…”

Wow – this is simple, is it not?  Think about it; it is truly mathematically impossible not to continually move forward if each step we take is better and bigger than the last…

MOVING FORWARD IS NOT ENOUGH – YOU SHOULD GROW EXPONENTIALLY

Rather early in my career I purchased a couple of duplexes; actually, one had an extra unit in the back so it was a triplex.  Those were solid acquisitions and I still have them in my portfolio.  However, over the following couple of years and for reasons unbeknown to me I bought 3 single family houses.  Each one of those houses indeed added to the passive income of my portfolio, but not as much as another multi-family would have.  By buying those singles I was moving ahead, but I did not maximize the returns.

Once I figured this out, I went out and bought another triplex, and having stabilized it I went and bought a 6-unit and year later a 10-unit.  Here’s the thing – just as the single-family houses added to my cash flow, so did these acquisitions.  But, these grew my business exponentially because the amount of cash flow I was able to generate with each transaction grew from one to the next.

The reality is that for the most part it’s just as easy to buy a triplex as it is to buy a SFR, and it’s not any more difficult to buy a 6-unit as it is to buy a triplex.  But, a 6-plex throws off much more cash flow than a triplex, which throws off much more cash flow than a SFR.  By ensuring that at every step I was bighting off a bigger piece, I was compounding and focusing the ROI, as well as diversifying the income.  And going forward, I am not likely to consider anything smaller than 10 units.  In fact, a 30-unit acquisition could instantly double the size of my portfolio with all that this entails.

I could have continued to buy houses and I probably would have done OK – this is what most people do.  But, I think I’ve illustrated how Bob’s advice of ensuring that each deal is better than the last does indeed amplify results.

What do you think about this philosophy?

Photo Credit: yushimoto_02 [christian] via Compfight cc

6 Comments

  • Mark Ferguson Reply

    Hi Ben, I think to have a successful personal strategy for life you have to implement many, many different techniques. I think your idea of doing one deal better than the next is great, but I think there is also value in quantity like when I do flips. I have made 100k on a flip before, but it was mostly luck and timing. I have also lost money on a flip before. The lows and the highs average out over time if you do enough deals and if it makes enough money compared to the risk I will do it. I can’t wait for another 100k profit to come along because it may never be there.

    As far as rentals I think it is a volume game as well. My market is completely different than yours, a four plex that rents for $500 a unit will sell for $200,000 or more where I am. Yet a single family home that costs 100k can rent for $1,300 after a little work. The four plex probably needs work too. For whatever reason our multis are priced crazy high all over Colorado. I make more money going the one at a time single family approach, but if I found a killer deal on a larger multi I would go for it.

    As far as long term goals I think you should have a mix of short term, medium range and long term goals. I think some of them have to be specific to keep what you want fresh in your mind. The more you think about it the better chance you will accomplish it.

    • Ben Reply

      Hey Mark – thanks for commenting indeed!

      I completely agree with your last paragraph. The more you think about it – the more you act on it – the more you fake it in order to make it – the more you move the universe, the more likely you are to achieve. For me, the focus should be on the next step though. Yes, we must know the lay-out of the playing field and have the full-scope directional view, but for me that’s it as far as goals. I know that $10,000/month of fully leveraged CF will do the trick, because then I’ll simply begin to throw all of it at paying off notes and within a short time be done. That’s my directional scope, and from here all I need is to make sure that each deal is better than the last.

      Perhaps singles are the way to go in Colorado. But, I’ve got 28 doors and understand all that’s involved with management of 28 doors. Before all said and done I will need to own 90+ – I sure don’t know how to even begin to manage 90 SFR spread out all over the place. I plain wouldn’t – to much work for me, and not passive enough. I understand that this is your plan, and I think you’ll be fine, but I also think that you will mature and change course long before you get there 🙂

      I am in this for passive CF, or as passive as I can get. I literally have 2 more deals in me 20-30 unit and 50-60 unit. That is as much work as I want to do in real estate. Contrary to what many people think, I don’t love RE, but I love what it stands for – passive income. 90 SFR would take 90 deals – I can get it done with 2,3, or may be 4 more deals. Thoughts?

      • Mark Ferguson Reply

        As far as the passive part I am setting it up so someone on my team manages them all for me and I don’t have to do anything. Then if that works out well we may start a full blown property management company and start managing other peoples rentals. For me to invest in mutlis like you do I would have to invest out of state and that would completely change everything. My ability to find deals, contractors, realtors would all add costs and risk.

        I do like the stability of SFRs. 3 out of my first four rentals I bought have had tenants in them almost 2 years or more. The other has had great tenants, but they had to move due to a job and I got a releasing fee out of it plus I rented it without any vacant months. I may be lucky, but I like the middle income rental segment right now.

        • Ben Reply

          Mark,

          I agree that SFR tend to retain tenants for a longer time. But, I will allow myself to latch onto what you said: “…I may be lucky…” – I don’t think that there’s luck in this, but there are “seasons” and cycles to property investing just like everything else. In saying this I don’t necessarily mean economic cycles; more like emotional – subconscious energy cycles…

          Just about 3 weeks ago Brandon and I were discussing this. He, as I, had somewhat of a rough stretch, and he posed the question of whether this is intense “breakage” period is just how it roles 5 years down the line. In fact, what Brandon is experiencing is growing pains resulting from pushing the envelope. Same is true for me, although this is not my first one. I think that yours will come 🙂 Then – hand onto your nickers. This is a great post in the making – gonna write it!

          Thanks so much Mark! Thoughts?

  • Brandon Turner Reply

    I like the advice of your friend “Bob.” Makes sense. I had a friend once tell me something similar. They said “Brandon … what’s working right now in your life FOR YOU. Not for everyone else. Do more of that.” When I thought about it, small multifamily properties were really working well, but not so much the single family homes. Once again, I think we are twins. 🙂

    • Ben Reply

      We do see things similarly indeed. Thanks for stopping in 🙂

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