There are many goals in life. One of the key goals to secure your future is an investment. As part of your journey, you may want to focus on rental property investment, perhaps buy a vacation rental property, investing in short-term rentals, etc. But, probably money could be the problem hindering you from achieving these objectives.
The financial planning process is not as easy as it may sound when you read about it on the internet or in books. Basic financial literacy is very important for everyone to be able to manage their finances. Well, you may seek help from a financial planner. They may ask you to fill in a questionnaire so that they can understand your goals and risk profile. With that information, an expert can prepare an ideal financial plan with appropriate asset allocation for each goal.
But, implementing this plan practically in your daily routine can be difficult. A financial plan can give you more confidence when handling your money. If you don’t know where to get started, this article will help you. The first step is understanding yourself, plus the best investment avenues in the market.
Let’s get started.
Financial Plan Explained
A financial plan is a structured approach that you use to analyze your finances and the feasibility of achieving your goals. Your finances include your income, investments, assets, and liabilities.
Personal goals can be short-term, mid-term, or long-term. Indeed, a financial plan serves as a roadmap and stretches from a few weeks to several years.
Creating a financial plan for long-term investment success may require the help of an experienced and knowledgeable financial planner. Because achieving goals stretch over several years, the professional will help you to review your goals regularly.
Additionally, there are many external forces that can derail your monetary goals. They include economic, political, environmental, legal, technological, social, etc.
Many people want to invest in real estate because it’s currently one of the best-performing industries globally. You can generate a decent income with a good rental property investment strategy.
Here is how you create a financial plan to achieve long-term investment success. These 5 key steps will help you succeed in the short-term rental property market.
1.List Your Financial Goals
What long-term monetary goals do you have? The first step is to list your goals and define the time frame as follows:
- Retirement after 25 years
- Buy a new car in a year or two years
- Buy vacation rental property after 5 years
- Generate passive income from rental property after 3 years
- Build a fully funded emergency account in 6 months, etc.
According to Techvestor experts in rental investments, you can generate outsized real estate passive income. But, you must invest in short-term rentals in tourist-prone areas within less than 5 years. The prices in the property market keep on surging, and the faster you dive into this market, the better.
If your goal is to generate rental property passive income during your retirement, then check what type of properties the market has. Identify the ones that can help you achieve this goal. For instance, short-term rentals have high regular cash flows, and you can hire a property manager to run your business.
2.Identify Your Risk Profile
The type of rental property investment you choose should suit your risk appetite. So, ensure you assess your capacity to handle risk by asking yourself a set of questions. Risk profiling is a vital financial planning aspect. It helps you understand the level of risk you can take, and the risks in the property market.
Your risk perception, financial risk tolerance, and emotional risk tolerance are three criteria you should use when evaluating your risk profile. Financial planners consider them when allocating resources to your real estate portfolio. They want to create the best rental properties investment strategy. These are strategies that help you achieve your financial goals within your risk levels and specific timelines.
3.Set the Amount You Want to Invest
What exact amount do you want to invest to meet your monetary goal? Is it a lump sum amount or monthly installments? Knowing how much you want to invest can help you classify your goals into short-term and long-term. It will also help plan your investments so that you can achieve them.
Further, the amount you invest in each goal is calculated from the rate of return, risk profile, and the length of the financial goal. For instance, you can invest in different real estate options, including:
- Long-term residential properties like apartments and townhouses
- Short-term or vacation rental properties
- Commercial real estate
- Real estate investments trusts (REITs)
- Real estate crowdfunding
- Real estate flipping
Because now you have analyzed your risk appetite and identified your goals, the next step is to invest. But, don’t select your investment type for each goal randomly. Choose the type of real estate option based on the goal and growth of the investment.
With the help of a financial advisor in real estate, you can opt to diversify based on your risk profile and financial goals. Each scenario requires a unique portfolio mix to achieve short-term and long-term financial goals.
5.Review Your Financial Plan
The financial plan you have developed needs to be reviewed regularly to ensure you’re moving in the right direction. You can evaluate it every 6 months or at most once a year. Follow this trend until you successfully achieve your financial goal.
It’s important to review your financial plan because market conditions fluctuate. So, you should rebalance your real estate portfolio now and then to maintain it on the right track.
Your financial adviser can actively review the progress and recommend what you want to do based on the prevailing economic situation. The goal is to achieve your financial goals based on the defined time-frame.
Financial plans are important and aren’t designed for people with big monetary goals. You, too, can create one for your long-term success. First, identify your financial goal and set a time frame. Next, choose your investment type based on your risk profile.
Thankfully, the real estate industry has several options. The short-term rental has a high demand hence high returns. With the help of a skilled financial advisor, you can create a financial plan and diversify your rental property investment.
The objective here is to achieve your financial goals within the defined time span. Indeed, a financial plan is a powerful tool that can help you succeed in the long run.