As we near the end of a pretty crazy year, this is the time that a lot of us are evaluating our progress on existing  goals and formulating new ones for 2021.  How did you do on your personal goals?  A lot has been written on how to formulate goals and why you need them but I want to talk about some tips for achieving those goals.  Instead of just writing goals in a notebook and tucking them away in a drawer until next year, here are seven things that help me achieve my goals.  

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1. Understand the true motivation behind your goal(s) and why they are important to you.  Dig deep here and keep peeling back layers until you get to a meaningful motivation behind the goal.  "To make more money", or "get in better physical shape" are not meaningful enough to keep you on track when the going gets tough.  What will you do with that extra money and why is that important to you?  How does being in better physical shape equate to your overall quality of life and how will that make you feel?
2. Break your goals into manageable chunks. Big goals can seem overwhelming and deter you from taking action to get started.  Take that big goal and break it down into the tasks that you need to complete to get there.  Tackle each task as it's own separate goal and watch the momentum build.
3. Schedule frequent and consistent check-ins.  Instead of waiting until the end of the year to pull that goals notebook out and realize that you are almost out of time, consistently gauge your progress.  I have an ongoing calendar reminder in my phone that schedules a couple of hours every month to review goals progress and schedule activities for the upcoming month to drive me toward completing those goals.
4. Keep your goals visible as a daily reminder.  This tip goes hand-in-hand with scheduling frequent check-ins.  If you can start out everyday with a reminder of what your goals are, you are exponentially more likely to achieve them.  I have my goals stuck to the side of my printer at my desk so I am forced to stare at them everyday.  Minds tend to focus on what is in front of them so make sure that your goals are always in the forefront.
5. Visualize success.  If you have no confidence that you can achieve your goals or can't visualize what that success will feel like, you aren't very likely to stay motivated.  As part of my morning routine, I spend 3-4 minutes with my eyes closed, visualizing the joy of completing my goals and what that looks like.  If you haven't read The Miracle Morning by Hal Elrod, I highly recommend it.  Every successful person that I know, has some type of morning routine that gets them mentally and physically prepared to be their best that day.  Find out what works for you.
6. Network with others who have similar goals.  One of the most powerful motivators is your peers.   Don't try to take on your goals all by yourself and be solely responsible for your motivation.  Find others that are trying to accomplish similar things and talk to them regularly.  Push each other to new levels and help each other through the difficult times.  Again, the successful people that I know are all part of a peer or mastermind group that is vested in the success of all members. 
7. Celebrate successes.  Achieving lofty goals takes hard work, dedication, and sacrifices.  If you don't take the time to celebrate successes along the way, your motivation will quickly wane.  The goal achievement process should be fun and exciting, not boring and monotonous.  I go as far as attaching pre-planned rewards to the completion of smaller goals leading up to my master goals.  

​Try these seven tips and watch the progress towards your goals completion accelerate.  Once you learn what works best and what doesn't work well for you, tweak your program to fit you.  The important thing is to find what motivates you, keeps you on track, and makes accomplishing your goals enjoyable.

With home mortgage interest rates still hovering slightly below 3%, it is a very attractive time to take advantage of these all time lows.  It is pretty easy to get lured into the slick marketing and promises of a lower payment but how do you know if a refinance really makes sense for you?  The math is pretty simple but you will have to make a few assumptions regarding how long you plan to keep the property and what combination of rate/points is best for you.  Here's a quick rundown of the math to help you decide:

I generally use a breakeven analysis to decide if a refinance is justified and how many points to pay.  Basically, I am determining how much lower my payment will be and how many months of that savings it will take to cover the upfront fees and expenses.  The easiest way to show this is through a hypothetical example.

Let's assume that my current mortgage is a standard 30 year fixed mortgage at 4.5% interest.  The original loan was for $150,000 but the remaining balance is exactly $100,000.  This makes the current Principal and Interest (P&I) payment $760.

Now let's assume that we can refinance the remaining $100,000 loan balance into a new standard 30 year fixed mortgage at 3.0% but it will cost us 1 point (1% of loan amount to reduce interest rate) and $1500 in fees for paperwork and an appraisal.  The new payment would be $422.

Now here's the math to determine the breakeven:
Current payment                $760
Less new payment            -$422
Equals monthly savings    $338

Now add up all of our loan costs:
1% point paid            $1000
+ fees                          $1500
Equals loan cost      $2500

For the final step, divide your loan cost by the monthly savings:  $2500/$338 = 7.4

What this tells us is that in 7.4 months the savings of the new payment will cover the expenses of acquiring the new loan and we will be in the gravy after that.  If you plan to keep the property for more than 8 months you should recognize a savings from refinancing.  If you plan to sell before 8 months the loan expenses will exceed your savings and you will recognize a loss.

Another thing to consider is that a refinance resets the amortization table and extends the loan out another 30 years.  This means that your payments for the first part of the loan will be primarily interest and you will be growing your equity in the property at a slower pace.  To offset that you could refinance but continue with the $760 payment (or somewhere in between $422 and $760).  Any additional payment over the $422 will go toward principal paydown and can significantly reduce the repayment term of the loan.

If you haven't already refinanced but are considering doing so, use this calculation to see if it is worthwhile for you.

So you found a great real estate deal and all the numbers look good to make this a profitable investment.  Should you go for it?  The answer to that question often becomes easier after a couple of simple stress tests to determine what happens if things turn bad.  Stress testing is one of the most important analysis tools when underwriting a deal but is often overlooked in favor of focusing on best case scenarios.  A good stress test model will show you what the downsides of the investment and how much stress your deal can take before you're reaching into your pocket to keep the property out of foreclosure.
There are various ways to stress test a deal and different types of properties as well as different business plans will determine the tests you should perform.  Here are a couple of common ones that apply to most deals and I recommend working them into your financial analysis of the deal before signing the purchase agreement.

• Breakeven Occupancy Test - This test is just as sounds; what is the occupancy rate that is needed to produce enough revenue to cover all debt service and operating expenses.  In simpler terms, how much vacancy can the property afford before it is losing money.  An easy calculation for this is:

          Total Expenses (including debt service)/total potential rent = Occupancy required for breakeven

• Refinance/Exit Test - This test looks at the forecasted unpaid principal balance of the loan compared to the forecasted property valuation.  In a commercial or multifamily asset, the valuation is forecasted using the projected Net Operating Income (NOI) and projected sales Cap Rate.  The obvious conclusion here is that the value of the property needs to be significantly more than the unpaid principal balance to perform a successful exit or refinance.  There are a couple of subsets of tests that go into this calculation:
  • Operational Shock Test - This is a test of what percentage decrease in effective gross income can the property withstand and still be able to exit or refinance as planned.
  • Capital Markets Shock Test -  This tests different scenarios regarding changes in interest rates or market cap rates (which would affect valuations)
  • Both Shock Test - The Both Shock Test compares different scenarios where both the effective gross income decreases and interest rates or cap rates increase (again lowering valuations).
• Rehab Overage Test - This test is more specific to a fix and flip property but can be useful for a long term hold too if there is significant rehab or "value-add" expenses in the business plan.  The test is simply to determine how far over the rehab estimate we can go and still have a profitable deal.  In most cases large scale rehabs run into issues and go over budget so I like to know how much cushion I have when that happens.

These are just a few of the more common and very important stress tests that should be used when evaluating a real estate deal.  There aren't any exact numbers that I can provide to say whether a deal is good or bad.  That is up to the individual investor's risk tolerance, business plan, and capital structure.  The important thing is to know these numbers and be able to look at them objectively to determine the possible scenarios.  For example; what are the chances that your property could see 10% vacancy compared to 30% vacancy?  Again, that depends on the specific property location, business plan (are you going to clear people out to renovate), and management style but if I have two deals and one needs 90% occupancy to break even and the other only needs 70%, all else equal, I am taking the 70% all day long.

To get more detailed information on stress testing and underwriting in general, I highly recommend reading the book:
The Definitive Guide to Underwriting Multifamily Acquisitions by Robert Beardsley