The New Year is in full swing and its time to review some of our goals and resolutions. By Valentine’s Day, as in years past, we have betrayed and abandoned many of the resolutions we made. Remember those ads by fad diet companies and fitness clubs that bombarded you to finally lose those extra few pounds and provided you with an easy and fast plan to do so. “The NEW you in 90 days or your money back!” Of course, the fine print says you need to run ten miles a day and provide dated video footage!
Goals are personal; some you will share with those around you while others you will keep to yourself. Typically, goals fall within one or other of the following categories: personal, relationships, work, health (physical, mental or spiritual) and of course, financial. I am sure there are a few more, but you get the idea.
As a former national athlete, one of the most important things I learned about goals was setting realistic ones and learning to focus on step-by-step programs that allow you to see success. If you decide for instance that this time you were going to lose 20 pounds (not that you need to!), how would you set up your goal? Do you expect to lose five pounds a week over four weeks and call it a success? If you do that, chances are the 20 pounds may come back, and even bring a few extra friends! The true way to success is to go slow and steady. If you were to lose a half-pound a week, it would take 20 to 40 weeks to reach your goal. The most important thing here is that it will change your lifestyle and show you that you CAN achieve something. You also stand a much better chance of keeping your 20 pounds and all their friends from joining you again!
So how does this apply to financial goals? This is the area that I am most qualified to speak on, not that I couldn’t stand to lose a few pounds! A financial goal is normally the easiest goal to achieve. Providing that you set it up properly, you can monitor your success. Naturally, you have to select the best path for success. The average professional rents their office space, primarily due to location considerations. For most, this is the sticking point; however, purchasing a new location (in close proximity to your existing location) with a well-advertised and marketed move might marginally increase your revenue, but it will definitely build your assets. Let me break down some numbers for you to show you how.
Let’s assume you are renting 2500 sq. ft. of office space. If we look at renting vs. owning we see the following:
|Down Payment/Deposit||$10,000 (first/last)||$240,000 (30%, bank may allow less)|
|Monthly Expense||$5000.00/MTh||Mortgage – $3000/MTh
Property tax -$1000/MTh
Maintenance – $1000/MTh
Total = $5000/MTh
|Utilities||Same as owning||Same as renting|
|Return on $240,000||(Not invested in property)
Simple return @ 4% per year = $9600/yr
|Used as down payment
pay down = $19,600/year
|Equity Increase||$0||$800,000 x 2% = $16,000/yr
(Assuming conservative 2% annual market increase)
|End of year 1||$9600.00 Gain||$19,600 + $16,000 =
$35,600 Total equity gain
|5 Year Gains**||$48,000.00||$178,000|
**For illustrative purposes, calculated simply with no compounding
As you can see, the numbers simply don’t lie. As an owner, at the end of a 25-year period, you will have a building worth more than 1.3 million dollars, fully paid for and generating income if you so decide. As a tenant, you will have a happy landlord that may thank you and send you a gift basket for paying off his/her mortgage.
So, let’s go back to financial goal setting and strategy. Owning your practice location is one financial step you can take that is achievable and allows you to monitor its progress. The same formula is applicable to all rental properties as well. You can grow a portfolio of investment properties separately from your work that will do exactly same thing.
I wish you good luck in setting and achieving your financial goals for the rest of this year and years that follow. In conclusion, we are here to help make reaching some of those goals….$imple.
Bottom Line: This article deals with financial goal setting and the renting/buying issue of office space with a numbers analysis chart to consider.
Todd C. Slater is the President of The Simple Investor Real Estate Group Inc. Todd has been one of Canada’s top realtors as well as host of Realty TV for four seasons. With his innovative approach to managed real estate investment properties, Todd educates and provides investors with solutions and opportunities for investment real estate. He can be reached at firstname.lastname@example.org or visit www.thesimpleinvestor.com.