I just finished re-reading The Millionaire Real Estate Investor by Gary Keller and man is it a great book. There are so many great concepts, but I want to discuss just the importance of doing a Daily, Weekly or Monthly Networth statement.
I have been keeping track of most of the numbers in a spreadsheet, but over the last three weeks, once a week I have been historically cataloging my net-worth, working capital, equity etc. This really keeps your eye on the prize. You can very easily see where the biggest gain in your spreadsheet comes from.
The columns I keep track:
The sum of all of these numbers will be my working capital once the profit is acheived.
Once you add Rental Equity, you get your total Net Worth.
These numbers should be very simple to estimate. So the process really does not take very long to do once a week.
Some of the concepts doing this has helped me remember.
1. You make your money when you buy
This is an interesting concept that is easy to forget. But when you buy a great deal the profit will be there at some point. Sure you have to make some estimations, but buying a good deal is the always the catalyst that will increase your wealth the quickest as a real estate investors. The more you buy the the property under market for, the most you increase your net-worth by (equity gains).
2. Consistency is key
The numbers may have long-term downward shifts, but if your Net Worth is consistently going down, you better change your strategy. Your bank balance may change, or your profit potential, but the Net Worth should always be trending up if your making the right decisions.
3. The Right Long-Term Acquisitions are the Key
When we make a long-term purchase, we can take credit for the entire equity the property has (market value less mortgage), we don’t have to factor out closing costs, taxes on profit etc. Since closing costs run at about 10% of the sales price, this really makes a large difference. While that is key, I can’t keep buying long-term properties if my Working Capital gets too low, so I need to mix in both strategies.
4. Ultra Focus
As I do this, it reminds me, every dollar that I spend on not investment related items disappears from this sheet forever (and my net worth). It really reminds me to think before I make every purchase. My goal is to get to 20 properties by the end of 2010. That is a big challenge and if I don’t maintain ultra focus, I will not make it.
I hope this makes you think when the last time you looked at your Net Worth was. You better get to the spreadsheet…