Episode 9: Creating Your Personal Investment Policy Statement

Welcome to Building Passive Income, the podcast for professionals, entrepreneurs and investors who want to build wealth, diversify beyond Wall street, and create true financial freedom through passive commercial real estate investing. I'm Wayne Courageous III, founding and managing principal of Crei Partners, a leading commercial real estate company, I created CreiColin, an AI powered resource to serve as your investor education guide. Built on the insights and experience we've developed at Crei Partners, CreiCollen is here to educate you through passive invest tax strategy topics to help your journey in passive investing. Just a quick disclaimer. This podcast and CRA Colin is for educational purposes only and is not legal tax or investment advice. Always consult with your attorney, CPA and financial advisor before making any investment decisions. I've spent nearly two decades helping investors understand the power of commercial real estate, from multifamily to storage to retail. Each episode is under 15 minutes, simple to follow and and packed with insights to help you grow your income and protect your capital without becoming a landlord. If you're ready to learn quickly and invest smarter, you're in the right place. Welcome to Building Passive Income. Let's build wealth together. Here's creicollen.

If you don't have a plan, you're planning to fail. It's that simple. I'm Crei Collin and this is Building Passive Income, where we give you the strategies to build real wealth through passive real estate investing. Today, we're talking about one of the most underrated tools in investing, the Personal Investment Policy Statement, or ips. Think of it as your constitution for investing. A written document that outlines your philosophy, your goals, your criteria, and your rules. Because here's the Without a plan, you'll chase shiny objects. You'll say yes to deals that don't fit your strategy. You'll let FOMO fear of missing out drive your decisions. And five years from now, you'll have a portfolio that looks like a junk drawer, random, unaligned and underperforming. So let's talk about how to create an IPS that keeps you on track, keeps you disciplined, and keeps you focused on building real wealth, not just collecting deals. Let's start with the why. Why do you need a personal investment policy statement? Because emotions are expensive in investing. When you see a deal that promises a 20% IRR, or when a sponsor you like pressures you to invest before the deal closes in 48 hours, your emotions kick in. Fear of missing out. Excitement. Urgency. The feeling that if you don't act now, you'll regret it forever. An IPS removes emotion from the equation. It gives you a filter. Does this deal align with my ips? Yes or no? If it's a no, you walk away. No matter how good it looks, no matter how much pressure you feel. If it's a yes, you move forward with confidence, knowing it fits your strategy. Here's the other reason An IPS forces you to think strategically before you start investing. Most people invest reactively. They see a deal, they like the sponsor, they they write a check. There's no strategy, there's no plan. They're just collecting investments and hoping it works out. An IPS flips that. You define your strategy first, then you find deals that fit. You're not chasing deals, you're building a portfolio with intention. And here's the best part. An IPS protects you from yourself. We all have biases. We all have blind spots. We all get excited about shiny objects. An IPS is your accountability partner. It says, hey, I know this deal looks great, but it doesn't meet your criteria. Walk away. So what goes into a personal investment policy statement? I'm going to walk you through the five core sections. Grab a pen, open a doc, whatever works. Because by the end of this episode, you're going to start drafting your own your investment philosophy and goals. This is your why. Why are you investing in real estate? What are you trying to achieve? Be specific. Don't just say I want to build wealth. Everyone wants to build wealth. Dig deeper. Are you building passive income to replace your W2 within 10 years so you can retire early? Are you looking for tax efficiency to offset high earned income and keep more of what you make? Are you building generational wealth so your kids inherit a portfolio that produces income for decades? Write it down, make it specific, make it personal. Then define your timeline. Are you investing for 5 years? 10 years? 20? This matters because it shapes your risk tolerance and your exit Strategy. If you're 55 and planning to retire in five years, you'll invest differently than someone who's 35 with a 20 year horizon. For example, you might My goal is to build $50,000 per year in passive income within 10 years while reducing my tax liability by at least $30,000 annually. I'm investing for long term wealth building with a 20 year horizon. That's clear. That's specific. That's a philosophy you can measure against section 2. Your risk tolerance and capital allocation. How much risk are you willing to take? This isn't about being fearless. It's about being honest. There's no right or wrong answer here. Some people are comfortable with higher risk for higher returns. Others want stability and predictability, even if it means lower returns. Are you conservative looking for stable cash flow with lower returns, say a 6 to 8% cash on cash return with minimal volatility? Are you moderate willing to take some risk for higher upside, maybe a 10 to 12% IRR with some uncertainty? Or are you aggressive chasing value ADD deals with 15 to 20% IRRs, knowing there's more volatility and execution risk? Write it down, be honest and don't let anyone shame you for your risk tolerance. This is your money, your future, your decision. Then define your capital allocation. How much of your net worth will you invest in real estate? 10%? 20%? 50%? And how much will you keep in reserve at all times? For example, you might write, I will allocate 25% of my liquid net worth to real estate syndications and I will always keep 20% of my investable capital in reserve for opportunities and emergencies. That's a rule. That's a boundary. And when you're tempted to go all in on a hot deal, your IPS reminds you no. Stick to the plan. Your investment criteria. This is where you get tactical what types of deals will you invest in and and what will you avoid? This section becomes your filter. If a deal doesn't meet your criteria, you don't invest. Period. Let's break it down into subcategories. Asset classes Multifamily Self storage Mobile home parks Industrial retail Pick your lanes. Maybe you decide you'll only invest in multifamily and self storage because you understand those asset classes and you're comfortable with the risk profile. Write it down. Markets which cities or regions do you want to invest in? Are you sticking to the Sun Belt because of population growth and job creation? Are you avoiding the coasts because of higher valuations and regulatory risk? Are you targeting emerging markets like Boise, Raleigh, or Austin? Define it. For example, you might write, I will only invest in Sun Belt markets with population growth above 2% annually and job growth above 1.5% annually. Deal structure what's your minimum expected cash on cash return? Your target irr? Your minimum equity multiple? For example, you might say, I only invest in deals with a projected 6 to 8% cash on cash return, a 15 to 18% IRR, and a 1.8x equity multiple over five years. These are your non negotiables. If a deal projects a 12% IRR, it doesn't meet your criteria. Walk away Sponsor Criteria what are your non negotiables for Sponsors Track record Years of experience Asset Class specialization, communication standards. For example, you might write, I only invest with sponsors who have completed at least 10 deals in my target asset class, have a track record of at least five years and provide quarterly investor updates. Write it down. Make it specific. Make it measurable. Section 4 your diversification strategy Diversification isn't just a buzzword, it's your risk management strategy. So define how you'll diversify by sponsor. How many different sponsors will you invest with? I Recommend at least 3 to 5 over time. This protects you from sponsor risk. If one underperforms, you've got others carrying the load by asset class. Will you stick to one asset class or will you diversify across multifamily, self storage and other sectors? For example, you might decide 70% multifamily, 30% self storage by market. How many different markets will you invest in? Avoid putting all your capital in one city or state. If that market crashes, your entire portfolio suffers. Spread it out by deal stage. Will you invest in stabilized deals, value add deals or ground up development? Define your mix. For example, you might decide 60% stabilized, 40% value add, 0% development because you're not comfortable with construction risk. Write down your diversification rules. For example, I will invest with at least four different sponsors across at least three asset classes in at least five different markets with no more than 25% of my capital in any single investment. That's a rule. That's protection. Your review and adjustment process. An IPS isn't set in stone. It's a living document. But you can't just change it on a whim. Every time a hot deal comes along, you need a process. Define when you'll review your ips. I recommend annually, maybe every January. You sit down and review your portfolio, your goals and your ips. Did anything change? Did you learn something new? Do you need to adjust your criteria or your risk tolerance? Also define when you'll allow yourself to break the rules. For example, I will only invest outside my defined criteria if I can articulate a written strategic reason and I will review that decision with my financial advisor first. This keeps you disciplined while allowing for flexibility when it truly makes sense. Alright, let's recap the five sections of your personal investment policy statement. 1. Your investment philosophy and goals, your why, your timeline, your big picture vision. 2. Your risk tolerance and capital allocation, how much risk you're willing to take and how much you'll invest. 3. Your investment criteria, asset classes, markets, deal structure, sponsor requirements.

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Your diversification strategy how you'll spread risk across sponsors, markets and asset classes. 5. Your review and adjustment when and how you'll update your IPS over time. Here's your action step this week Draft your personal Investment Policy Statement. It doesn't have to be perfect. Three to six pages is plenty. Just get your thoughts on paper. Once it's written, share it with your financial advisor or a trusted mentor. Get feedback, refine it, then commit to following it. And, as always, consult with your CPA attorney and financial advisor before making any investment or tax decisions. If you're ready to create a Personal Investment Policy Statement and start building a disciplined strategic portfolio, let's talk. Check the show notes for a link to schedule a call with us@creipartners.com Next time on Building Passive Income. We're wrapping up this series with a roadmap. For your first 90 days as a passive investor, we'll cover exactly what to do step by step to get started the right way. Until then, remember, financial freedom isn't a dream. It's a decision. And it starts with a plan. I'm Crei Collin. Let's build wealth together.

Thanks for tuning in to Building Passive Income. Today's episode helped shift your mindset or gave you a new tool to grow your wealth. Do us a favor and like, subscribe and share this podcast with someone you care about. Want to go deeper? Join our free Passive Investor Coaching program@ passive passiveinvestorcoaching.com it's the perfect next step to start building wealth through commercial real estate the right way. Remember, financial freedom isn't a dream, it's a decision. And it starts with Building Passive Income. We'll see you in the next episode.