Addicted To Cash Flow When Growth Is The Prescription — A Common Investment Mistake

Last week you got that raise. At 45 you’re making what you thought you would be at 50. Way to go! Once the raise kicks in you’ll be banking more Benjamins than ever. And that three unit property you bought back in the early spring ’02? It’s cash flowing like an ATM thank you very much. You’re in the money — and things are really looking up. As a matter of fact, those units have gone up over $100K since you bought them.

How could things be any better? The answer? Easy.


Let’s do this by employing just a little Socratic questioning.

What would have happened if you’d have exchanged your triplex in the summer of ’04 for $1.5Mil worth of Boise property?

Would there have been increased depreciation applicable to your burgeoning income? In your opinion, would you have been able to increase your take-home pay by claiming more exemptions?

Would you have been better off with little or no cash flow but, with properties in a growth region still rising?

Leaving Socrates for a moment…..

If you had executed the above proposed exchange a few years ago, and your Boise units went up 25% in the intervening time, (which they would have) how much more would you be worth?

Might the answer be almost $400K? Or, put another way — more than $300K better than had you stayed in San Diego?

Back to Socrates for a minute or so…..

Now that the San Diego market is dead in the water for the time being, what should you do with those units? Whatever they’re worth today is significantly less than they’ll be worth in another 5-10 years. How will the market react to your three units selling for far more than they’re worth today? Will anyone even want them? Heck, if they’re in San Diego, they’re currently worth between $650-800K.

Would you, in your right mind, consider paying considerably more than that in 5-10 years? No? Neither will most of the other investors in their right minds. And if your next argument is they can’t go any higher, then tell me again — why do you keep them? Keeping these units is a losing proposition any way you look at it. Wait a minute here — what were we talking about in the first place? Oh, right. So, what’s a common mistake real estate investors make?

They fall in love with cash flow when they’re in desperate need of capital growth.

The irony is this usually happens when they are making more money on their job than ever. This distracts them from keeping their eye on the ball that matters: Capital Growth. This distraction results in the loss of at least six figures and sometimes, when taken over a several years, a million bucks.

I’ve seen local investors literally lose significantly more than a million dollars as they watched incredible opportunities go by them. It wasn’t that they didn’t want growth. It wasn’t that they were unaware of their need for growth. But man, that cash flow.

It’s like a drug — a drug that pays you to get high every month. And how do you beat that? I’ll tell you how.

Imagine keeping those San Diego units (or units in any other area with high prices) for another several years. You’ve already lost hundreds of thousands by keeping them way too long. If you keep them another five years you’re just compounding your losses.

But you thought compounding was a good thing.


It is when opportunity isn’t ignored in favor of the addiction to cash flow. Think about what’s really happening. You’re opting for $5-10K in annual cash flow in place of capital growth which would eclipse that paltry figure like $100 eclipses $5. Do you really prefer monthly spending money now over a fantastic monthly income in retirement? Of course you don’t.

Here’s how you correct your mistake. Get your units ready to sell. Put them on the market. Move your net equity to a solid and secure growth market. Watch it grow. Imagine a retirement rich in income and freedom of movement. Look back at what your retirement would have been like if you hadn’t experienced the capital growth the last 10-15 years before you quit working.

Stop looking — it’s not pretty.

Quit your cash flow addiction cold turkey. Rehab doesn’t take that long and it’s very profitable. And I promise it won’t hurt.

Chasing cash flow when you don’t need it at the expense of vastly superior capital growth is a huge, dream-killing mistake. Many investors have retired with what they thought was a nice income. They had no idea that income could have been three to six times as much. But it’s too late for them.

Consider this an intervention.
Kick your addiction to cash flow. It’s literally costing you hundreds of thousands of dollars.

I have just two more words for you.

BawldGuy Rehab.

This entry was posted in San Diego Property Owners on by .

About BawldGuy

I'm second generation real estate, first licensed in fall of 1969. Having been mentored by several iconic brokers, I'm also CCIM trained, having completed all 200 hours back in 1980. Have successfully executed well over 200 tax deferred exchanges, many of which have been multi-state in nature. Strong points are analysis and the creation and real world application of Purposeful Plans employing several strategies synergistically. The idea is to arrive at retirement with the most after tax income possible, backed by the largest net worth.

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2 thoughts on “Addicted To Cash Flow When Growth Is The Prescription — A Common Investment Mistake

  1. Austin Realtor's Wife

    You’re right, Jeff- it is often so hard to see the big picture when things are going well! It’s not good when the mojitos in Cabo run out, you’re 75, and you learn from someone like BawldGuy that you could have had it better!?!?! The problem I see is not with the investor, rather the Realtors who doesn’t have the foresight, knowledge or understanding to advise their clients as you have yours- LOOK AT THE BIG PICTURE and kick that dang addiction once and for all!!!

    PS: Does BawldGuy Rehab have ocean views and professional massage therapists? Email me your rates… :)

  2. BawldGuy

    I’ve actually had parents come in with their 40-something kids. Then they see what’s possible and you can literally see their expression change.

    BawldGuy Rehab has views all over the world. You just have to decide where you want to spend all your cash flow. :)


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