Are You A Real Estate Investor Keepin’ Up With the 10 Year Treasury? Oops

Tonight let’s talk turkey about the cash flow you’re now gettin’ each year — as a return on the overall net equity of your real estate investment portfolio. I talk to a handful of investors every month who tell the same story, with smiles in their voices. The smiles come from the success they’ve achieved in generating reliable cash flow from the decisions they’ve made over the years in real estate. As we continue to talk though, a realization hits ‘em between the eyes — they’re barely keepin’ up with, or barely beating the anemic 3-3.5% return of the 10 Year Treasury.

Let’s make sure we’re all on the same page here when it comes to dollars and percentages, OK?

Net Equity simply means the check you’d get from escrow if ya sold your property(s). It’s after costs, payin’ off loans, and all the other stuff that comes with selling real estate. What you take to the bank when the smoke clears is your net equity. Any other number is fodder for Friday’s Happy Hour.

Return? Let’s take your annual cash flow before income taxes, then divide it by your total net equity. For example — If Frank has $68,000 annual cash flow on $2 Million in net equity, he’s doin’ 3.4% annually. ‘Course, he’s doing less than that if it’s not completely tax sheltered, which is unlikely.

I’ll say this in plain English, without mincing words. If that’s what your current real estate investment portfolio is generating, give or take a percentage point, ya might wanna consider changin’ what ya been doin’.

Please don’t think I’m criticizing your results — not in any way. In fact, I congratulate you for arriving at the magnificent net equity you now have. You’ve obviously done a lotta things right over the long haul. (Yeah, yer right, here comes the but…)

But, if cash flow is currently important to you, or it will be over the next 8-12 years or so, I recommend you seriously contemplate a slight course change. Clients in this position are now adjusting their Purposeful Plan to immediately increase both their current cash flow and tax shelter — and even more over the next 6-12 years, depending upon their particular circumstances. In one case, an investor I’ve been talkin’ with the last month or so, will be able to increase his immediate cash flow by over 50% a year, and by 100% or more in the next 7-10 years.

I could cite a few more current and/or recently completed examples. The bottom line is that real people are making very positive changes in their Plans in order to increase their ultimate retirement income in a big way.

The cool part? Not one penny of future cash flow, whether next year or next decade is based upon even a .1% increase of their properties’ net operating income. In fact, the analysis used to arrive at our end game numbers assume no growth whatsoever in cash flow — ever.

Ask yourself this question: If someone told you the 10 Treasury Note would be in the 3-3.5% range, and that you’d barely equal that, give or take, would you be satisfied? If so, sell your portfolio and put it into those Treasuries, cuz the risk is significantly reduced when compared to real estate. That said, if you can make 50-150% more yearly income from your real estate investment portfolio — and I’m here to tell ya you can — then you need to change what yer doin’ and sooner rather than later.

Thinkin’ you might be a member of this club? Gimme a call, and be my fix for the day, OK? I’m at 619 889-7100. Have a good one.

Related posts:

1. Retirement Dream a Nightmare If Real Estate Investor Hasn’t Planned Well
2. What Can A Prudent Real Estate Investor Do In 20 Years With $55,000 Today And Some Periodic Cash?
3. The Learning Curve of a Recovering Attorney Turned Real Estate Investor — Escaping From Dodge
4. What Gettin’ Outa Dodge Means To A Real Live San Diego Real Estate Investor
5. As A Real Estate Investor Ya Gotta Pick — Capital Growth or Cash Flow