Cash Flow 2015-02-07

Real estate investors worship cash flow, mostly to their detriment. It’s all about keeping our eye on the ball.

 

What is cash flow? We all know it’s money coming in but really what it is is a yield on a pile of gold. Now, the idea is you make your pile of gold bigger and then ultimately your goal is to create several piles of gold. As we all know, bigger piles are better and it comes down to this. If the market is yielding 7% on whatever it is in retirement, it’s the same 7% on three million as it is 300,000. Which do we want? The rhetorical question. This is why the people that went for cash flow for 30 years are the ones that end up down here on the retirement income scale every time.It’s almost like the laws of physics as it relates to investing. You can’t jump up while simultaneously jumping down. That’s cash flow and capital growth. Now, again, cash flow way before retirement can’t be your primary focus. You want to look at max cash flow on retirement. We tell our little kids when they start playing baseball, what? The first thing everybody hears, keep your eye on the ball. The ball is retirement income, period. Everything else is secondary. You assume security. You assume you’re being boring, that you’re not being risky. You assume you’re staying as far away from the cliff’s edge as you can while you’re doing it and you’re mitigating risk at every turn. The ball is retirement income, period, end of sentence. For those who understand capital growth, that was impressive to her right, is the fact that when you finally enter retirement, ironically, you’re not going to the grocery store and spending part of your net worth. You’re spending your after tax cash flow. The guy that’s got three million and making $120,000 a year is not as well off as the guy that’s got two million and making 20,000 a month.

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