Ask yourself: What role should capital growth play in your Purposeful Plan for retirement? Here’s my take.
Transcript: Hi I’m Jeff Brown, you probably know me as the “BawldGuy”. Today’s video we’re going to talk about the timing of cash flow versus the timing of capital growth. Cash flow has just gotten too much press and people tend to do what I call worshiping at the altar of cash flow. They’ve already proven, by the mere fact that they have enough cash to buy investment properties, that cash flow is not their problem. They have to stop and think: when do I want the most cash flow? Why am I investing for cash flow? For retirement! Therefore, you want to maximize that cash flow at retirement, not when you need it the least. So here’s the idea: first let’s talk about what yield is — and this is a captain obvious alert — but nobody really stops to think about it. The definition is this: yield is just a return on your capital. Your capital is a pile of gold. The man with the bigger pile gets the biggest yield in terms of dollars. The yield is the same for him; it might be 6%, but he’s making more in retirement on his income from that yield because he has three million and his next door neighbor has one million. It’s the same 6% but which income would you rather have? The one with the three million put cash flow second on his list and he grew his pile of gold. If you keep that in mind — I’m not saying to avoid cash flow, I’m not saying, God forbid, that you have negative cash flow — I’m saying make it a prudent investment. Have cash flow, but don’t drown yourself in it, you don’t need it. What you need to do is grow your investment capital; keep growing it. Time is your friend, take that time, make it a bigger friend than ever by increasing your pile of gold every year. If you adhere to that axiom and build your pile of gold and only go for the cash flow at retirement, you’ll get the maximum cash flow exactly when you want it. Join me next time for our next video thanks for coming in today.
Those who’ve read me for awhile know how I view the subjects of cash flow and capital growth — I love ‘em both. I have a soft spot for steak tacos. Jamocha almond fudge ice cream is my definition of Heaven. Yet you don’t see me adding ice cream to my tacos. It’s about timing. I’ll eat my tacos first, relax a bit, then dive into the biggest bowl of jamocha almond fudge I can get away with. To the extent I ‘mix’ the two, both suffer.
Cash flow vs Capital growth
Principle #1: To the extent the investor structures a transaction to generate cash flow, capital growth is hindered.
For instance, if you have $50,000 to invest, (forget closing costs for now) you can buy one property for $100,000 with 50% down — OR — you can acquire two for 25% down apiece. Continue reading
When it comes to real estate investing for the long haul — read: retirement income — formulas are good for a few things.
Derisive laughter, missed opportunities, and severely retarded cash flow and/or net worth at retirement — or worse.
OK, so the one tellin’ us to buy low, sell high has stood the test of time. But even that one ignores too many factors to list here. I can’t resist listing at least one — timing. If we make a decades long story short, here’s the difference the lack of timing can make when a so-called formula is being adhered to slavishly.
Lady buys a San Diego duplex for around $30,000 in 1975. If she sold at the top of the latest bubble, around 2006, she easily netted a gross pre-tax profit over $500,000. Sweet, eh? She bought low, and boy, did she ever sell high. Half a million does sound sexy, doesn’t it? Thing is, timing tends to change things up a bit. If she’d sold/bought/exchanged when common freakin’ sense dictated, she’d of had — conservatively — far in excess of $2 million. Now what does that half a mil look to ya? Yesterday’s meatloaf, that’s what. For the most part, formulas share one thing in common: A built-in lack of flexibility. Continue reading
This will serve as a nudge for some, a reminder of the historic, rather, Historic times we’re in as it relates to real estate investment. Over 42 years, and this is the first time I’ve ever seen anything even approaching this convergence of positive ‘storms’.
- Rising rents
- Rising demand for residential rental property
- Falling vacancy rates in the right regions
- Rent/Price ratios harkening back to the 1950s.
- The ability for ‘regular folk’ real estate investors to acquire property in blue chip locations.
- The lowest investor interest rates since Truman was in office.
- The ability to acquire property in faraway regions — safely.
This Perfect Storm has been raging for a couple years now. I’ve said it might have a 2-4 year life. I’m beginning to think four might be a bit much, but then again, my crystal ball is as reliable as yours, right? For all we know it could go on another several years. I don’t believe that, but it’s certainly possible.
BawldGuy TakeAway: Regardless of the shelf-life of this Perfect Storm, when it’s over, it’s OVER. I suspect this incredibly beneficial window might be akin to Halley’s Comet, which only shows up every three generations or so. We’ll see. Bottom line? If you have the ability to take advantage of it, what the heck could you possibly be waiting for? Years from now those who hesitated and lost will be telling epic stories of coulda woulda shoulda. Those who take advantage will spin tales of the only positive Perfect Storm in over half a century — and how it helped produce their magnificently abundant retirement.
Are you waiting for the right time to call me? Stop. Waiting. Get a hold of me at 619 889-7100. This Perfect Storm will be a huge factor in turbo charging your ultimate retirement income results. If you’d rather write me, simply go up top and click on the Contact BawldGuy button. Have a spectacular Memorial Day weekend.
In yesterday’s post, in which I addressed why Texas is the place to put your real estate investment capital, Dave, a reader for some time, apparently, asked a couple questions. They were so good, especially the second one, I thought the answers deserved center stage. So, thanks Dave.
Here’re Dave’s questions, verbatim, with text before and after, edited out. You can still see his comment in its entirety by going to the link above. Continue reading