Real Estate Investors — Is Your Addiction To Cash Flow Lowering Potential Retirement Income?

Last week you got that raise. At 40 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 ’99? 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 — even after the current market correction.

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 exchanged your triplex at the appropriate time for twice the property?

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 when appropriate, and your newly acquired units went up in the intervening time, (which they would have) how much more would you be worth? Even if they didn’t, you improved the location of your portfolio significantly. Those who took their capital from hard hit regions (usually high priced too), to more stable and emerging growth regions, are now far better positioned — even with the correction — than if they hadn’t gotten outa Dodge when they did.

So I ask again, how much more would you be worth?

Might the answer be easily enough to bring on regret? Or, put another way — far better than now, cuz 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 (as it relates to investment property), what should you do with those units? Whatever they’re worth today is significantly less than they were say, two years ago when I begged you to exchange to a better home for your equity. 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 $500-700K.

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?

Here’s a sobering thought: Income property is all pretty much local now. Live in Palo Alto and really like those fourplex prices in Boise, Texas, Kansas City? Go ahead, buy three. That said, and it happens daily, compare your units to what’s getting’ you all excited. Yours are older than Moses’ first pull toy. Theirs? Um, aren’t. Their fourplexes are often less than your duplex — so tell me again why they’re gonna rush to San Diego, or wherever to buy your stuff? Really?

Folks 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 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 that 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.

Be the Captain of your own rehab team. Call me at 619 889-7100 and we’ll get it started. Have a good one.

Related posts:

1. Real Estate Investors: Chasing Pretend Cash Flow Surest Path To Pretend Retirement
2. How To Use Cash Flow To Sabotage Your Retirement — OR — The Faster He Peddles The Behinder He gets
3. As A Real Estate Investor Ya Gotta Pick — Capital Growth or Cash Flow
4. Retirement Date More Than 5 Years Off? — STOP Your Love Affair With Cash Flow
5. Income Property: Saving On Expenses While Lowering Income And Value