When Is Chasing Cash Flow Inappropriate?

Short and sweet tonight, as the day’s logistics won the battle today.

If you’re relatively young or not yet 50, earning more than enough income at work, and living the lifestyle you more or less prefer, cash flow ain’t yer problem. Think about it from a practical viewpoint.

You’re paying taxes, saving money, going on vacations, and educating your kids. You have retirement plans at work, (please stop it) and have some other capital you’d like to invest in real estate. You’ve always been told cash flow is the way to go, so that’s what you set your sight on. That’s also why thousands of couples reach retirement with far less retirement income than was easily within their grasp when they started 15-30 years earlier. How much is far less you ask? If we’re talkin’ about 30 years of chasing cash flow over capital growth it could easily mean a 5-figure reduction in monthly income at retirement. Really.

Here’s the deal.

All cash flow is, is a yield on a pile of cash or equity. The bigger the pile, the bigger the cash flow. The idea in the early years is to build the original pile into multiple BIG piles. The yield (interest rate as an example) is gonna be roughly the same for a million dollar pile as it is for the 5 million dollar piles. The difference is the amount of dollars the yield generates. It’s the same X% yield in both scenarios — only the size of the piles of cash are different. The central theme of retirement is for income, especially after tax income to be as large as possible. To the extent you opt for cash flow over capital growth in the years preceding your actual, you know, need for cash flow, you are purposefully guaranteeing your retirement income will be far less than it easily could’ve been.

Debating this principle is akin to debating gravity.

If you call 619 889-7100 there’s a 90% probability you’ll hear me say, ‘This is Jeff. Have a good one.

This entry was posted in Capital Growth, Cash Flow 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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6 thoughts on “When Is Chasing Cash Flow Inappropriate?

  1. Stephen Davis

    I always invest for both cash flow and equity build up. Never would I buy a property that did not cash flow.

    When I do this, I also get the appreciation, equity build up and so on.

    Are you talking about “investments” where you only get cash flow and no appreciation? If so, I agree. You must have both.

  2. BawldGuy Post author

    Stephen — I know your website. :)

    We insist on cash flow too. We do however distinguish between strategies of cash flow and capital growth. When buying strictly for cash flow the investor retards capital growth and vice versa.

    When transitioning to retirement, and therefore moving into cash flow properties, appreciation becomes relatively less important — the way cash flow was less important when growing the capital in the first place.

  3. Stephen Davis

    Thanks for the reply and smiley. I believe that you and I should promote that investors (not speculators) must look for cash flow, equity capture and equity build up. Let’s raise American’s expectations. Oh yeah!

  4. BawldGuy Post author

    Been doin’ my best on this site for over 3 years. :) All we can do is put out the solid info.

    There is always a place in the market for the speculator, though the chance of FAIL goes up seemingly by orders of magnitude.


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