Real Estate Investor Priorities – It’s ALWAYS About Timing

I chose the above picture because it relates to the game we all know and love, Monopoly. The formula to win at the game of Monopoly is the same formula used to build wealth. That is, to buy cash-flowing properties. Landing on “Free Parking”(If you play that way) is great, but that is just a capital gain. Capital gains are nice, but you cannot win the game of Monopoly if you don’t buy properties for rent(cash flow) and then convert them to hotels(even if you were to land on free parking every time around the board.) Not to mention, in real life, when you land on free parking(or flip a property, AKA capital gains), it is taxed by the government, and taxed at a rate much higher than the tax you would be charged for your rental income(cash flow).

Cash flow is the #1 thing in real estate investing. Flipping is great to earn a check, but to build wealth you need to have cash flow. In real estate, this means owning property that puts money in your pocket each month, above and beyond your expenses for the property. These expenses include monthly payments for capital(if using OPM-other people’s money *strongly recommended*), insurance, taxes, property management, etc.

The reasons I prefer real estate investing to other vehicles is that it has great potential to leverage with OPM(other people’s money), it provides cash flow(money in your pocket on a regular basis), and it has AMAZING tax advantages.

One HUGE variable with real estate investing is time. This is true with cash flow investing just as it is with “flipping.” As with all investing, you should have a plan. Your plan will be different if you are 5 years from retirement as opposed to 40 years from retirement, and anywhere in between..

If you are not satisfied with what your retirement account is doing for you in your 401k, give me a call and we can discuss a personal real estate investment strategy to secure your retirement. 623-252-3234

I will now turn it over to a very wise real estate investor. My friend in San Diego, Jeff Brown.

-Joshua Gayman

The following written by: Jeff Brown AKA “Bawld Guy” – http://bawldguy.com/

Cash flow is a wonderful thing. Capital growth is truly something to celebrate. Yet both can derail your retirement faster than you can watch it happen in real time. So many real estate investors behave as if both concepts exist in a vacuum, unaffected by all other factors. One of those factors is time — and I’m here to tell ya, time won’t be ignored. Much like gravity, those who ignore it’s powers will either pay a stiff price, or look back and realize they were incredibly lucky.

Let’s don’t talk in terms of age, but instead, years before retirement. If you have more than 10, surely 15 or more years till that day, puttin’ cash flow at the top of your priority list will be the kiss of death — to your retirement income. Of course, that doesn’t matter much if your agenda isn’t to maximize cash flow at the point of retirement. I’ll assume your #1 goal is maximum reliable income at the point of retirement.

BawldGuy Axiom: To the extent the real estate investor goes for cash flow, capital growth suffers — and vice versa. You’ll only get the best of both in the movies.

There’s no gettin’ around that truth. There are types of properties more appropriate for capital growth, just as the same is true for cash flow. Also, the structure/strategy used to acquire a real estate investment property will dictate whether or not it will be more productive for growth or income.

But again, the elephant in the room is timing.

If you’re 43 years old with plans to call it quits at 65, and makin’ plenty of money at work, why on earth would you sacrifice capital growth for current cash flow for which you have no need? Putting cash flow at the front of your chronological line guarantees the inhibition of your invested capital’s growth. But, you might ask, why is that such a big deal? Excellent question, grasshopper.

What is cash flow anyway, but a yield on capital, right?

Retirement income is nothing if not the yield on your accumulated capital, set aside for that purpose. The bigger the pile of capital you amassed, the larger the yield will be in terms of, you know, actual dollars. To put it more simply, a 6% yield on $3 Million is more than the same 6% on $1 Million.

OR

$180,000 is more than $60,000.

BawldGuy Takeaway: Those who opt for capital growth first, then switching gears to cash flow as retirement looms, will be living on the former. Those who insist on emphasizing cash flow now, will be settling for the latter.

There is no third alternative people. Make time your friend, cuz it’s a merciless enemy.

-Jeff Brown

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One comment on “Real Estate Investor Priorities – It’s ALWAYS About Timing

  1. Good stuff, Josh. I completely agree that income property is the best way to build wealth. You should also mention the tax advantages of an income property. Very tax efficient, whereas gold and silver is taxed as capital gains. All about cash flow baby!

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