As A Real Estate Investor Ya Gotta Pick — Capital Growth or Cash Flow
Posted @ 9:25 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Cash Flow, Retirement Income, Investment Lessons, Leverage, Capital Growth, Goals
Ever had to make up your mind? Pick up on one and leave the other behind? Those words mean nothing to most of those under 40, but those in their 40’s and 50’s are already hummin’ the tune. Sometimes we don’t get to have our cake and eat it too. The decision whether to invest in real estate carries with it just one of those choices.
Should you go for cash flow or capital growth?
Are you inches away from retirement with all your ducks in a row? Cash flow is probably (probably!?) the easy pick. You’ve got quite some time ’till you see yourself quittin’ yer day job? Capital growth is the way to go. Save the purchase of your retirement money tree for uh, retirement.
So where’s the rub you might ask? Come on, really? Human nature insists on at least asking why we can’t have both. I hereby invoke the BawldGuy ‘Cuz Rule. Why can’t you have both? ‘Cuz. 
To the extent you want capital growth, you’ll make use of leverage. Of course that means you’re acquiring more debt, which tends to interrupt cash flow, redirecting that very same cash towards the bank — not yours. Conversely, choose to go for the monthly gold and your capital growth rate goes same route your 17 year old six-pack-abs did.
Here’s the thing about this choice. It’s almost infinitely easier to opt for cash flow when nearing retirement. Duh. It’s those who’re hard after growing their net worth who seem to think cash flow is their birthright. In another life I was one of them, so I know whereof I speak. (Say that three times really fast.) What cracks me up is, if we all would just stop and think it through, the obvious conclusion would hit us.
Insert Common Sense Here.
You’re now earning more than you ever have in your adult life Five years from now you’ll be earning even more You simply don’t need the cash flow If you needed the cash flow, you wouldn’t have the money to invest in the first place Compromising your capital growth rate decreases your retirement income — guaranteed
Look, should the real estate investor intent on capital growth, look to lose ginormous amounts of money every year? Of course not. That’s silly on it’s face. But when your agenda is capital growth, and you’re in that part of your career when you’re almost guaranteed to be making more every few years, lusting for cash flow is not a sin — just don’t act on it. It’ll make a very large difference in your retirement income.
Really? Yep — here’s how it rolls out.
The #1 consequence is properties you didn’t acquire due to your infatuation with cash flow you didn’t need. Every property you don’t add to your portfolio now, is about a million bucks of net worth you won’t be enjoying in 20 years. I’ve done those numbers here more than a few times. It’s a real figure.
A million bucks at 6-8% yield is $60-80,000 a year in retirement income you won’t be enjoying — ever. And all ‘cuz you felt the warm fuzzies over having Starbucks money from your properties when you were makin’ so much money at your day job. In reality you’re trading nickels and dimes today for thousands of dollars at retirement. Hope that coffee was world class.
Stop it. Yer killin’ me.
I can show you what you should do in your specific set of circumstances when we talk. Contact me and we’ll figure things out. With a Purposeful Plan you won’t come close to trashing your retirement income of tomorrow for a few measly dollars today. Take the step and initiate a conversation. I need the fix. You know how I am.
Meanwhile, back at BawldGuy Ranch — Have you ever had to make up your mind?
This entry was posted on Wednesday, April 30th, 2008 at 9:25 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Cash Flow, Retirement Income, Investment Lessons, Leverage, Capital Growth, Goals. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.