How Real Estate Investors Really Get It Done – Attn: Newbies

Posted @ 6:57 pm - Filed under 1031 Exchanges, BawldGuy Axiom, Capital Growth, Cash Flow, RE investment strategies, Retirement Income, San Diego Property Owners

This might turn out to be a short series, so if it seems there should be more info, your instincts are right on. There’s so much for the new investor to know. Let’s begin by invoking one of my all time favorite axioms.

BawldGuy Axiom: It’s hardly ever the answers to your questions that end up producing dire consequences. It’s usually (80/20 rule?) the answers to the questions you never knew to ask that end up ruining your day.

I’ll assume you either A) Have the necessary capital to acquire your first property(s) or B) The equity/assets to provide it. Most folks without the hard cash, tap into their home’s equity — if it’s prudent under their unique circumstances.

First, let’s get some myths out in the open.

It’s axiomatic that the real estate investor should acquire only high cash flow properties.

When you buy income property it’s common sense to buy local so you can keep an eye on things.

Tax shelter, by definition, comes with real estate investment property.

Holding periods are generally planned for in advance.

Tax Deferred exchanges (1031) are indicated by default when capital gains are an issue.

You are forced to hold on to real estate investments long past retirement due to taxes on capital gains.

Having a cash reserve is a luxury. If you buy right, ya don’t really need much in reserve.

Those are merely a handful of myths so many investors still believe. If you took the strategies which are unknown to the vast majority of real estate investors taken from the truths those myths hide, most investors would significantly increase their ultimate retirement pot of gold.

Let’s talk about one of them now.

Look, my grandpa also told me cash flow is the gold standard of any real estate investment, no exceptions. If I heard it once, I heard it a hundred times a year from adolescence on. Born not long after the turn of the century (Um, that would be the 20th century.), that school of thought pretty much dominated. Over time however, retirement strategies have been created, tested, and shown to be successful without worshiping at the altar of cash flow from Day 1.

Cash flow and capital growth are the two main goals of investors. It’s the timing of both that is most critical to you. Before I continue, don’t walk away from yer laptop thinkin’ BawldGuy said cash flow is bad, or worse yet, to be avoided. What I AM sayin’ is that if maximizing your retirement cash flow is your goal, and you’re 10-40 years from retiring, cash flow ain’t yer friend — capital growth is. Going for cash flow at that point will retard capital growth.

NOTE: To ensure there’s no misunderstanding here — I’m not advocating the avoidance of property that pays for itself. A little cash flow is definitely a good thing. But in your ‘capital growth’ years, look at cash flow as seasoning. Too much and the meal is ruined. Just enough and the meal is enhanced.

The process of creating maximum income for your retirement is simple as pie. Gettin’ it done is not. Cash flow is — directly put — a yield on a pile of cash — capital if you will. Nothing more, nothing less. It’s really not complicated, though it seems many insist on making it so. Follow me here.

Since cash flow is a yield, let’s say the yield is manifested as ‘interest’ on an amount of capital. Regardless of the interest rate, the guy with a million bucks gets the same interest rate as the gal with half a mil. Clearly, the difference then is in the dollar amount generated, which is obviously more for a million dollars than for half as much. Double Duh.

So if you’re say, 22 years from retirement, your agenda is to grow your seed capital into as many huge piles of big bucks as you can — safely. The more piles you create, and the bigger they are, the more ‘Golden’ your retirement years will be. Those who choose instead to spend those same 22 years bowing down to cash flow will end up with far less income at exactly the time they needed the most income.

The reason that last statement is true is cuz maximizing cash flow retards capital growth — and vice versa. Don’t say anything. It’s like fire and water. Add one to the other and one of them loses — no exceptions.

Make sense?

Let’s have a one on one conversation. Call me at 619 889-7100. Have a good one.

This entry was posted on Tuesday, November 17th, 2009 at 6:57 pm and is filed under 1031 Exchanges, BawldGuy Axiom, Capital Growth, Cash Flow, RE investment strategies, Retirement Income, San Diego Property Owners. 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.