When Is Chasing Cash Flow Inappropriate?

Posted @ 7:26 pm - Filed under Capital Growth, Cash Flow, Investment Physics, RE investment strategies

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 on Thursday, November 5th, 2009 at 7:26 pm and is filed under Capital Growth, Cash Flow, Investment Physics, RE investment strategies. 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.