“Cash now, Cash later!”

Let me cut to the chase.  People invest in real estate to create financial stability and wealth.  To quote my good mate and best selling author, Philip McKernan, “Real estate is the best asset class in the world!” I agree; and history is there to back this statement.  Regardless of what is going on the world or global economy, the reality is people will always need shelter and that is what this investment tool provides.  The financial aspect of real estate investing can be broken down into two simple classes, “cash now” or “cash later” investing.

I believe it is important to share why it is vital to understand the two different strategies and how they can best be used if you are going to get into the game.  Just like anything else in life, finding a balance between the two, I believe, will serve you best.  What it really comes down to is what your personal situation and goals are with regards to creating financial wealth in your lives.  Everybody is at a different point in their lives and everybody goals are unique so there is no magic formula.   What I want to share is what these two options can provide and then you can decide how to use them best to serve you and your investment needs.

CASH NOW

If you are looking to create cash now to help support your lifestyle or pay your bills/debt, then without doubt, your best strategy in real estate is to buy, fix, and flip property to create cash injections quickly.  I believe even if you are in a position today where you are not short on cash and have healthy liquid reserves set aside, nothing bad can come from flipping real estate.  Your worst-case scenario if you buy the right deal and are able to exit the deal quickly at the sale price you projected, is, you’ll have more money in the bank.  I’ll take that problem any day.  One thing I am crystal clear on especially after having gone thru this last downturn is having liquidity (cash reserves) makes you sleep like a baby at night and remain creative in your business.

I hear all the time investors complaining about paying capital gains which makes zero sense because if your paying a lot of capital gains, you must be making a lot of money or you need to get a new accountant.   Speaking of taxes, we don’t pay a penny more than we legally have to and real estate is an awesome tax haven but that’s another lesson, I don’t want to get sidetracked.

Everyone in the world (billionaires included), unless you were a trust fund baby, has been cash strapped at one point in his or her life.  And everyone knows that when you are cash strapped, creativity goes out the window, and you fall into survival mode, which carries with it a completely different psychology.  It’s very easy to fall into a scarcity mentality when you can’t keep up with your bills and in turn growth becomes impossible until something shifts.

Flipping houses can help make that shift happen by creating a healthy surplus of cash NOW!  Its not rocket science, you buy low and sell high and when you can create a system where you can do this in volume, your cash strapped, survival mode days can be a thing of the pass.

There’s always two sides to the coin and the down side to this model is you are trading your time for dollars which means as soon as you stop flipping houses, the income stops and your dead in the water.  This leads me to the next strategy, which is the long term, buy and hold model that has been around since we were living in caves.

CASH LATER

Buying and holding cash flow positive property once again is not rocket science, but if you implement this model and have quality management in place, you are creating true long term wealth (equity) that can and will continue to grow even when you stop acquiring or building your portfolio.   This happens through the rental cash flow paying down your debt and the asset appreciating in value depending on where we are the real estate cycle.  It is simply planting some seeds and nurturing (managing) those seeds as they grow.  This is what we call a “patient money” technique, meaning it’s a long term strategy, but one that has proven to build incredible wealth since the beginning of time.  I want to drive home the key to the success of this model is ongoing property management.  The old saying goes, “money follows management”, and this couldn’t be truer for rental property.  A great deal can turn sour very quickly if it is not managed correctly and stays occupied and performing throughout the life of the investment.  The advantages of rental portfolio investments are that they can be somewhat passive as long as quality management is in place.  Keep in mind, just because you have great property management in place, never become complacent with overseeing your investments.  Just like anything else, the more focus and energy you put into your investment, the more you’ll get out of it.

This model can set you up to be financially free as long as you are investing in a market with sound fundamentals, great management, and you are willing to be patient and let the asset work for you through ongoing cash flow and equity.  To be transparent, there are some cons to this model.  If you do not have sufficient income right now to support your lifestyle and overhead, equity will not pay the bills for you.  Equity is money on paper and real estate is not liquid meaning you make a phone call and can sell your asset that day.  Being a landlord is not a sexy or glamorous job.  It requires patience and knowing how to deal with the day to day of your portfolio whether you are managing it yourself or subbing out to a third party property manager.

The less leveraged you are, the greater your cash flow will be, the closer you are to financial freedom. As soon as the cash flow from your portfolio covers your lifestyle and overhead, you are out of the rat race.  I want to be very clear, that by no means am I suggesting you should quit your job or business you are currently in and go into land lording or flipping property full time.  In fact, I feel the opposite, that investors wanting to get into real estate should keep their jobs as the income and stability of their jobs will allow them to be that much marketable to the banks for loans on real estate.  No sound lender will work with you if you cannot show stable income and have good credit.  Its not a race and let me repeat, this model is for the patient investor looking to build true long term wealth backed by tangible assets with healthy cash flow and equity growth.  Plant some seeds, water the seeds, and they will grow and produce fruit for you year after year if you manage them correctly.

There is no right or wrong way, only what works for you.  I am in real estate full time, which is why I do a blend of the two strategies I shared here with you.  Flipping properties creates a healthy cash flow for me today while slowly building my portfolio simultaneously helps me get that much closer to financial freedom.  Please note how I do not use the term “retirement” as I believe that idea, to be frank, is bullshit.  Every person I know whom has ever retired always goes back to work or creating some type of purpose in their lives.  We did not come here to be stagnant but to create.  There is a time to rest and time to work and play but the moment we tell ourselves we are retired, we are kidding ourselves and it is just a matter of time before we need to fulfill the desire to contribute in some way. 

I wish you all the best of luck in all your endeavors and remember to always have fun along the way!  Be well!!!