Back in the day when I used to teach real estate investment strategies and various forms of analysis, I discovered a profound disconnect among the vast majority of students. Whether is was from seminars led by the latest ‘guru’ or whatever real estate investment ‘how to’ book was popular at the time, the concepts of cash flow, capital growth, and time were summarily slaughtered.
You can find the expanded versions of this post in a couple earlier efforts here. However, as a result of several recent conversations the last few weeks, I felt compelled to write a down ‘n dirty primer on the two basic strategies of investing and how they’re affected by the timing of their execution.
Concept: To the extent you put cash flow first on your agenda, capital growth suffers — and vice versa. If you think you have both in one property, you’re probably correct — you have both in mediocre measure, neither one making the impact desired. In sports it’s like a tie — nobody wins.
Concept: In general terms, if you have at least 10 years till retirement, capital growth is the play you want. Remember timing — you want maximum cash flow at retirement, not today. The more cash flow you have today, the less you’ll have at retirement. Don’t get upset at me, it’s the way it works.
Concept: We tend to complicate what cash flow is. It’s nothing but the yield on invested capital. 6% on $3 million is more than 6% on $1 million. Duh. Build your basket of capital to as large amount as you can, as long as you can, as aggressively as your comfort zone and prudence allows.
Concept: A proven strategy, expertly executed, is virtually crippled when executed with poor timing. Going for cash flow before it’s time is analogous to puttin’ the cart in front of the horse. It simply doesn’t work well if at all.
It’s important to stress how truly simple these concepts and strategies are, and how rewarding — or punishing they can be, depending upon the timing brought to bear on their execution. Some concepts and strategies can be relatively complicated, some might even say sophisticated, especially when used synergistically in concert with each other. However, when taken one at a time, virtually none are rocket science.
For the savvy real estate investor who’s end game is a magnificently abundant retirement, the proper use of strategic timing cannot be over valued. Poor timing is almost universally the crucial factor when retirement plans fail. Also, it’s equally important to understand that whenever we speak of timing various investment strategies, we’re definitely not talkin’ about timing markets.
Well thought out strategies executed in a timely manner are as reliable as gravity.