What’s Your End Game?


When investing long term, what is your end game? What’s the bottom line reality you wish to generate when all is said and done? Ask 100 people that question and, in my experience you’ll hear retirement as the answer at least 97 times. Let’s define retirement here as concentrated on income. Captain Obvious for sure, but it needed to be said.

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What are the Issues to be Addressed Along the Way?

Let’s first address the issue of cash flow vs capital growth. Which one is better? OK, that was a trick question. That’s akin to, ‘Which is better, a fastball or an off speed pitch?’ I dunno, who’s up? What inning is it? What’d you throw him last time up? What are the game circumstances? Are ya havin’ a good day on the mound? All that to illustrate that circumstances and timing have everything to do with whether or not cash flow or capital growth is the way to make things happen.

If you’re relatively far from retiring, cash flow ain’t your problem. Since you’re makin’ enough to pay the down payment and closing costs, you’re flush with cash flow. You need capital growth. It’s about timing, and the time you want maximum cash flow is in retirement, NOT now. All cash flow is is a yield on a pile of gold. The one with the most and biggest piles of gold wins. The yields are pretty much the same out there. But when X% is applied to a few million bucks the yield is considerably more in dollars than the dollars generated by less than half that. As you can see, this isn’t much more than simple arithmetic.

Related:Using Real Estate Investment Strategies – THE Commandment

Taking Advantage of the Market.

The market dictates what you do, when you do it, how you do it, and just about everything else. I’ve violated that rule three times. I’ve lost three properties, the last in the early 80s. Do the math. Like Dad was fond of sayin’ to me, “Son, I love ya, and Lord knows you’re smarter than the average bear. But sometimes you are a sloooooow learner.” Ouch. Three times I forced the market to ‘my will’. Three times the market laughed at it crushed my spirit. I wasn’t that smart, nobody’s that smart. Take what the market gives you and say thanks on the way out. Violate this principle at your own risk. The only way you’ll escape will be via random luck.

Related: How Does Location Quality Impact Flippers VS Long Term Investors?

Lower Price, Higher Cap Rate? OR . . . High Quality Location? 

The unbridled confidence and enthusiasm of investors 10-30 years from retirement almost always turns to ‘woe is me’ regret and unintended consequences when location quality is compromised. I’ve seen pretty much every iteration, heard every excuse. There are folks in or nearing retirement in San Diego, for instance, who wish they’d paid more for the long term benefits of superior location. Instead, they face relatively high tenant turnover, lower net operating income(s) due to higher operating expenses, and the virus that kills slowly but surely, rampant functional obsolescence. I’ll put it in plainer English.

You’ll likely end up with what the dog left behind in the park. Welcome to the retirement you tried in vain to avoid.

Related: Synergistic Strategies – 15 Years To A Magnificently Abundant Retirement

When superior retirement cash flows are reviewed in retrospect, we learn it’s mostly about strategy.

What most think is a real estate investment strategy, is merely adherence to a broadly based concept. For example, buy and hold. Or, buy low, sell high, and always avoid paying taxes. There are a bunch of ’em. But the real strategies involve the fundamental understanding of all the ‘whys’ attached to their end game. Why invest in this rather than that market? Why buy now and not next year? Why use prudent leverage, or not, in particular scenarios? Why, why, why? Of course understanding multiple strategies is crucial. However, it’s the ability and experience to know what strategies apply to what scenarios, when to pull the trigger . . . or not.

But what really separates the wheat from the chaff is the capacity to combine strategies in order to produce superior results, often with better velocity.

Do the complete analysis while understanding any limitations you may have as an analyst.

So many times I’ve been surprised, big time, by the results of a truly objective and comprehensive analysis of a particular market or property. Same with choosing various loan options. Here’s a bet responsible for more free drinks and onion rings than I can remember. It’s a simple lesson about analysis and interest rates.

Cindy and Tim each buy the same duplex type properties, next door to each other. They’re practically clones of each other. They both get loans for $200,000 with fixed rates, 30 years, no balloon payment. The lone difference was that Cindy’s loan was for 5%, while Tim paid for a lower rate, 4%. They both added $2,000 a month to the loan payment. Which one paid off first?

Neither one. Both end up paid off in 77 months. Go figure. Do the analysis to the bitter end. Let the chips fall where they may. We may not like the answer, but it is what it is, regardless of our biased presumptions.

Forget Murphy, let’s talk about O’Toole

Back in the 1970s I brought my crystal ball to the shop for repairs. Still there. Regardless of what we’d like others to believe, we really can’t predict the wild cards in our economic/financial future. Yet, we all read/see/hear folks tellin’ us with unbridled confidence about the bull or bear market ahead of us. I’ll use myself as an example. I thought I was being pretty smart to abandon my hometown market of San Diego back in 2003. But let me tell you a couple secrets about that.

First, I didn’t leave cuz I smelled a huge bubble burst. I left cuz I couldn’t look intelligent investors in the eye and tell them the duplex they liked was actually worth 20+ times the annual gross scheduled income. (Not kiddin’ about that, as you can’t make up somethin’ that stoopid.) I was merely looking for a market(s) making more investment sense.

Second, and I’ve admitted this countless times, if we’re honest, I shoulda left that market at least a year or two earlier. I was too close to it. Lesson learned. A priceless lesson at that.

Murphy set us up by allowing almost four decades of a predictable script. Impressive appreciation followed by a rest, followed by more appreciation. Worked that way from 1975 ’til it didn’t.

O’Toole was the smart one. His reply to Murphy’s Law? “Murphy was an optimist.” In other words, man plans, God laughs. We can’t know the future to the extent we’d like.

Back to your end game.

As long as we understand our lack of control over national/regional/local economics, and the fact we can only control what we control, our end games become at least somewhat easier to attain. Add to that knowledge the understanding of available strategies and solid analysis, and the odds favoring your ultimate success increase significantly.

I know, it all seems so Captain Obvious. If that was true though, there’d be a whole lot more successful long term real estate investors. The fundamentals are invaluable — ignore them at your peril.

Photo: Waldo Jaquith

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Collin Kautz on


    Bravo! Fundamentals win games! You learn this lesson constantly as a kid (especially from athletics) but somehow forget to apply it to your game plan every day. Great reminder Jeff and we can always use more Captain Obvious to keep us on track!

    I’d like to know more about your upcoming webinar “The Bawldguy Presents: Listen! The Market is Trying to Tell you Something!” : ) (or maybe just a future blog post!)

  2. Robert Steele on

    This simple truths are often those that are missed.

    I like your post. Maybe a bit light on the specifics, but enough food for thought to hopefully get people to revisit their end game and not miss the forest for the trees.

    A friend of mine filled his buy and hold portfolio with class C blue collar worker homes. Superior cash-flow at the time compared to the nicer white collar neighborhoods. But now he’s missed out on all the appreciation and the rents in the nicer neighborhoods are throwing off just much cash flow now.

  3. “Stick to fundamentals”

    I see this in other places, including software development. Anytime I get over excited or too emotional about some problem, I forgot fundamentals and try to hasten the solution. Without fail, I get busted and end up having to retreat back to the beginning and do it right. But having wasted time along the way, it was worst.

    “They both get loans for $200,000 with fixed rates, 30 years, no balloon payment. The lone difference was that Cindy’s loan was for 5%, while Tim paid for a lower rate, 4%. They both added $2,000 a month to the loan payment.”

    Is the reason for this simply because the extra payment of $2000 is a much bigger factor in total principal payoff than the miniscule 1% difference?

    • Jeff Brown

      I like your approach, Greg, callin’ a whole percentage point in interest, miniscule. 🙂

      The monthly payment is almost 12.5% higher at 5%. The interest paid is 25% higher at that rate. On the surface it simply makes no sense they’d both pay off at the same time when the $2k/mo is added equally. Mainly, the results are a product of loan amount, difference in rates, velocity of principal pay down, and amount added to payment monthly. It doesn’t by any stretch come out equal every time. In fact, it gets stranger if you only add $1k to each of those loans monthly. Check it out.

      Adding $1k/mo to your 4% $200k loan pays it off in 126 months. However, the same $1k/mo added to that loan, but at 5%, pays it off in just 124 months. Strange, but true.

      You’re welcome for all the free drinks. 🙂

      • Digging up my favorite mortgage calculator (don’t have a 12C in my clutches), I see that $200,000 over 30 years at 5% produces a monthly payment of $1073, of which $833 is interest. At 4%, the payment is $954, of which $666 is the interest. The difference is $70.

        That extra $2000/month is letting you skip over roughly 2.4 months every month when it’s 5%, and 3.0 months every month when its 4%, of which the difference is only .6 months, i.e. not yet a whole month. Each month you keep trying to pay it off at an accelerated rate, but each month, the total interest falls, and hence the “effect” of extra payoff is not as big as the first month’s extra payoff, which is probably why that .6 month different never gets big enough to equal an entire month’s of difference. Just a guess, but that seems to me why $2000 is much bigger than that $70 difference in interest.

  4. Jeff,

    Good stuff, I can see for the last 20 years I have been doing the low income cash flow stuff to generate bucks to pay for my children’s private school / college. Now I am wishing I didn’t own some of these properties. When they are gone I am going for pay down of a few nicer properties to provide cash flow for retirement.

    And yes, if I had it to do over again I never would have bothered with low income properties, as around the time I was buying those for peanuts I could have spent a little bit more for better locations, that have now tripled in price, and would also be paid off. I could have generated the same cash flow with other endeavors, not to mention a lot of the cash flow was used up on vacations and other fluff.

    Like you we all have to learn our lessons.

  5. Jose Gonzalez on

    Hello Jeff,
    I really like the approach you make about the net worth at the end of the time, but still I believe more in cash flow and use it for new investments to increase wealth. Let me give you my perspective.. I am purchasing actively properties that give me 12 to 15% in earnings per year, still have 30% spread in the actual market value in those after the repairs. I have tried to look for higher end properties and areas but still it is very difficult to approach the 1% rule, which if acquired it would give around 7-8% yield after expenses. Even though appreciation will strike those properties harder, wouldnt it make sense to have properties that have been payed off several times after 20 years, than the ones that have only payed off 1.5 times in that same time with rents? wich if invested wisely, the portfolio could have grown in new additions with extra income?
    I have seen some people that own several properties like that but with inflation affecting the rent ammounts, they pay their original cost every 6 months. If they had more valuable properties they would be still having strong cash flow but less cash volume by the month, which I believe is what makes real estate the best investment available.
    I would appreciate your thoughts on this, I really respect experienced investors like you and would love to hear your opinion of a package that I got accepted today… 6 single family homes in their own subdivision and all built in 2007. I would really appreciate your advice, please let me know if you want me to give you the numbers.

    Thank you in advance!

  6. Jeff Brown

    Hey Jose — Please not the comments made by Robert Steele and Dennis. It’s about the long term consequences.

    The only question I’d ask about the six homes is this: Would you put your grandma in one of ’em to live alone?

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