Averaging 12-18 hours a week talking with real estate investors about their plans for retirement, common denominators show themselves, as you might expect. After all – when you boil things down to the basics, most folks fall into many of the same categories.
When asked, for example, about the timing of their retirement, they usually agree on yesterday afternoon around 4:30. Then there are those like me, who continue working, regardless. They love what they do, so retirement is merely the day they get to say they’re working by choice.
One of the most common misconceptions in long term real estate investing is when to apply various strategies. Many times they don’t realize highly productive strategies, when mistimed can literally retard the potential retirement cash flow they so highly covet.
The GrandDaddy of all mistimed strategies is that of capital growth and cash flow. In my experience the timing of capital growth and cash flow are virtually axiomatic.
To the extent you go full throttle for one, you inhibit the production of the other.
There are many ways this happens, especially when the investor puts all their eggs in the cash flow now and at all costs ‘basket’. Of course, talking about the timing of cash flow and capital growth begs for the real definition of cash flow, a universally bastardized concept if there ever was one.
First Off, Cash Flow is Nothing but a Yield on Capital
The yield typically doesn’t fluctuate much when the size of your equity/capital is considered. All that means is that if the yield on capital is X%, you’d prefer it to be on $1 million, not $100,000. And there’s the rub.
When cash flow is mistimed, inhibiting capital growth, the ultimate cash flow, coveted by the investor — retirement cash flow — is virtually destined to be less than it …read more