(5 min - 7 min read time)
I remember when Mr. Charles Jones came storming into my office about two years ago. I had him take a seat while my assistant pulled his file. He looked at me and said, “I’m upset at you,” I said really. He said “yes and I should move my money to another Advisor as a result”. I asked ok, Charles you know me, talk to me what did I do? He said, “You recommended against me purchasing some real estate 6 months ago and now my friend has four houses”. I said so you are mad at me because your friend has four houses and you have only the one you live in. He said yes. I said Interesting, because your friend is single and does not live with his kids so his cash flow (when a money stream increases your bank account by one of three activities. 1. Financing (get a loan or line of credit of some sort) 2. Operations (you flat out get a raise, boost or an increase of regular household income) 3. Investment income of some sort) is different from yours. He said yeah but “he has four houses now and is doing well”. I said what is the definition of doing well? He said they are all rented out and he is making money. I said so what is his Free Cash Flow as a result? Charles looked back at me with a deer in the headlights look. He said “Huh”. I explained to Charles again about the difference between Real Investments (the houses), Financial Investments ( the stocks and mutual funds that he wanted to move to another Advisor), and Free Cash Flow (to be explained in a later post). I reminded him about the fact that Real Investments (property, land, etc…) are usually illiquid. (can’t put your hands on its true value within 30 days or less) Charles finally settled down and said thank you for saving me from myself. I told him that he was welcome and that Samantha I’m sure would appreciate it as well. Then I asked him how was his friend doing and was he still working for XPS Delivery services? He said yeah, but he is on sick leave right now, because of the injury to his back one day while delivering a box to a customer. Got it, I said.
I do not need to tell you what happened to the friend of Charles and his homes you already know the rest of the story.
What his friend did right:
Purchased Real Estate, Rented them out for Cash Flow, Invested a portion of his household income
What his friend did wrong:
Purchased all single family dwellings (cash flow was based on family renters which increased risk of monthly default on original loan), Purchased all real estate in the same market (state or location if an area goes down in value they all go down in value), Did not know his Free Cash Flow (covered in another post)
Three “Keep n Up” tips to remember:
1. You will never know everything there is to know about your neighbor’s cash flow so never try to keep up with them.
2. You must, and I repeat must, have one of the three cash flow elements working at all times. (this is a must)
3. Make sure you know your Free Cash Flow (will be covered in another post) before removing money out of your monthly household budget for any Real investment. **** Note to self Real Investments are hard to convert to cash within 30 days or less. Some of the wealthiest people know this and capitalize on people who do not.
I do not need to tell you what happened to the friend of Charles and his homes you already know the rest of the story.
What his friend did right:
Purchased Real Estate, Rented them out for Cash Flow, Invested a portion of his household income
What his friend did wrong:
Purchased all single family dwellings (cash flow was based on family renters which increased risk of monthly default on original loan), Purchased all real estate in the same market (state or location if an area goes down in value they all go down in value), Did not know his Free Cash Flow (covered in another post)
Three “Keep n Up” tips to remember:
1. You will never know everything there is to know about your neighbor’s cash flow so never try to keep up with them.
2. You must, and I repeat must, have one of the three cash flow elements working at all times. (this is a must)
3. Make sure you know your Free Cash Flow (will be covered in another post) before removing money out of your monthly household budget for any Real investment. **** Note to self Real Investments are hard to convert to cash within 30 days or less. Some of the wealthiest people know this and capitalize on people who do not.
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