Dang It – Just Sold Two Homes!

Most folks think real estate investing is about buying, then selling a house, and walking away with a big pile of cash.  This is known as “flipping.”

If your goal is to AVOID retiring wealthy, then flipping is definitely the way to go!  The government steals nearly half of a flipper’s profits, and the flipper often foolishly spends the other half on important things like vacations, boats, watches, cars, etc.

On the other hand, if your goal is to be financially free – to be able to do what you want, when you want, where you want, why you want – then CASH FLOW is king.  In other words, you want to KEEP your investment property and put someone in the home who will take good care of it and send you monthly mailbox money.

This is why, as a real estate INVESTOR, when a property sells, it hurts, and it hurts bad!  Sure, you gain a pile of cash, but you LOSE your all-important cash flow.

Remember – cash can be a very dangerous thing as well as a huge obstacle to achieving financial freedom.  Cash can make you stupid – especially if you are young!  It’s way too easy to turn a pile of cash into a shiny red thing that honks and drops like a rock in value the second you buy it!

Owning investment real estate is much safer than a pile of cash.  Because your equity is tough to get at, you’re far less likely to spend it on foolish things, which means your equity and cash flow continue to increase over the years.  Plus, the tax rate on investment income is far below that paid by flippers; remember, it’s about what you keep – not how much you make – that counts!

This week, we learned that folks in two of our investment properties are cashing us out.  The first property is a nice doublewide in a mobile home park in Acworth, Georgia.  We bought it for $4,000 this past January.  My partner on the deal is Houston Long, a long-time friend and fellow investor.  Our tenant – he’s paying us about $300 per month – just transferred to Macon, Georgia.  When Houston (he’s a marketing god) put the home on the market, he immediately got a $16,000 all-cash offer to sell.

The next day, Kim and I got a call from one of our lease-option tenants.  He let us know that he is exercising his option to purchase.  The property is in Cartersville, Georgia.  We bought it for $2,250.  It brings in $375 per month in mailbox money.  The strike price is $14,600.

Let’s look at the big picture: We’re about to gain $30,600 in cash.  But to gain this cash, we’re forced to give up $675 in monthly cash flow!  (NOTE: This money is not all ours – remember, we partnered with Houston on one of the deals.  I’ll talk about the advantages of working with a partner in next week’s column.)

Now dig deeper.  There are a million ways we’d like to SPEND this cash.  Our house needs new carpet, our kitchen countertops are falling apart and we’d really like to go on a cruise.  Do you see the dangers of having a pile of cash?

To prevent the cash from slipping through our fingers, this very minute Kim and I are headed to a closing attorney’s office to buy a property on Bailey Road in Aragon, Georgia.  Our goal is to quickly replace the $675 we just lost in monthly cash flow.

We really hope today’s column helps you to better see the BIG picture.