Cash or asset rich?.... or both?

[BayView]

Hi guys,

Just wondering what the 'norm' is for most property investors. Are you cash and asset rich, or cash poor and asset rich?

What about the commercial investors out there?

I realise the term 'rich' is subjective, but I'm interested on how you consider your own situations.

I love these types of threads/discussions.

Why?

Because I get a chance to illustrate how easy it is to do well with no real skill, but lots of faith, commitment and sacrifice.

Not blowing our own trumpet; I just want to let all the newbies know that it CAN be done, and you don't need to be a superstar. Far from it.

I am the typical average income mum and dad investor who decided to make my own luck and get into it. (hit 40 and realised I was a mere mortal who will die eventually).

We started off being mostly cashpoor and asset rich (owned the PPoR and the two cars) on average incomes.

Then we started investing in IP's and continued being just as broke for a number of years, but the "asset rich" factor was climbing.

This was definitely the "big picture" phase. We were thinking; what the hell are we doing?

In 2000 we owned our PPoR worth $300k. Great huh?

Last year we tipped $1mill in equity, and we never earned more than $100k of PAYE combined at any point in that time. Not bragging, as this is small potatoes - just stating facts.

You can say we were "lucky" to have benefited from the last boom, but hey; we took actions and put some risk on it in the early years. You make your own luck in this world.

Now, we have used the growth in the assets to leverage into business for better cashflow, while holding the IP assets, so we are now into the heady heights of asset rich (depends on your version of "rich") and cashflow reasonably well off.

The asset base is always growing, we are now financially free for the most part, and it only took 9 years. And, we are not all that good at this.

My head is very fixed on cashflow now; the better this is, the less you need to work.

The cap growth is necessary, as it allows you more leverage to play a the higher levels, whether it be property or business or more shares, but it's the cashflow that allows you to enjoy it all.

Finally, we did no exotic share or property trades - no Gordon Gecko stuff; I'm actually quite risk averse.

I think the timeframe mindset needs to be 10 years to see the real benefits of property. Can't comment about shares.

 

[Minxdamanx]

It is all relative as others have said.

To someone who has never had much spare cash - having 5k in the bank is cash rich.

To someone who has only ever owned - or is still paying off - their own home, buying 1 IP would make them asset rich.

In THEIR opinion AND in THEIR circumstances.

I don't know what I am. If I compare how we are positioned today with 10 years ago we are both asset and cash rich. If we compare ourselves with others here - then we are poor in both respects.



We are happy with our position at this point in time, and hopefully I'll be able to say the same in a few years time!

 

[DanielG]

I love these types of threads/discussions.

Why?

Because I get a chance to illustrate how easy it is to do well with no real skill, but lots of faith, commitment and sacrifice.

Not blowing our own trumpet; I just want to let all the newbies know that it CAN be done, and you don't need to be a superstar. Far from it.

I am the typical average income mum and dad investor who decided to make my own luck and get into it. (hit 40 and realised I was a mere mortal who will die eventually).

We started off being mostly cashpoor and asset rich (owned the PPoR and the two cars) on average incomes.

Then we started investing in IP's and continued being just as broke for a number of years, but the "asset rich" factor was climbing.

This was definitely the "big picture" phase. We were thinking; what the hell are we doing?

In 2000 we owned our PPoR worth $300k. Great huh?

Last year we tipped $1mill in equity, and we never earned more than $100k of PAYE combined at any point in that time. Not bragging, as this is small potatoes - just stating facts.

You can say we were "lucky" to have benefited from the last boom, but hey; we took actions and put some risk on it in the early years. You make your own luck in this world.

Now, we have used the growth in the assets to leverage into business for better cashflow, while holding the IP assets, so we are now into the heady heights of asset rich (depends on your version of "rich") and cashflow reasonably well off.

The asset base is always growing, we are now financially free for the most part, and it only took 9 years. And, we are not all that good at this.

My head is very fixed on cashflow now; the better this is, the less you need to work.

The cap growth is necessary, as it allows you more leverage to play a the higher levels, whether it be property or business or more shares, but it's the cashflow that allows you to enjoy it all.

Finally, we did no exotic share or property trades - no Gordon Gecko stuff; I'm actually quite risk averse.

I think the timeframe mindset needs to be 10 years to see the real benefits of property. Can't comment about shares.

Excellent post Thanks Bayview. Exactly what I was looking for. I don't think you are showing off, in fact, it's people like you that motivate me. I agree with your sentiments, you need a mixture of good cashflow and equity. I will soon need to diversify from property into other areas to improve my cash flow, you mentioned business....can you elaborate more on this? Did uyou start a business or invest in one?

 

[ianvestor]

There is a lack of numbers in this thread which is a bit unhelpful IMO.

How about I put a definition out there of cash rich? Say, if you have $1m in cash available at your disposal at any point in time. For me that would be cash rich - whether it's savings or from a loan secured against equity isn't relevant to me but may be to others. Of course everything is relative and for James Packer he would be feeling quite poor with that but the definition works well for me.

For asset rich, I would require a net worth of $10m to consider myself asset rich. That would mean I could meet the desires of life without having to think about how it would effect my financial situation (most times!). YMMV!

Interesting. My gut feel is around 5x to 10x what you've suggested. $10m cash to be cash rich and $50m net worth to be asset rich. I wonder if I'll feel the same way once I actually get there.

 

[BayView]

Excellent post Thanks Bayview. Exactly what I was looking for. I don't think you are showing off, in fact, it's people like you that motivate me. I agree with your sentiments, you need a mixture of good cashflow and equity. I will soon need to diversify from property into other areas to improve my cash flow, you mentioned business....can you elaborate more on this? Did uyou start a business or invest in one?

We bought an existing business recently:

http://www.somersoft.com/forums/showthread.php?t=47824

This involved a lot of borrowed money (equity) to do it, but the nett cashflow after all expenses and tax has improved the cashflow for us.

This is more expensive than starting one, but the business is existing, and therefore showing profits from day one if you buy well.

Starting a business is not good for the cashflow in most cases.

It usually takes a while until the cashflow is more than the expenses, and sometimes never.

The upside of starting your own business is that for a small outlay, you may end up making a lot of money (return). The downside is the risk.

With buying an existing one, the return may be smaller, but so is the risk if you do the DD.

 

[joanmc]

I consider myself both cash and asset rich but we are nowhere near 10 mil!
the funny thing is I always used to look in jewellers shop windows and long for the day that I could afford anything that took my fancy in there but now that I can ...I don't want it anymore. But it's nice to know that if I did want it I could have it and that is enough for me. Cars and boats etc don't do it for me at all, but going to club med with the kids twice this year did.

I would like to get to the point that I could do something like the secret millionaire...that would be awesome.

we are now only limited in what we do by the kids schooling and sport commitments and that feels great.

I agree with the other posts about wealth of knowledge too.

 

[sanjayag]

It is all relative as others have said.

To someone who has never had much spare cash - having 5k in the bank is cash rich.

To someone who has only ever owned - or is still paying off - their own home, buying 1 IP would make them asset rich.

In THEIR opinion AND in THEIR circumstances.

I don't know what I am. If I compare how we are positioned today with 10 years ago we are both asset and cash rich. If we compare ourselves with others here - then we are poor in both respects.




We are happy with our position at this point in time, and hopefully I'll be able to say the same in a few years time!

Totally agree.
With having $3k in my account, $15K total equity (in my PPOR plus 1st IP) in Australia, driving a Mitsubishi380 (bought for 18K, existing loan 5K), having $30K equity in my property in India..........I feel that I'm very rich as compared to in 1989:
1. Was earning $0.5 a day (not hourly) being a 15 yr old boy, washing recycled beer bottles in a factory in India.
2. Was living with my parents and 3 sisters/brothers in a 1 bedroom flat.
3. No auto vehicle (only 1 pushbike)
etc.

The delta gain is more important than absolute richness.

Regards
Sanjay

 

[RumpledElf]

The delta gain is more important than absolute richness.

And your lifestyle. If you have enough cash coming in, backed by whatever assets, that takes to live a nice, happy, comfortable life with all you need and a bit leftover and a healthy buffer for emergencies, it really doesn't matter the actual dollar figure.