Net Worth



From: Anonymous

This is an excellent post fron the creonline forum:-

As a real estate investor, I watch many of these folks who tell of the net worth they have aquired in real estate. Others tell of the huge value of their stock portfolio, evidence the articles of 1999 and 2000 with cover stories of huge net worths. All this is very interesting, and I like to call it " The Net Worth Game" Or "Trying to convince people your rich, even though you don't have any money".

Lets get to what real estate is really about. It is about CASH FLOW! Although certainly there is importance in building an asset base that will grow, cash flow is the key to the game to get the financial freedom you REALLY want.

Look at the overnight vanishing of net worth of those invested in the stock market. We don't see that same thing with real estate. ALthough real estate can go down, thats not as important , if you develop a portfolio of real estate with a positive cash flow, as rents generally in my experience do not drop 20-30%. They may drop 5-8%, but they do not fluctuate like stocks prices by any means.(barring some major problem in the local area/floods, economic fall out etc; in which case you just buy it all back cheaper from all the foreclosures, because you know how)

The key is to get a positive cash flow from your property, so that you can have the freedom to not have to be anywhere to work on a day to day basis. Your time then becomes your own.

YOu will meet people who claim they have a net worth of say 2 million, but they barely break even on their investment, they have no cash to speak of, and are just hanging on.
These people are at a stage in real estate investing, where they have built an asset base, but cannot borrow against it, as they will go upside down with the new payments. The key is to try to buy properties that have below market rents, that you can raise rents on, and get a positive cash flow.

My friend Bill just bought a 3 unit building in Oakland CA, no money down, which will cash flow approximately 1600.00 a month net after all expenses. Ten more of those and he is done. This is not the prettiest one on the block, but it cash flows like you are looking for. The prior owner bought it years ago, owns 90+ properties, and sells a few a year.

SO the NET Worth Game is fun for bragging, but to enjoy the freedom you really want, get down to cash flow, thats positive cash flow. How much is enough, I think a good number is when your positive cash flow exceeds expenses by 50%. SO if you live on 6K a month, you want 12k or better as a minimum.

Having a huge asset base will make you wealthy long term, as the bigger the number, the bigger your gains. Ie 4 millioin in real estate x 4% year x5 years ). But more is not better necessarily, if management, maintenance, and other expenses eat up your cash flow. I am talking from experience here.

A big net worth does not necessarily make you rich, if the costs of your assets eat up your cash flow. What would your preference be : both of course, but one over the other, I will take the cash flow over bragging rights anyday. Cash flow gives your the freedom, a big net worth may, both are ideal.
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Reply: 1
From: Jeremy Laws

Cashflow pays current bills, net worth makes you wealthy. Gives you access to bank cash. Just ask Ray Croc. Frankly my needs are little, net worth allows me to borrow to achieve.
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