It’s time for Ask The Guys … the episode where you ask and we answer!
After 25 years of doing this program … one of the things we’ve come to appreciate the most is our listeners from all over the world.
We have lots of great questions from our fabulous audience today …
Which is better—Cash flow or equity? How can I grow my portfolio faster? Can I invest profitably and make the world better at the same time? How can I prepare for a potential downturn?
Listen in as we take on these tough topics … and more!
But remember … we offer commentary, education, and resources … not advice.
Always consult with tax or legal professionals before making any investment decisions.
In this episode of The Real Estate Guys™ show, hear from:
- Your know-it-all host, Robert Helms
- His know-nothing co-host, Russell Gray
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Appreciation or cash flow?
Our first question comes from Preston in Boston, Massachusetts.
Preston and his wife have been building their buy-and-hold portfolio for over a decade … with single-family homes and several multifamily residential properties.
Preston says that these properties have so far been high demand B-class with strong cash flow … but they are unlikely to appreciate based on the markets and product type.
Should Preston and his wife add several properties into their portfolio mix that have strong potential for appreciation but require much larger down payments?
It’s important to note that Preston’s intention would be to one day 1031 back into a property with strong cash flow from one of their current portfolio picks.
Well … that’s a very thorough question that really speaks to the fundamental philosophy that every investor has to decide.
Are you more geared toward appreciation or cash flow?
When we talk about personal investment philosophy … that’s one of the metrics we use.
The answer isn’t right or wrong … there’s actually more to it than you might think.
One thing to be aware of is the difference between what we call faux equity and real equity.
Income property is valued by the income it produces … the more income, the more value.
When you have properties that are going up but the income isn’t going up … that’s faux equity.
That can happen because cap rates and interest rates are going down and people are willing to bid more for the same yield. We’re probably near the end of that life cycle because interest rates are about as low as they could possibly go.
Whether it is cash flow or appreciation based on people bidding up … at the end of the day, it’s about supply and demand.
Here’s the old dilemma … When you start out in real estate investing, you pick a market that provides cash flow. It’s not a lot of down payment … so you don’t need much money to get in.
But … as Preston is figuring out … there’s also not a lot of appreciation upside. So, your primary benefit is going to come from cash flow coming in and whatever tax benefits you might be able to use.
Markets are always evolving … so we wouldn’t dissuade anyone from picking an appreciating market.
With a little bit of homework and due diligence … and of course trusted market analysis … you’ll be able to find some markets that are poised for appreciation even while they wait for cash flow to start.
Never too late in the game
Eric from Anchorage, Alaska, is 54 and wants to retire from his 9 to 5 no later than age 62 with a minimum of $10,000 monthly income.
He currently has nine single-family homes in three states that are cash flowing a couple hundred bucks a month each … but he wonders if he is too late in the game to reach his goals.
Having a target passive monthly income is a great place to start. It lets you have a clear idea of what you are trying to accomplish.
You can breed equity where you buy a property and hopefully have a forced equity opportunity to fix it up, cash out, refinance, take the proceeds, and make a down payment on a second property.
Then … both properties appreciate because of market considerations, and you refinance those and buy more properties. Four becomes eight and eight may become 16 … and exponential growth really starts to take off.
When Eric asks, “Am I too late?” the answer is … probably not.
If you’ve got the chops for it … and it isn’t for everybody … syndication could absolutely be the fastest and cheapest way to grow equity quickly on your own portfolio.
With syndication, you are able to leverage other people’s money into fairly conservative deals and get a piece of the action for being the person putting it all together.
You increase your personal income and net worth to fund more deals if that is what you choose to do.
Instead of working a day job and investing on the side … some people just make being a full-time syndicate their day job and combine the two.
It takes a lot of work … but if you organize it properly … eventually you can become more passive.
Investing for a social cause
Cecilia from Denton, Texas, wants to be sure that she’s not maximizing the margins of her growing portfolio at the expense of social and environmental responsibility.
Cecilia says she knows there has to be investors and organizations thinking about how to solve social problems related to affordable housing and climate change but hasn’t found them yet.
The brilliant part about real estate is that you get to decide exactly how you want to build a portfolio.
Many people don’t just invest for the returns … it’s hard to get up every day if you are just about the buck.
Instead … we invest based on our passions, our purposes, and the markets we care about.
We’ve been involved with a lot of real estate investors where the primary focus was what you’re talking about … social capitalism or reason to invest.
While there may not be as many formal organizations … you can find a way to make deals and syndications that involve social goods and offer returns for other investors.
A great resource book written by some friends of ours is called The Social Capitalist by Josh and Lisa Lannon … and they talk about this very thing.
More Ask The Guys
Listen to the full episode for more questions and answers.
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