EP 26 - Why You Should Balance Cash Flow and Equity in Real Estate Investing
Apr 06, 2022
Do you think real estate investing is a gateway to money and success?
Don’t be fooled! Real estate can be a tricky investment if you don’t know what you’re getting into. Many roadblocks can impact your portfolio equity and value. The truth is, real estate investing is both a people business and a long-term investment. If you want to succeed, you need to be patient, strategic, and consistent.
We here at the Collecting Keys Podcast are relaunching this episode as a reminder of what real estate investing is all about. We talk about the common roadblocks in real estate investing and the value of good properties. We also discuss the differences between cash flow and equity, and why you need a good balance of both.
Here are some power takeaways from today’s conversation:
- Real estate investing is a people business
- Balancing cash flow and equity is important for success
- It’s better to consistently buy rather than speculate on properties
- If it’s a good deal today, it will remain a good deal tomorrow
- Equity is more significant than cash flow in the long term
Episode Highlights:
[00:40] The Truth About Real Estate Investing
Those in real estate investing like to talk about the wins and big earnings, but the truth is, this business tends to go up and down. Real estate investing is difficult to sustain long term and it’s impacted by several factors including insurance and renters. The earnings of the 90% who appear to be winning now will disappear after a while.
Real estate investing is a people business, and you will meet disagreeable and difficult-to-work-with people. At some point, you’ll need to learn to stand up for your principles.
[11:13] Knowing the Money Problem
Roadblocks can easily disrupt profits, which can then disrupt business decisions. If opportunities come, you’ll be forced to raise money and deplete business funds.
Since a flipping business is capital intensive, it’s difficult to maintain and scale up. Properties may suddenly be worth less than what you bought them for in as little as a month. This is why it’s not advisable to borrow money. You can be sued or have relationships ruined.
Don’t be lured into a vanity metric. Some people use private money to buy 1000 doors at retail value but the equity is not theirs.
[18:01] Difference between Cash Flow and Equity
People will value different metrics based on the amount of financial freedom they have. Real wealth comes from equity accumulated over the years.
You need to know your long-term and immediate goals. Even if your real estate investment is meant to be passive, you need to treat it as a long-term investment. Good quality properties that appreciate over time can be more significant than cash flow. Cheap properties may have good immediate checks, but net gains are usually terrible.
It’s good to have positive cash flow, but appreciation is more powerful. This is why you need a good balance of both.
Resources Mentioned:
http://www.collectingkeyspodcast.com
https://www.instantinvestorprogram.com/
https://www.biggerpockets.com/podcast
https://www.instagram.com/collectingkeyspodcast/
https://www.instagram.com/mike_invests/?hl=en
https://www.instagram.com/investormandan/
