Posted by Kevin on February 23, 2002 at 19:05:14:
Jerry Freeman,
…That’s A bold statement.
Keep up the good work! I like it!
Fl. Kevin
Cash Flow or Net Worth? - Posted by Lonnie
Posted by Lonnie on February 23, 2002 at 08:38:11:
Hi Folks,
There was a post some time back asking which was more important? cash flow, or net-worth. This is my take on the subject. Now, how about some of you giving us your thoughts and input on this topic?
Why settle for one when you can have both? I think net worth and cash flow should go hand in hand. So I think the question should be?what type of cash flow is it, where does it come from, and how much of your time and work is required to get the cash. And at the same time, is your net worth increasing as a result of your cash flow.
A net worth of a million bucks sounds great, but if it doesn’t produce regular cash flow (monthly checks), where does the groceries come from? There’s no need to be equity rich and cash poor, you can?t eat equity. On the other hand, $10,000 per month cash flow sounds great, but what if it requires working a 60-80 hour week job (that you don?t like). So what’s the answer? net worth or cash flow? Why not have both? And how do we do that?
In every deal I look at, there are four basic questions I ask myself. And if I don’t like the answers, I pass and keep looking. 1. How much money will come in? 2. How much money will go out? 3. How much will be left for me? 4. And most importantly, how much of my work and time will it take to get that money? (Very sophisticated formula, huh? But it works for me). That being said, let’s go over a couple of examples of how you can enjoy both cash flow, and build net worth at the same time.
First, when we talk about cash flow, there’s only one type I’m interested in, and hopefully you will too… POSITIVE and PASSIVE cash flow. This means I look for ways to do a little work one time, and get paid for a long time. (Making your money do the work.) I’ve been able to do that with notes that I can either create or buy, rents from mobile home lots, and making hard money loans.
I’ve used the cash flow from the short term MH deals, to buy MH lots, (long term income) which in turn produce excellent passive and positive cash flow (rents), which also appreciate in value, thus increasing my net worth. I’ve used the cash flow from my passive investments to pay off all my debt, which has increased my net worth. (It?s hard to go broke when you have good income, and no bills to pay.) And I just bought another lot, have a MH on it ready to sell, which will increase both my cash flow, and net worth.
I also make hard money loans, (sorry, only local deals) which produce excellent passive cash flow, which increases my net worth. None of these require much of my time or effort. Some don’t even require me to leave my house. So rather than trying to decide between cash flow and net worth, you should be thinking of ways to have both.
We’ll be covering some of these ideas at the work shop next month. And remind me to tell you about one of my recent deals that literally walked in my front door, and resulted in a 18% loan. Yet, the papers and evening news keep harping about the recession we?re in. What recession? Where is it? I don?t see any signs of a recession where I live. All I see is money making opportunities, and I don?t have to look hard to see them.
O.K, I?ve given my viewpoint on net worth vs cash flow, now let?s hear from you folks. What are your thoughts and ideas? Remember, this is all about making money without working a JOB, so let?s hear it.
Happy investing, and see you in Atlanta,
Lonnie
P.S. I hate to show my ignorance, but what does all this Nasdaq and DOW (not the book) and S & P stuff mean that I keep seeing and hearing about? Is it some kind of gamblers talk (stock market?
What are you “Really” working for? - Posted by DougO(NM)
Posted by DougO(NM) on February 24, 2002 at 10:00:25:
Hi Lonnie and the rest of the CreOnline Family
I just saw this post, and thought I’d post a few of my thoughts on the matter. You know, it amazes me that it’s been over 8 years now that we made the shift from working for money to money working for us. I have to say that after reading the many success stories on this sight over the years, not only in MH’s but in SFH, Commercial and all the other ways one can make a buck earn two in this business, the question about net worth v cash flow comes down to what ever works for you! I have to admit that sometimes (ok most of the time) I don’t even think about either of those two subjects. I know, I know, what kind of investor am I? In fact I am comfortable in saying that there are times when Ana and I have been quite lazy in working on increasing either of them. After all the rents and payments come in, the bills and such get paid, it’s nice to think that even if we don’t “do another deal”, the checks we just got from the “deals we already did” enabled us to send out our checks, some of which go to pay down our long term deals. (Increasing our networth bit by bit every month)
Some folks feel the need to own hundreds of houses, flip 10 houses per month, buy and rehab a 100 homes per year, and as far as I’m concerned, more power to 'ya if that’s your cup of tea. That’s getting too close to a JOB for my taste, which is, for me, going backwards. Unless of course, that is what makes you truly happy. As Lonnie says, one of his considerations is “How much of my time is required to get that money?” At this point in my life, our cash flow is sufficient to cover our families needs, and our net worth grows every month.
In exchange for the ability to spend my time as I see fit, I’m happy to maintain what we have, adding to it as opportunities arise. It’s hard to ignore some of those opportunities, but focusing on my young family is the most important job I have right now, and I hope that those of you in similar situations feel the same. A sorry excuse of a parent is all too often the common thread in the sad stories we read every day in the news. Stories of screwed up kids that can’t read or write, and know nothing about much of anything, but yet they can have sex in 8th grade (or earlier) and be parents themselves in high school, all with the blessing of a society that is so screwed up it’s converted priviledges to “rights”, and in the name of “tolerance”, has become increasingly intolerant.
At the end of the day, don’t forget to think about what it is you are working for. Why do you want cash flow and net worth? Is it just to see how big the numbers can get? Is it for bragging rights at the bar in Atlanta during the convention? How much is enough? Only you can answer that based on your reasons for wanting them in the first place. Just as Lonnie has a pretty sophisticated formula for analyzing a potential investment, I have a similarly sophisticated guideline for knowing how much is enough: “Enough to allow me to do what I want, when I want, how I want, with who I want, and why I want”, without having to ask anyone’s permission". (Just don’t mention that last part to Ana, VBG, LOL)
Why are YOU working for cash flow and net worth?
Many Blessings,
Doug
The key to becoming wealthy … - Posted by Jerry Freeman
Posted by Jerry Freeman on February 23, 2002 at 18:11:54:
Near the end of “Rich Dad, Poor Dad,” Robert Kiyasaki says:
“The key to becoming wealthy is the ability to convert earned income to passive income as quickly as possible.”
I’ve created a poster of that and hung it where I see it many times each day. If you examine the elements of that statement, it contains the basis for a powerful business model.
“The ability” – work to learn, and keep learning every day so that the next thing you do will be easier and more powerful than the last. Use every deal to get better at making deals. There’s no such thing as failure or a mistake or a bad deal if you did the best you could and then used the experience to make a better deal the next time.
“To convert earned income” – Don’t quit your day job and imagine that you can start from zero and make a fortune overnight. Rather, use every resource at your disposal, including your nine-to-five “earned” income as long as you need it, as a stepping stone to freedom.
“Convert” also suggests the old saying, “If you’re willing to do what other people won’t for five years, you will be able to have what others can’t for the rest of your life.”
“To passive income” – Every financial decision, no matter how seemingly small (e.g. which brand of hot dogs to buy and where to buy them) must be evaluated on the basis of whether it is helping to convert earned income to passive income or simply spending your resources.
“As quickly as possible” – Once it becomes clear that this is about FREEDOM and it is ATTAINABLE and YOU KNOW HOW TO DO IT, you get into that “make it happen” zone and you’re on your way.
Best wishes,
Jerry
Re: Cash Flow or Net Worth? - Posted by ScottC (NV)
Posted by ScottC (NV) on February 23, 2002 at 17:14:47:
Great Post, Lonnie! It brings a couple of things to mind, too.
-
The best measure of wealth that I’ve heard is by Buckminster Fuller: If you stopped working today, for how many days could you continue to survive?
-
It also brings to mind the “hot dog” story from DOW. For those of you who don’t have DOW, check it out here:
bigdesign.net - This website is for sale! - bigdesign big design Resources and Information. (This one is a little different from the one in Lonnie’s book, but the point is still there)
As for the Nasdaq, Dow and S&P stuff, it serves two purposes. It gives economic “experts”* something to sweat over, and it lets us CRE investors know whether we’re prospering in a “good” economy or a “bad” economy. 
- “Expert” is derived from two Latin words: “X” and “Spurt”. “X”, in algebra, is used to mean “unknown”. “Spurt” is a drip of water under pressure. So, broken down completely, the word “expert” actually means “An unknown drip under pressure.”