NET Worth - Posted by Elton

Real Estate Investing
1

Posted by Chenel Moore on March 17, 2001 at 11:17:04:

My net worth was over $200K. Sounds nice. When I had to liquidate my assets quickly, I walked away with only $100K. My cashflow per month, was negative for 4 months while trying to sell my assets.

Without getting into total specifics, the lesson learned, build cashflow first. I probably could have held out a little longer, if I didn’t have 4 months of negative cashflow. I could have used my monthly cashflow to offset my expenses I incurred while trying to sell my properties.

To me, net worth is a nice number Carleton Sheets uses to sell real estate courses (not that I am knocking Sheets) or a nice number we put on our loan apps. when applying for mortgages. But the reality check is that a thing is only worth what someone will actually pay you for it at that very moment. Plain and simple. In real estate we like to use fmv. But in reality, all fmv means to buyers is that we are asking $120K and they are offering $115K. Hey, it’s only 5K, right? Multiply that by 3 or 4 deals a month and the net worth of $20K per month dissapears very quickly.

So after being totally longwinded about this, I like how Kiyosaki puts it. Cashflow is king.

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NET Worth - Posted by Elton

Posted by Elton on March 16, 2001 at 13:03:38:

I am a computer programmer, in VB, Oracle, and Web Design. I am building a “slick” program to track my properties…

Can anyone tell me the best formula for calculating: NET VALUE…

and HENCE:

Net Worth…

Thanks
-E-

3

And the question is - Posted by Bud Branstetter

Posted by Bud Branstetter on March 17, 2001 at 10:10:29:

Not that the discussion your post generated is not interesting, I’m not sure that was your question. I have seen programs include appreciation, inflation, equity build up, future maintenance and a dozen other factors. In the communications industry we made our decisions based on present worth of annual charges. I’m not sure that analyzing SFH needs to be that precise or complex. If you go into a deal with your profit built in it becomes a matter of whether you take cash flow or cash at some point. If you need cash to put food on the table you don’t want that $100/mo. You will want the 10K now. At some point you have enough cash and or cash flow you start thinking longer term.

If you want clarify your question and the comments may be more germain.

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Re: NET Worth, at best - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on March 16, 2001 at 14:54:16:

is a very poor measure of value.

The best it can be is the opinion of another. A good example of the changes that can happen is the current value of tech stocks, against that value six months ago. Very different, and actually have little to do with value.

It depends on your long range plan. Do you want cash now, or for the next generation (and you can have both). It’s your plan, you build it; and if it needs to be changed you change it $$$.

5

Re: NET Worth - Posted by David Alexander

Posted by David Alexander on March 16, 2001 at 13:41:26:

Assets minus Liabilities…

With all that said concentrate on Cashflow, it’s more important.

With more cashflow your Networth will grow, with just the building of Networth you may not have good Cashflow.

David Alexander

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Net Worth or Cashflow - Posted by phil fernandez

Posted by phil fernandez on March 16, 2001 at 14:33:13:

Hmmm. net worth or cashflow. If you could only have one, which of the two would you take.

I like both and want both, but which of the two are the more important. I’d like to hear what others think. To me there is no correct answer. It depends on where you are at and what your expectations are. If you could only have one , what would it be ???

It’s like if you have cashflow you can buy the beer. If you have the net worth you can buy the brewery which in turn will yield the beer.

Any thoughts?

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I pick Cashflow - Posted by Monique

Posted by Monique on March 16, 2001 at 18:01:33:

I want both. But if forced to pick just one, I would ask myself what if I had nothing, nada, zip – and had to start from scratch.

Then, the answer quickly becomes cashflow for me. I can take care of today’s needs while creating other assets, and building net worth. And, I can buy or create several assets without needing much net worth.

If I only had net worth, though, only some of those assets can be converted to cash and cashflow quickly. If a large asset doesn’t have cashflow (back to just picking one or the other again), then it will most likely be a semi-liquid or illiquid asset … a large cashflow-less niche business, a large undeveloped parcel, etc.

So, while I’m structuring the deal to buy the brewery, I want to be able to buy the beer.

Monique

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Piper,Kaiser,Alcorn,Ed,Terry,Lonnie,Eric C,… - Posted by David Alexander

Posted by David Alexander on March 16, 2001 at 17:38:55:

Merle, And everyone else…

This is a good fundamental topic… I would like to hera all views on this.

For me I have heard folks make it both ways… which strategies work for who.

David Alexander

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It’s not a choice - Posted by ray@lcorn

Posted by ray@lcorn on March 16, 2001 at 23:05:02:

My two cents…

In my opinion, there is no “net worth vs. cash flow” choice. One is a function of the other. Look at the math.

As David stated above, the formula for net worth is:

Assets - Liabilities = Net Worth

In order to build net worth, one of the two factors in the equation has to change. For the sake of this discussion, define assets as cash and property. To increase asset value, more cash or property must be added to the column. Define liabilities as claims on the assets. To reduce liabilities, either cash or property must be applied to reduce the claims. So to change the outcome of the equation, such as increasing net worth, either Assets must increase, or liabilities must decrease. In either case, cash or property must be “moved around”, as Terry puts it. Think of the moving assets as a flow of cash and property… cash flow. Net Worth then, is the product of this movement of cash and property.

It takes cash flow, a positive cash flow, in order to influence the outcome of the equation in a positive way. That flow must also be utilized either to increase the value of the assets, or to reduce claims against them. As many dot coms just learned the hard way, it isn’t enough to just generate the flow of cash… it must also be retained and put to proper use. Money doesn’t care who owns it, but it will flee from wasteful practices with a will of its own.

Another way to say it is in order to increase net worth you must have less cash going out than coming in. By sustaining that activity, net worth grows of its own accord, with no effort from you other than the activities regarding the generation of cash.

The power of substantial net worth, as Jim alludes to, is the increased freedom (capacity) to pick and choose the activities you prefer engage in to generate and sustain the flow of cash and property. As soon as those activities consume more than they produce, then cash flow is negative, the assets are being consumed, and net worth declines. In short, any net worth building activity must consume less than it produces. Put simpler, spend less than you earn, and increasing net worth and the attendant power it carries, will flow to you without other effort. Learning to utilize thaqt power, however, does require that knowledge be acquired and applied.

ray

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Re: Piper,Kaiser,Alcorn,Ed,Terry,Lonnie,Eric C,… - Posted by phil fernandez

Posted by phil fernandez on March 16, 2001 at 19:56:43:

Hey Dave,

Start a new post on this discussion. Maybe we can get a real debate going here. LOL.

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Re: Piper,Kaiser,Alcorn,Ed,Terry,Lonnie,Eric C,… - Posted by Jim Rayner

Posted by Jim Rayner on March 16, 2001 at 19:43:16:

Net Worth or Cash Flow?.hmmm

After some thought over dinner regarding this question my conclusion would be that its a function of what level you are at in your investment endeavors. The primary objective at any given time being determined by such issues as:

Do I need cash flow to put food on the table and a roof over my head?

Is my money working for me ?.Am I getting the maximum return on my equity?

Since both are of great importance, and as my needs have changed, so have my investments.

When you analyze a typical potential deal the focus is either some quick cash flow, an increase in net worth or at my present level and situation; a combination of both. When I started it was cash flow and net worth took a back seat so to speak, but along the way I came to realize that I had built a powerful tool in my net worth. I just did not know how to use it. It took outside influence and teaching for me to realize this power.

Learning to use my net worth to my advantage has become my most powerful tool. It expands the possibilities and to use one of Ray?s classic concepts ?It provides Capacity.? When this change came I found that my deals became structured such that they not only provided the necessary cash flow but that they also came with large quantities of equity building opportunities, providing even more increases to the net worth.

Reaching the level where I came to realize first hand Terry Vaughan?s now famous line, ? well you see the group of investors that I represent (my wife, children, dogs, cats) have these Assets that we need to move around ?.? would, by simply moving them around, really result in cash flow and bring a bonus in that it further enhances net worth. I?m still trying to get used to this! Need some cash go buy something or better yet move some Assets around.

My conclusion: it depends on your circumstances.

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Cash Flow… - Posted by HR

Posted by HR on March 17, 2001 at 13:52:55:

I agree with Jim: it’s a function of where you are in your rei career and what you need.

I definately want cash flow right now so I have more time and security to build my wealth later.

HR