Posted by lonnie on March 17, 2001 at 07:50:56:
I posted this on the main news group, but thought maybe you might enjoy here, also.
This is in answer to the post about Net Worth. I missed it when it was posted, and now can’t find it to reply. So I’ll just make a new post here. If my memory is correct, somebody asked which was most important?net worth or cash flow. So here’s my take on it.
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 it. And at the same time, is it increasing your worth.
A net worth of a million bucks sounds great, but if it doesn’t produce monthly checks, where does the groceries come from? There’s no need to be equity rich and cash poor. On the other hand, $10,000 per month cash flow sounds great, but what if it requires working a 60-80 hour week job. 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 questions I ask myself. And if I don’t like the answers, I pass. 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? (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. I look for ways to do a little work one time, and get paid for a long time. And I’ve been able to do that with notes that I can either create or buy, rents from mobile home lots I own, and making hard money loans.
I’ve used cash flow from MH deals, to buy MH lots, which in turn produce excellent passive and positive cash flow (rents), which also appreciate in value, thus increasing my net worth. I’ve used cash flow from my passive investments to pay off all my debt, which has increased my net worth. I make hard money loans, (sorry, only local deals) which produce excellent passive cash flow, which increase my net worth. And none of these require much of my time or effort. Some don’t even require me leaving 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. And remind me to tell you about one of my last deals that literally walked in my front door, and resulted in a 18% loan. And just this week I sold two mobile homes that will give me an obscene profit and yield. Yet, I keep reading and hearing of a recession. What recession? Where is it? Sure hope it doesn’t show up around here. And I hate to show my ignorance, but what does all this Nasdaq and DOW and S & P stuff mean that I keep seeing and hearing about?
Happy investing, and see you in Atlanta,