036: A Couple of Queens and the Cashflow King
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How many of you have heard the phrase “cash is king”⁉️
And more importantly, how many of you agree with that statement?
Well, true to form for us, we’re about to disrupt that whole notion today. Money is obviously incredibly important, and in turn, so is cash. You need cash if you want to be able to invest in apartment syndication. And those opportunities result in funding your lifestyle, covering your obligations, and simply splurging on a sushi 🍣 and a spa weekend, right?
As we’re all too familiar with, the problem with cash is that we like to spend it pretty much as soon as we get our hands on it. For example, say a person recently inherited a $1M. Most people would immediately think “someone gets me a travel agent to book my stay at the Four Seasons in the Maldives STAT.”
But not you, you’re different.
You see the $1M and think to yourself “sure that has the possibility of making money in the future, but how do I make this go beyond just the $1M?” 🤔🤔 If you aren’t making any money from that money, in many ways it’s worthless. Why? Because you aren’t generating any cash flow.
Cash isn’t the enemy, it’s just too easy. Too easy to spend over time and can fall flat in the wrong hands. But with positive cash flow coming in monthly/quarterly you have the ability to cover expenses, fund a lifestyle you deserve, and do more than just survive, but thrive.
Do you know what the US dollar and your former Beanie Baby collection have in common? They have a massive drop in value. And while no one is telling you to let go of your Princess Di bear,
It’s the government that needs to chill as the supply of the dollar is constantly being expanded. As long as the government continues to print money 💵 left and right, the value of the existing dollar goes down. Time for a little history lesson.
You know my hobby is watching history channels on YouTube!
Between 1783 and 1913, the US dollar was a real store of wealth. Basically, we were the currency to beat.
Other than during wartime periods, inflation within the United States was essentially zero. If you saved one dollar in 1800, a hundred years later, in 1900 you could still purchase approximately the same amount of goods with that dollar. Similar to how the famed Costco hotdog was a buck fifty in the 1980s and is still the same price today!
But in 1913 something changed: the US dollar started down a long, steady road of devaluation.
We did the math and using the US government’s own figures if you had $100 in 1913, which holds the same purchasing power as $2,000 does today.
In 1970, at the age of 77, Herbert W. Armstrong wrote about how as a boy his mother had asked him to “Go to the meat shop and get a dime’s worth of round steak. And tell the butcher to put in plenty of suet.” A “dime’s worth” meant each person in his family received a modest-sized piece of meat, plus plenty of gravy for the potatoes.
In times past, the dollar certainly stretched further. Mr. Armstrong quoted the Labor Department’s figures for how much $5 worth of groceries would have gotten you in 1913. We don’t think you’re ready for this list!
“15 pounds of potatoes 🥔, 10 pounds of flour, 5 pounds of sugar, 5 pounds of chuck roast, 3 pounds of round steak 🥩, 3 pounds of rice 🍚, 2 pounds each of cheese 🧀 and bacon 🥓, and a pound each of butter 🧈 and coffee ☕; that money would also get you two loaves of bread 🍞, 4 quarts of milk 🥛 and a dozen eggs 🥚🥚. This would leave you with 2 cents for candy 🍬,” Armstrong wrote.
Let’s be honest, you can’t even get a cold-pressed juice at your local grocery store for $5, much less steak, potatoes, and so on‼️
A bigger shift happened in 1971 when president Nixon took the US dollar off the gold standard. From that day forward, the US dollar became a currency. The dollar was no longer backed by gold.
Let’s say in the year 2000, you had $1,000 in “save it for a rainy day” money.
Today, the purchasing power of your money has gone down to an equivalent of about $340.
Now add a couple of digits to that $1,000, and let’s make the number $1,000,000. The current purchasing power today is only $340,000. Talk about a difference!
And we’re talking today, in the year 2022. Can you even imagine what it will be in 10, 20, 30 years from now as inflation continues to balloon and the cost of living gets higher and higher? Do you think ⛽ gas is bad now? Just wait until your babies start driving.
Now imagine things like the cost of health care, college education, and apartment complexes. We’re saying it now, there is no doubt that the cost of living will only go up.
Simply walking outside and breathing air will cost you $100 in 20 years.
We’re kidding, but we also hope you’re hearing our point. This isn’t to scare you, but to inspire you to invest in cash flow-producing opportunities. Now, let’s bring it back to 🏢 apartment syndication and investing.
What do you think would happen if you started to passively invest in apartment complexes today, tomorrow, next year, or the following year?
Agree or disagree, those assets are going to continue to go up ☝️, right?
Both the apartment complex and rent will continue to go up in value, and that’s the reason why cash flow is king.
Do you see where we’re going with this? The value of the apartment complex income will go up with the times. Not decline or lose value as inflation rises around it.
In fact, it actually goes up with the rate of inflation. This means that as the US dollar continues to lose value, the rent will continue to be higher. It’s just the way inflation works. Let’s look at some real-world examples.
Since 2010, the national average rent increased by $390 or 36 percent, propelled by increasingly valuable land, progressively sophisticated apartments, and a booming job market that pushed demand skyward.
The median home price went up by 31 percent in the same timeframe, while the median household income grew by 27 percent. Private college tuition fees were also on the rise—the price of higher education increased more than housing costs, shooting up by 39 percent in the past decade.
The point is if you don’t want your money to lose value steadily over time, you have to follow the method the wealthy use to grow their wealth and not let it stay stagnant.
Why Go with the Cashflow?
Here are the top three reasons why you want more cash flow in your life.
Cash flow creates more opportunities. Reinvesting profits from an investment property into another investment is a great way to exponentially grow your financial well-being.
Cash flow creates safety. The extra monthly income you bring in can help create a larger savings reserve to protect you against unexpected life expenses (like medical bills, car maintenance, etc.).
Cash flow funds your lifestyle and pays for your expenses.
Invest Like the Rich
We love learning from the people who have gone before us, and some of our favorite quotes in real estate are from people who have major success in this industry.
Billionaire Andrew Carnegie famously said that “90% of millionaires got their wealth by investing in real estate.”
Ray Dalio says “Don’t be in cash… Own the thing that goes up in value.”
Larry Summers, the former Treasury Secretary to President Clinton says “Buy real estate that doesn’t have long term leases.” And by that Larry means no retail or industrial commercial properties Why? Because during heightened inflationary period, you’ll want to fully capitalize on the rise, by adjusting rent to marker as often as possible.
And this is really where apartments are unique, we have residents renewing leases, new residents moving in on a monthly basis.
In a large complex, we’re talking about 65 units and above here, there are opportunities to raise rents at least correlating to the inflation rate, if not higher. You can’t do this with industrial or retail where the tenants are locked in for 5,10, 20 years leases.
And yes, they do usually have small percentage increases built in; it typically doesn’t match heightened inflationary periods like we are experiencing today.
You see, wealthy people have big-time-heart 💜 eyes around investing in real estate. Beyond the many tax benefits, it’s also because they are enjoying the cash flow from cash flow producing assets, and those assets in time create appreciation as well as a hedge against inflation.
You already know the secret that the wealthy have been using for years, investing in an asset class that produces monthly/quarterly cash flow. You too can enjoy what the wealthy enjoy, all while leveraging other people’s teams, experiences, expertise, and time to build your long-term wealth and equity.
We have been in countless conversations with potential investors about the same issue. “I’m afraid to invest because I’m afraid of losing my money, it’s too risky.”
And it’s true, there is always risk involved with any investment, but keeping your money under the mattress or in the bank is not the best idea if you want to make it last.
You don’t want your hard-earned $1,000 to decrease in value over a few short years!
Grant Cardon said it best, quoting “I stay away from low-income areas and single-family homes. But even those assets are probably a better place to store your money than letting cash depreciate while sitting in the bank!”
Inflation has a real impact on your life. It not only erodes your purchasing power and raises the cost when you need to borrow, but it also weakens the US currency. And if you were affected in any way in 2008, we empathize with you and do not want that for your future.
We can say with 100 percent certainty that if you continue to keep your money tucked away in a safe, under your matress, or in the bank, you will lose purchasing power AKA money. Inflation is not your friend.
Learn the Power of Leverage
If there is one thing we love to do, it’s delegate. That’s why leverage is the ace in our back pocket when it comes to our money doing more for us. Leverage helps increase the velocity or “movement” of dollars through your asset. It also helps your dollars 💵 do more than one job.
Imagine George Washington, Abe Lincoln, and Alexander Hamilton being your employees as the faces of your bills. You’re able to multiply your dollars by implementing strategies that do the multiplication!
Without financial flexibility, many people tend to divide up their money in ways that make it inefficient, inaccessible, or both. They try to fund an emergency account, disability insurance, life insurance and pay off credit cards.
People also put money in a 401(k), an IRA, an HSA so no wonder their money goes MIA.
They end up with “too many accounts with not enough money.”
Having ample savings gives you safety, security, and the ability to respond to opportunities as well as emergencies. But who can afford to have 6, 9, or 12 months of living expenses parked in a savings account earning next-to-nothing?
Having savings or assets that you can leverage if needed means you won’t have to repeatedly deplete your savings account—or worse, your credit limit—when you need cash. Instead, you can keep your assets working for you while you leverage them. You can borrow against them to create financing for a new vehicle, make an investment, or whatever else that requires a hefty amount of cash.
Now, just as leverage can make a good investment better, it can make a bad investment worse! Be sure to always consult your legal, and accounting professionals.
Have a Playbook
Here’s the secret 〰️ once you invest in an investment opportunity, track your actual cash flow. Keep a copy of the projected cash on cash on your distribution. Comparing it to the projection that the GP gives you will help you realize how your investment is doing. This is a great tool to measure if your investment is hitting your goals, or not.
Not all deals are equal 👉 which is why when you invest passively with a sponsorship team that has delivered proven results, keep them! You’re going to want to rinse and repeat what they’re doing, and what you’re doing together, to keep seeing that same cash flow.
It’s important to have a repeatable successful investment. Who doesn’t like to see that W threw up on the scoreboard?
In passive investment, you will spend way less time growing your wealth because you have your playbook as your guidance. Once you hone in on your internal investment criteria and find your team, of course. Plus you get to grade your team!
A Couple of Queens and the Cashflow King
We know we’ve been preaching a lot about the importance of the Cashflow King. It’s because we’re a couple of Cashflow Queens 👸👑 who see the value. And in this royal court, we only bring in royalty, no jesters with stashed money in banks are allowed!
Jokes aside, don’t underestimate the importance of cash flow. Remember, cash in your hand today will not have the same value tomorrow.
We’re not talking about hypothetical situations, inflation is happening right now. As many of us know all too well. As the Fed continues to feed people checks, people are making more money now than ever by staying home and not working. Don’t get stuck in the cycle, and make your way out. There’s plenty of room in our court!
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