This is what a real estate cashflow analysis looks like. It informs you of your up-front costs, assesses cashflow positivity with current and potential future scenarios, budgets appropriately for vacancy/repair/contingency and accounts for overhead costs even if they may be unrealized (e.g. property management, accounting, bookkeeping, etc.). It is also vital to highlight any assumptions and verify them in writing, absolutely no exceptions.
By the end of 2011, I had completed nine years of real estate investment courses. Acquisition, cashflow, buy & hold, flipping, landlording, rent to own, taxation law… the list goes on and on.
Despite my educational knowledge, I still had not yet purchased a single investment property. Even though I had successfully run my own company for the previous fifteen years with positive cashflow in each and every year, I was still afraid to take the plunge.
I kept asking myself “How could I take so many calculated risks but be afraid to take this one?” I was stuck in a state of fear commonly coined as “analysis paralysis”. I would look for the perfect deal but before I would pull the trigger I’d make up excuses as to why each potential deal wouldn’t work. The truth is there’s no such thing as a perfect deal. The human mind can be our own worst enemy and I was battling against nobody other than myself. Trying to psyche myself into taking the next step, but for some reason I kept backing down, convincing myself as to why each opportunity wasn’t optimal.
In mid-2012 I booked vacation. I decided to stay home and relax. The previous two years’ vacation was spent repairing the house after extensive water damage which had nearly depleted all of my savings. It was early afternoon and I grabbed an ice cold Corona from the fridge and went to sit in the yard and do some reading. As I hunched down in my lounge chair I continued to read my latest real estate investment book. My attention was drifting in and out and I found myself reading and re-reading the materials. I felt frustration growing within me as I thought to myself “I know this s&%t. I’ve read it a hundred times in other books.” I stood up and blurted “That’s it! I’m going to buy a property or I’m going to stop reading about real estate investing.” That was the catalyst, the last nudge through the barrier of procrastination, the trigger required to break through my analysis paralysis.
Days become weeks, weeks become months, life begins to blur. We settle in and accept the status quo. “It is what it is” we tell ourselves because it’s all we know. We follow routines. There are slight deviations but for the most part the pattern is nearly identical. We are bored. We daydream about the future – our next vacation, our next evening out, even our next weekend. We fail to enjoy the present. Seize the day, carpe diem, YOLO – these are buzzwords that we say but rarely that we do.
Every few months we vow to change things. We pledge to live each moment like it’s our last. We go out and do something we’ve been wanting to. We call up friends and make plans. We escape the routine with a getaway. But then we let the normal sink back in and life continues to blur by us.
Earlier this week I had a meeting with one of the local startups that I am mentoring. Over the last year his company’s bank account has been reaping the rewards of their hard work and so he has been considering his best option to invest the returns from his compounding successes.
Knowing that I am an active real estate investor he wanted to learn about how real estate makes money. He had performed a number of cashflow analyses, but, was failing to find lucrative returns. I could sense his frustration mounting in each additional word that he was saying. “The best cashflow I’ve been able to find is approximately 8% on a real estate investment and that’s just… well average”. He frowned. I smiled and excitedly said “That’s fantastic, you should put in an offer, do your due diligence and buy this property if everything checks out.”
A few months ago I was asked a very interesting question by one of my financial freedom students. She asked “If you could only give me one single piece of advice, what would it be?”
I sat there quietly pondering my response for what was likely several minutes as she looked on waiting. In my mind I was considering the path that I’ve taken towards financial freedom. I took time to contemplate the challenges, consider the obstacles and reflect upon the successes along the way.
Alas I broke the silence with my response, “Invest now“.
“That’s it?” she blurted out, “that’s the best advice you can give me?”
Over the last few years I’ve been blessed with the opportunity to mentor dozens of small business owners. Helping entrepreneurs to monetize their passions is extremely exciting. I learn a lot about various industries while helping entrepreneurs leverage their strengths and recognize their weaknesses.
One of the most troubling weaknesses that I’ve been helping entrepreneurs with is their lack of personal financial awareness. Most entrepreneurs have very little savings and no idea how to get started. This creates a significant risk for the majority of our small businesses, which more than 77% of all businesses fail due to lack of financial responsibility and awareness*.
Why should I start now?
Every business owner I’ve ever met has numerous tales of seemingly insurmountable challenges. These challenges typically share a common theme, one of a financial nature. This is one of the most difficult challenges to deal with – it causes stress, challenges…
For 9 years I took course after course on real estate investing. Topics spanned residential, commercial, legal, taxation and the list goes on… Despite thousands of hours of time and tens of thousands of dollars in education, I was always finding a reason to never take that first step, even though, in reality I was ready after only a few years of courses.
One day towards the end of 2010, I woke up and told myself that I would finally just do it. I would buy some investment real estate. And I did.
Now only 2 years later, I’ve built up a real estate portfolio of 18 properties and on my way to owning 100 in the next 8 years. Sure there were challenges and surprises along the way, but, now I’m much closer to achieving my dreams. Don’t make my mistake. Don’t let excuses get in your way of success. If I kept saying “I’m too busy”, “It’s too risky”, “I’m too afraid”, I would never be where I am today.
So, the choice is yours, what are you going to do? Make an excuse (or) take action. Your dreams are entirely within reach, it’s up to you whether or not you take action to achieve them.
Today I’m going to aggravate even more individuals than I typically do, because frankly I have a lot of family and friends who make their living selling mutual funds. By the afternoon I’m willing to bet that I’ll have a dozen negative emails with adverse reactions, snarky comments and excuses identifying why the items I’ve outlined in this article are invalid and why my approach is “too risky”. A warning in advance to financial advisors, I won’t respond to your comments, they are biased and I know my article is risking your cashflow for the benefit of your coveted customers. It’s unfortunate that average investors will be persuaded to listen to such rhetoric because well, simply put – it’s complete bullshit!
Okay so here’s a picture-perfect scenario. This is you. You buy mutual funds. You have for years. You are very happy with the returns. As you can see, even though it’s unlikely, I’ve chosen the best case scenario for the sake of this explanation because there are a hell of a lot of naysayers out there (usually financial advisors in this instance because I’m cutting their commissions out of the equation). Now; let’s assume that you’ve chosen a high quality mutual fund that is managed perfectly, with low fees, consistently high returns and is executed entirely ethically – nobody is generating a single dollar of additional revenue beyond the managed fund’s fee of 2.9%. Sounds like a dream come true, right?
Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing. Let’s talk in terms of something that keeps us away from doing what we want, when we want to. Yes, that’s right… work!
Today I’d like you to start thinking differently about your purchases. In an attempt to accomplish this feat, I’ve decided to take one very simple scenario that typically occurs in most people’s lives and showcase how dramatically this can impact you in the future.
The scenario we’re going to explore today is the simple purchase of a vehicle. Bob and Jennifer are both 30 years of age and they’ve both decided to purchase a vehicle. Bob desires a slightly more luxurious vehicle and purchases a new one every four years, while Jennifer is happy with a more modest vehicle and holding it for a few years longer. If this trend continues until they are both 60 years old, what will the end result be if Jennifer simply puts her savings into a simple index fund investment and receives an average annual return of 7%?