Close
Real Estate Investment News & Blog

Which Payday Do You Want: Cash Now or Long-Term Cash Flow?

If you read my first book, Investing Now, the second chapter is titled “Cash for Today or Wealth for Tomorrow.”

If you had to answer that question, what would your answer be? BOTH, is what I would guess most would say! The question is fundamental to your real estate investing model. Many people start off wholesaling and flipping houses retail and never make the transition from transactional income streams into long-term wealth building and residual income streams.

When I first left corporate America, I had to immediately replace my income from my JOB, so I began wholesaling, and that allowed me to leave the corporate life. I quickly built a big buyers list that allowed me to wholesale in volume.

Nothing wrong with that. But wholesaling is a very “active” hands-on investing model that requires a lot of work.

This picture is a visual reminder of the difference between transactional income and residual income and wealth building, so I wanted to share this story.

2 big dogs on rooftop
 

I was driving through Church Hill in Richmond with my daughter Melisa, and she said, “Dad! I can’t believe those big dogs are on the porch roof of that house.” I pulled over to take a look and realized she was right. There were two big dogs on the roof.

I explained to her that I used to own that house–for exactly one day. You see, I sold it wholesale to a good friend of mine named Ramon.

Who got the better deal? Well, I am sure I received an assignment fee for selling it wholesale to my friend. Let’s say it was $5,000, though I don’t remember the exact number.

What did Ramon get when he bought this house?

1.  Equity

He got some instant equity because I’m sure I sold it at 70% of the After Repair Value (ARV). From memory, this house had an ARV of about $180,000. Assuming I sold it at 70% of the ARV, he likely picked up about $54,000 of equity on this house. Plus, this house is located in a high revitalization area, and the value has likely increased over the past year or so.

2. Long-Term Cash Flow

For the past four years Ramon has been renting this house out and receiving positive rental cash flow. I would guess he has been earning about $250 per month for the past 4 years on this house. Cash flow comes in every single month as tenants make their rent payment.

3. Tax Benefits

Ramon has been enjoying the benefits of depreciating this asset on his taxes each year.

So Who Got the Best Deal?

So who got the best deal? I got the one-time assignment fee for wholesaling this house, and Ramon received long-term cash flow every month, equity, and ALL the tax benefits associated with owning real estate.

The need for good wholesalers is surging right now. That’s good news for everyone who needs to create income for today.

Wholesaling is a great foundation for new investors who need to learn and understand the real estate investing business. You learn how to buy houses directly from sellers, evaluate the value of the property, estimate repair costs, put together contracts, and go through the settlement process–all without ever needing to use your own money.

And wholesaling is simply the most low-risk way to get started in real estate.

However, DO NOT lose sight of the long-term game plan to collect real estate assets, rent them out, and receive positive monthly cash flow. Wholesaling is good income for today, but the strategies of buy and hold will create your WEALTH for tomorrow!

CLICK here to subscribe to our mailing list and get unique, fresh content like this delivered right to your inbox.

What’s your game plan?  Leave me your thoughts and comments.

Loading subscribe form...

About the Author...

Jim Ingersoll is a real estate entrepreneur who has bought and sold hundreds of homes. He is the author of Investing Now and Cash Flow Now (both available at Amazon.com), and enjoys speaking and coaching others on how to obtain their financial freedom.

You can visit Jim at http://www.bigmoneyinvestor.com/ and http://www.investingnownetwork.com/

You can find Jim on Facebook and Twitter.

Comments

  1. Thomas Ingram says:

    MY GAME PLAN: I’m just getting started wholesaling. Building a buyers list and trying to find my preferred title company. I work a full and part time job. I can’t wait to fire my part time job. As soon as I get 5k in the bank from wholesaling, I’m quitting it. (Only still work there for a 2 year work history.)

    There is a decent four-plex one town away. The asking price is 77% of the market value and it needs some updates. I have no doubt I could force at least a 10% appreciation the first year of ownership. I plan on wholesaling until I have enough for a 20% down payment. It’s low enough and the rental rates are high enough that even renting it out below market, I am making a profit with only 1 unit rented.

    My end goal is to have enough rental real estate to be able to stay home with my family. I have been married less than a month, but it has been my goal since high school to “retire” by 35. By retire, I simply mean not to have to work on someone else’s schedule. By the way, I’m currently 23. I plan on achieving this mostly through real estate. Wholesaling. Buy and hold. Eventually I’d also like to start at least a couple businesses. I love the idea of owning a mall. Lots of dreams and aspirations. Only thing is, I’m not one of the people that believes that dreams are just dreams. My dreams are all attainable, and I’m ready to work my butt off to get them.

  2. Andrew D'Angelo says:

    Great article pointing out the big picture benefits while touching on smaller ones. This comment is for the investor whom is paying all cash for his deals, the best thing to do if your an insulated market place is to do seller finance an example would be if you have a 5 million dollar portfolio and your break even with repairs and management and sitting on about 10-15% equity is to simply sell in bulk, get a return on your equity while the market is slowing down and turn your break even cash flow into positive cash flow. It allows you to stay protected in first position and have a steady stream long term. This is a good option for anyone who is doing buy and holds and looking to divest. When a market slows down opportunity knocks to be creative and also that is when cash buyers rise to the top. With this being said the idea would be to utilize the equity and buy possibly a better deal and continue this model in smaller pieces. I have done this for my investors that have purchased about 30 million dollars of Orange County CA. properties. It took them from break even to cash flow in a heart beat.

What do you think? We would love to hear your opinion.

*

Hide me
Let Us Help You Achieve Better Results. (IT's FREE!)
Name Email
Show me