Real Estate, Cashflow Investment and Retirement

Real estate can and should be a part of your retirement plan, but don’t bank on appreciation. Cashflow is the key.

34 Ardmore Irvine, CA 92602 kitchen

Asking Price: $429,000
Address: 34 Ardmore Irvine, CA 92602

Frank Sinatra

Come fly with me, let’s fly, let’s fly away
If you can use some exotic booze

Once I get you up there where the air is rarefied
We’ll just glide, starry-eyed

Come fly with me, let’s fly, let’s fly
Pack up, let’s fly away!!

Come Fly With Me — Frank Sinatra

Now that the high-flying real estate market of the Great Housing Bubble has crashed, let’s look back to an investment style of yesteryear to provide for retirement. Cashflow investing is the idea that stable inflows of money can be captured and diverted to you for a price. If you accumulate enough cashflow, you can retire.

Stable Sources of Cashflow

In retirement, what determines the amount of money available to enjoy for lifestyle expenses? Is it your wealth? Is it the equity in your home? Not really. It is the stability of the sources of cashflow you control.

Many are obsessed with being rich when what they really want is unlimited spending power. People who have attained great wealth may have amazing spending power, but they seldom use it. If they did, they would not be rich.

Being rich is about forming a habit of saving and consistently spending less than you earn. It is about having the self-discipline to limit your spending voluntarily rather than being forced to by a lender’s credit limit.

You and I work because we need a large amount of stable cashflow to cover personal spending and provide a balance to save. We need to work until we acquire enough assets to provide a stable source of cashflow from another source — our investments.

The quality of our lifestyle and the quantity of our available spending money in retirement is directly related to the sources and stability of cashflow you control and direct. The quantity of money or total net worth is not as important as the ability to convert it to cash.

Cashflow Investments

The problem with asset appreciation as the primary method of funding retirement is that this appreciation must be converted to cash in order to be used. This cash can be obtained through sale or through borrowing. Sale is the cleanest, and it is simple with stocks or other securities that you can sell part of, but houses are different. It is difficult to sell part of your interest in a house. Usually, you will need to borrow the money to stay in your house. This means either a reverse mortgage, or HELOC dependency.

Borrowing money is a bad way to go because you have compound interest working against you. The longer you live, the more you borrow, and the more interest on interest you pay. It is an airplane in a nosedive picking up speed heading to certain doom.

Cashflow investments like (1) dividend stocks, (2) bonds and other debt and (3) real estate are all worthy components of a balanced portfolio. Realistically, few people actually hold stocks or bonds for their cashflow. Most will trade these instruments if only by proxy through a mutual fund.

Real estate is the one cashflow investment that people are more familiar with because we all have homes, even if we rent them. It is also a great cashflow investment. Everyone should consider strategies for owning real estate as part of their retirement savings.

What I am proposing is different than what most people think when they invest speculate in California real estate. It doesn’t matter what it it resells for; appreciation is not important. Buy to obtain maximum future cashflow.

Real Estate as Cashflow

Real estate provides cashflow either through (1) renting the property or (2) living in it and saving the cost of a comparable rental. If you assume most people are putting about one-third of their income toward their housing expense, you see the expense is quite significant. If you own the property with no debt, you can enjoy the benefit of that money for yourself in other ways.

When you look at cashflow rental properties, you want to get the largest possible cashflow for the least amount of money. Don’t focus on appreciation potential unless you want to overpay and dilute the cashflow returns.

If you owned three properties with no debt where each one represented a market rent equal to one-third of your yearly income, you would have a stable income without having a job — other than perhaps property manager… if you want…

The retirement hurdle: own three properties of equal quality to what you rent or own today with no debt.

Living in Retirement

If you look at the fate that awaits us all as seniors, you can see distinct boundaries between the styles of life of various people based on how they lived and how they saved.

There is one group that will save nothing. They will have to chose between working until they die or living on about one-third of their lifetime wage average through Social Security. This is the minimum entitlement in our society as granted in the Social Security Act of 1935.

According to Wikipedia, “… the Social Security program began as a measure to implement “social insurance” during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50%.” Social Security is the collective price of societal compassion to its senior citizens. I am glad it’s there.

How well you live above and beyond this minimum entitlement depends on your stable future cashflow from your investment savings.

The conventional wisdom among financial planners is that you need about two-thirds of your work salary as monthly spending to live comfortably in retirement. Social security gets you one of those two-thirds. If you can pay off your primary residence, you get the remainder. Paying off a home and living on Social Security in retirement is still an option in the United States.

Paying off Your Home

Paying off a Home mortgage became passe during the Housing Bubble. People had better things to do with their money than retiring debt. Debt was cheap and abundant; why pay it off under those circumstances? Paying off a house as an investment strategy nearly died. Did anyone keep their conventional mortgages during the bubble?

If you retire debt, you no longer have to service it. For those that keep a revolving credit line at its limit, this is a strange concept, but retiring debt is fundamental to having a stable retirement. Do you want to work and service debt forever? Who is the slave and who is the master?

Paying off your home mortgage removes an enormous financial drain from the family’s balance sheet and greatly improves an income statement; it is an historic measure of success.

Paying off Your Investment Property

If you pay off your home plus one other investment property — like perhaps your starter home — you have more than enough stable cashflow to live comfortably in retirement. (1) Social Security plus (2) a primary residence with no debt and (3) a paid off starter home as an investment equals (=) a prosperous retirement.

It is an old investment strategy to keep a small condo or first-rung property, and it is a good idea if the property is financed with a conventional mortgage. Unfortunately, most people simply used these properties as sources of additional leverage in building their speculative empires.

Remember the Emperor? He levered up and bought 15 properties with hugely negative cashflow and no equity. He will be wiped out. If he had purchased for cashflow, he may have obtained 5 properties up through about 2001, and spent the rest of the housing bubble paying down mortgages. He probably could have owned $3,000,000 in property free-and-clear; instead, he owns $12,000,000 worth of debt and $10,000,000 worth of property — on its way to being $7,000,000. He will be crushed.

When you purchase your first property, it should be near rental parity (at least it will be if you are an IHB reader). Ten years later, that property should have a positive cashflow due to 10 years of escalating rents.

If you keep the property, you can take the excess rent and put it toward the mortgage paying off the debt more quickly. Remember, the goal is to have maximum free cashflow in retirement, so you want to pay off those debts.

Debt equals delayed retirement.


If you (1) save money, (2) acquire assets with maximum cashflow and (3) pay off debts, you will be successful and enjoy a very comfortable retirement. Real estate should not be the only component of your retirement savings plan, but it will be an important one. I hope this provides a way of looking at real estate that benefits you. Cashflow is King.

Your cash is king,Sade
Keep you in my bank.
Your cash is king,
never need to thank.
Your diamond ring,
round and round and round my head.

Wiping all the debt from me.
It’s making my soul sing.
Having the very best of things.
I’m crying out for more.

Your Cash is King — IrvineRenter

34 Ardmore Irvine, CA 92602 kitchen

Asking Price: $429,000

Income Requirement: $107,250
Downpayment Needed: $85,800

Purchase Price: $339,000
Purchase Date: 8/12/2009

Gain (Loss) after 6% Commission: $64,260
Percent Change: 26.5%
Annualized Return: 319%

Address: 34 Ardmore Irvine, CA 92602

Beds: 2
Baths: 2
Sq. Ft.: 1,300
$/Sq. Ft.: $330
Lot Size: –
Property Type: Condominium
Style: Other
Stories: 2
Floor: 1
Year Built: 2000
Community: West Irvine
County: Orange
MLS#: P702480
Source: SoCalMLS
Status: Active
On Redfin: 2 day


Today’s featured property has an interesting history. It stands for everything opposed to the point of my post today. You have an owner who bought for appreciation, converted every penny to cash, and defaulted on his loans to IndyMac which you and I will pay for. Then you have the flipper who stepped in to make a quick buck at our expense.

  • The original owner paid $231,500 back on 6/28/2000.
  • After a series of refinances, he ends up with a $397,500 Option ARM first mortgage, and a $79,500 HELOC.
  • Total property debt is $ 477,000.
  • Total mortgage equity withdrawal of $245,500 plus his downpayment.

He had no problem converting appreciation to cash. Do you think lenders will be that stupid when you want to retire? Are you counting on it?

astute observation

Since so much of today’s post was about real estate investment and success, I want to direct you to John T. Reed’s website. If you have never heard of him before, he is a real estate expert and author whose work I admire greatly. I recently purchased Succeeding, and I enjoy his no-nonsense writing style. Check out his Guru Ratings.

71 thoughts on “Real Estate, Cashflow Investment and Retirement

  1. WaitingGame

    I was thinking about just this topic this weekend. You have a great calculator that helps a person like me crunch the numbers. Ultimately how much cash flow is enough? 500, 800, 1000 a month in the clear? I think about the possibility of squatters getting into an income property I may own and that can eat up my vacancy reserves very fast. Thoughts anyone….

    BTW, I got in first today!!!

    1. IrvineRenter

      Owning rentals is certainly a pain, and there are issues of occupancy and maintenance. I didn’t say it was without risk or without effort, just that it is a good source of retirement cashflow.

      How much you need depends on the individual. The more cashflow you obtain, the more comfortable your retirement. It is that simple.

      1. Robert

        Why not just buy a REIT fund targeting what real estate area you think is worth it…liquid and no maintenance?

        1. IrvineRenter

          It is difficult to obtain a REIT fund at a decent valuation. If you could get one where the dividend yield approximated your cap rate, a REIT would certainly be fewer headaches.

          1. tonye

            We got into ours by pure happenstance. It was used to develop a single buildin.

            It’s not a REIT fund per se but a single REIT.

            Today it holds five (or six?) buildings all of them under their own corporations.

            We know the general partners personally and our old -late- neighbors knew them since the 60s.

            We joined who they called themselves The Turtle Rock Mafia… because some of those old hoots were into several REITs (more than two dozen) set up by the same general partner.

            Sadly many have passed away but the corporations are still cranking money.

            It was an act of pure luck on our part.

            Likely karma.. we are nice to a lot of people and some of them were nice to us and let us play. ;-D

  2. E

    Who says rents will “escalate”?

    Ever rising rents was really just another Realtor scare tactic to try to persuade people to “buy NOW”.

    With globalization and wage arbitration, I could see rents spiralling down. Just because it cashflows now doesn’t guarantee it will in the future.

    1. IrvineRenter

      There are no guarantees in any investment. Betting on continued wage inflation to drive up rents is one of the safer ones. We will experience a short-term drop in rents due to this recession, but I doubt that will be a long-term trend.

      1. tonye

        Actually, with all that money being printed today, inflation will likely kick in down the road.

        In dollar terms rents will surely rise.

        In actual cost, rents may drop or stay level.

        However, since a fixed mortgage is based on a fixed cost, the cost of carrying the mortgage will drop.

        In many ways, inflation is the friend of mortagees. It drops the cost of the payment.

          1. tonye

            Well, maybe we’re in for “stagflation”, huh?

            I mean, the Fed is dumping money from helicopters left and right.

            That will cheapen the value of the dollar and lead to inflation.

            But, if there’s no growth, then you got what eventually did Carter in, stagflation.

    2. ME

      I agree. Nobody has any money. Rents will depress along with prices. As lending standards get more and more restrictive, and more people lose their jobs, run out of cash, prices will continue to fall.

      When 90% of the loans being made today are FHA, you know this market is being propped up by a twig.

      In the Depression housing and rents were next to nothing. People need to feed their families before they worry about shelter.

      1. ME

        ..not to mention, this place is WAAAAAY overpriced. I live in the exact same condo floor plan further south. Irvine is going to crash hard and fast.

        1. Alan

          Maybe “hard”, but the “fast” part is not convincing – I follow the logic of IR’s analysis, but there are government and banking interests in at the very least slowing down the declines.

  3. Looking To The Future

    It is going to be a very interesting place for those of us who were born in the post-boomer era. By the time we are finished buying up all of the boomer’s overpriced assets like a age cartel cornering the market to strongarm the younger generation into paying for their entitlements.

    America 2040. Get ready – Don’t bother saving for it though because a gallon of milk will cost 20.00 and a flu shot will be 10,0000$.

    Just hope that there will be enough younglings by then to rip off for your own exploitation. We will have to remain strong and stick to our guns by telling those youngins that if they want our houses well then they will have to pay the premium.

  4. IrvineRenter

    Hyman Minsky was one of the first economists to think through what happens when a society changes from one of stable cashflow investment to Ponzi Scheme bubble chasing.

    From Calculated Risk: A Moment with Minsky

    An interesting overview of Minsky. And this sure sounds like the recent credit bubble:

    As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers – what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

    And since the failure of many economists to see the coming crisis is being widely discussed, here is a quote from Minsky on macroeconomics:

    “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

    1. MalibuRenter

      I could write a long post on problems with macroecon. However, I’ll stick with just one of the problems.

      Macroecon, as currently constituted, is not merely bad at dealing with extreme events. The models themselves are usually developed with no particular attention to historic extreme events.

      Thus, such models typically are built to predict what happens in fairly “normal” economic times.

  5. tonye

    If you earn enough (work your butt(*) off) when you’re young you might want to overbuy your home. That way, you’re starter home is _your_ home and there’s no need to move up.

    In our case, we took our 4/2ba 2000sq foot home into a 5b/3b 2700sq foot home by a “rebuild” because we suddenly needed more space for family reasons. But if we hadn’t, then our home would be paid off by now in the clear. As it is, we still have a very low tax payment (prop 13) and tons of equity.

    But that’s an aside. If you buy a large enough home to start with, then you get off the “move up” rat wheel that keeps the RE industry going.

    You can then buy your investment property later.

    We tried the single family residence. Worked fine for us financially and we should have kept it but it was emotionally too draining to keep the rental house business. It just took too much from us. So we sold.

    Another way to try the Real Estate market is through a partnership. We have had a REIT going for 19 years now. Sure, our share payment was quite larger than the down payment on a rental home but we actually took it from the equity appreciation of our home (back in ’90) so we leveraged that. Additionally, REITs do not require additional capital from the investors -unless you run into catastrophic circumstances.

    Lastly, you did not touch on 401K investments, which _everyone_ should be maximizing. Just don’t be greedy there. Be conservative because right off the top you are getting an incredible return for your money… we save 44% in tax plus employer matching. In our case that works out to a 50% return on the first year. So, what I just match inflation later on? We got a return of 50% on the first year!

    Or lastly, again… remember that the Fed Social Security Payment (you’re own money with massive negative returns) is subject to income tests. Right? If not, it will surely be. So if you are too successful at managing your money: (a) your home mortgage, (b) your 401K, (c) other Real Estate, (d) retirement pensions and (e) other moneys… then you will be penalized by the Feds and not get much SS.

    Which, is really what we should all be planning for. Freedom from the Feds to tell you how much of your own money they are willing to return to you.

    A puss on their home.

    (*) Is any gabacho gonna complain that I used the word “butt”? If so, que me besen en culo .

    OLE! ;-D

    1. goatse

      Just want to clarify, the tax savings in a 401k was your money to begin with, it’s not a “return” on the investment.

      1. tonye

        Well, yes and no.

        I don’t think of “my” salary in terms of gross… I think of “my” salary in terms of net.

        The difference is what the tax man takes:

        33% income tax
        9% california


        Employer match up to 4% (which is pretty goo amount too.

        So overall that’s money I get to keep, for now.

    2. QualityPicks

      I wish I could “overbuy”. That was an option back in 1997-00. Today you can only “underbuy”. See the example above. If you are young and making 110k a year and have $85k laying around for the downpayment (forget a cash cushion for emergencies) then all you can buy is this apartment like townhome. Nice isn’t it?

      1. tonye

        You know, in a normal market Irvine is like that.

        We were able to “overbuy” due to a perfect storm:

        (1) I has started consulting and was working 90 hours a week on two jobs (didn’t see my new house in the daylight for a few months!).
        (2) We got a TR fixer upper when you could still find them.
        (3) It was just before the market took off in ’87.

        I mean, it was pure luck, no real intelligence on our side. We meant to buy a condo and ended up with a SFH.

        Ratio wise, it was just as hard to raise $20K for a downpayment (10% with PMI) with interest rates in the 10% back in ’87 as it is today.

        The good thing is that if you got a job prices are coming down to earth again and interest rates are low if you got income and a good credit rating.

        The KoolAid from ’03 to ’07 was sickening. I mean, we worked our butts off to get our house once upon a time. Getting a house should not be so easy because then the price goes out the roof due to unbridled demand.

  6. Retired in NorCal

    This is my first post but I have been reading your blog for a long time. Your theme today on cashflow investment and retirement is dead on.
    I can’t tell you how foolish people thought we were when we paid off our house before retiring. When I walked into our local BofA branch and told them I wanted to pay off our mortgage, they literally had no idea what to do. Apparently they couldn’t remember the last time it happened.
    Without a mortgage payment, our month-to-month cash flow improved enormously. Including taxes, insurance, utilities, upkeep, we pay less than $1000 per month for a great house in a community we love.
    We have no debt, substantial savings and social security to look forward to. Our neighbors have the luxury cars but we get up each morning and do what we want. I am teaching part-time and my wife is active in church. We travel quite a bit too.
    IrvineRenter, keep up the good work. You are giving younger people great advice that can really make a difference. Thanks!

    1. no_worries

      American dream right here. Work hard, smart with your money; nets you a financially worry free retirement to travel a bit, enjoy the golden years, and hopefully spoil some grandchildren.

      1. flyovercountry

        That is a complete non-sequitur.

        Why do you say that the Evil Mr. Obama doesn’t want people to pay off their mortgages and retire?

        Do you blame Obama and “Washington Gangs” when you trip on your shoelace or it rains on your day off? Do the radio waves make your fillings hurt?

    2. IrvineRenter

      “We have no debt, substantial savings and social security to look forward to.”

      I love stories like yours.

    3. HydroCabron

      “When I walked into our local BofA branch and told them I wanted to pay off our mortgage, they literally had no idea what to do.”

      Some elderly relatives of mine made final their payment last year, and the automated payment system of the mortgage lender could not handle it. They had to call the servicer specifically to get the payoff acknowledged and stop the calls about their payment being late.

      Mind you, this was simply a scheduled final payment – no attempt to pay it off early. They just made their last of 360 monthly payments, per the mortgage they took out in the 1970s. The person who cleared it up was somebody’s boss’s boss, well up in the management hierarchy.

      It is as if these things never happen.

    4. CapitalismWorks

      You have accurately described my parents. When I was younger I couldn’t comprehend their relatively austere lifestyle choices. Now as an adult, I can only hope to emulate their example.

    5. tonye

      Great for you.

      The only luxury in life (IMHO) is having your kids through college, a healthy lifestyle (working on that..) and time to do whatever you want to do.

      My old coworker used to drive an old -reliable- Toyota. He used to say that birds don’t care if its an old Toyota or a fancy Benz when they shit.

      Of course, I prefer Hondas, but other than that as long as the car is reliable, frugal, comfortable enough and fun to drive who needs status on wheels?

      Travelling.. yep… I look towards the day I can get up in the morning with me wife and look at going down the road to check out yet another place. The freedom not to have to go to work to pay the bills.

      Of course, my Magnepan speakers and Audio Research amps are here to stay. We all need _some_ luxury in our lives. ;-D

  7. Tim

    I’ve been passing this link around… it’s a great, concise intro for how to think about these issues.

    Thank you, IR!

  8. Chris

    IR, please wake me up when this price is a 3/2 combo.

    We’re not there yet….FWIW, 3/2, 1350 sq ft condo in 92602 was selling a mere $325k back in ’02 (new development in West Irvine).

  9. Mattman

    IR, awesome post. I also share in these beliefs so much that I have put my money where my mouth is: I own two out-of-state rental properties. Neither makes me rich today, but both break even and the plan is that in over the long run I expect rents to rise and the investments to slowly go from break-even to profitable. Of course there’s risk and it’s very possible to go into the negative short term, but I think the key is to keep your eye on the long term which I believe is generally quite rosy for this kind of an investment.

    I chose to hire a property manager for my properties. It’s not cheap, but it takes so much of the headache out of the investment; it’s far more like owning a stock in terms of simplicity this way.

  10. Lee in Irvine

    I wish I were God for just one day.

    I’d certainly have a list of things to accomplish … if I were God for just one day that is. The first thing I’d do is make this asshole/home-debtor accountable for this theft. He’d have to pay it all back.

    Sometimes it feels good to say things like that.


    1. IrvineRenter

      Still a bit of schadenfreude to work off…

      I get peace from the knowledge that these people will suffer horribly from “withdrawal” withdrawals now that their HELOC is shut down…

      not really, but it does feel good to say it…

  11. ConsiderAgain

    What is considered a minimum cash flow on an investment property?

    I don’t know the generally accepted answer, but a couple of times I played with the idea in Excel and generally came up with:

    – around 5% cash income based upon the property purchase price and purchasing the property outright,
    – or between 1.0-1.5% cash income based upon the property purchase price if financing the property with ~20% down.

    Both scenarios above are sans property appreciation. My long-term thinking was to finance with a 10 or 15 yr mortgage, option 2 above, and graduate into option one at retirement.

    Is this realistic?

    1. WaitingGame

      I think you should be able to pocket at least 500 a month AFTER ALL expenses, opportunity costs, future vacancy costs, etc., etc. (all the things that are mentioned in Irvine Renter’s Calculator). That is a true positive cash flow investment. What do you all think? Is that too much to ask for? Is that an impossible dream in an Irvine RE Market? I want to buy rental property, but I don’t want to start out by squeaking by every month.

      1. IrvineRenter


        You want to have positive cashflow from the beginning if you can find it. The more the better because you can use it to save for another unit or pay down the mortgage.

        1. Geotpf

          Are there any Irvine properties that you believe qualify? I think some might be close, but I don’t think there are any where you would actually make money, if you factor in everything.

          Out in the IE, on the other hand, there’s plenty that qualify.

          1. Geotpf

            No, purchasing a property in Irvine is insane. Just like paying $400k for the Riverside house I ended up paying $150k for was. Doesn’t mean that people didn’t do it. The whole bubble was irrational-it was cheaper to rent basically everywhere in 2006. Still is in Irvine.

            That is, in Irvine, people either don’t do the math, or want to purchase (vs. renting) for reasons other than economic ones. Plus, rental parity is easier to meet than the level for an actual profitable cashflow investment property. It’s possible some Irvine properties are between the two, but I seriously doubt any would be profitable rentals.

            Again, look at any website (Redfin, etc.) that tracks $/sq ft costs. Irvine’s prices have been stable for a year now.

      2. ConsiderAgain

        I never think or target investment returns in dollar terms, only in percent. I am aggressive in the stock market and I would go nutty trying to frame my investment style into dollar terms on each trade. Money only comes into the equation when I consider risk, more risk=less money invested in that trade. The underlying strategy is firmly pinned on a % return.

        That may change when I retire though. 🙂

    2. ConsiderAgain

      I don’t think I know how to invest in residential real estate for cash flow, that is to say with the goal of buying a house solely with the expectation of receiving disposable-to-me cash flow. If I ever invest in real estate it would be under the following priorities/expectations:

      1) Accrued equity (someone else paying off the property)
      2) Property appreciation
      3) Cash Income (I would expect to be borderline negative cash flow.)

      After the property was finally paid off, then I see the cash flow. But only if someone else had paid the majority of the purchase price, i.e.: renters.

      That said, under the scenario that IR layed-out as I understand it, if I had a home I had lived in and paid-off (or close to), I see how that could work if I were moving up and did not need my equity to purchase the new home.

      Getting to that “owned three properties with no debt” is the hard part.

      1. IrvineRenter

        “Getting to that “owned three properties with no debt” is the hard part.”

        That it is. Imagine saving for 3 different downpayments. If it took 5 years each, it will take 15 years to get the third house. Then you need to pay down extra on the loans or hope for a refinance to accelerate the amortization. If you pour all the excess cashflow into payments, it can be done.

        It isn’t easy. That is why I can’t write a “get rich quick in real estate book.”

  12. Craig

    How would flippers make a quick buck at our expense if we didn’t buy from them?

    And I doubt you’ll be glad Social Security is there when it bankrupts the nation. It was a Ponzi scheme that worked for 70 years until demographic reality caught up to it.

  13. fumbling

    Probably the best or at least one of the best financial pieces I’ve ever read, along with the best road to success illustration I’ve ever seen. Everytime my kids ask for money I use the occasions as “teachable moments” and the next time I’ll show them this blog entry and the illustration. The only contrary comment I might make is I really dislike rental property, it’s like a single stock, it could really blow up if the wrong tenant moves in, doesn’t pay or wrecks the property. It just takes one bad tenant to ruin a property’s investment value.

    1. Rocker

      I’m saving that “Success” graphic art, I really like it, seems to be old (like 1900s), but probably is not.

  14. Rocker

    I really believe that successful investment management is a human task that is hard to understand and even harder to put it practice in a consistent successful way for any human being.

    As simply as it looks here: “*It is the stability of the sources of cashflow you control*”, implies some derivative mental work to fully understand it and even more to do it on a daily basis.

    I’m sure some people with a stable economic life are following this little “gold nugget” of advice without even knowing that this is what they are doing.

    But this recession is a proof of the economic illiteracy of the majority of the people, and that many they only do “back of the envelope” calculations, if this were not the case, we wouldn’t be here.

  15. grabasnorkel

    Oh great, now the IHB is going on and on about cashflow investing.

    I know a LOT of people who lately have told me about the beautiful wonders of buying a property and renting it out. Some of these people can’t even spell real estate, yet they are so enthusiastic about renting it out now.

    When our friends who hardly make any money and are applying for FHA loans for their “cash flow” investment are telling us about these wonders, I can safely assume it’s a bubble. When many people suddenly become investment experts and they are all suggesting the same thing, watch out.

    1. Mike

      Agreed. It’s a landlord/rental bubble. Way too many people doing it now. I expect rentals to crash from the oversupply .

      1. Bitter Renter

        As one piece of data on rent reductions, I just renewed my IAC apartment lease and got almost $200 / month off from what I was paying on my previous term.

  16. MJ

    I like John T Reed. He gives a thorough criticism of Robert Kiyosaki (Rich Dad, Poor Dad) and the “get rich quick” mentality that he spouted in his books, particularly from real estate.

    1. tonye

      I need to look into that. My wife bought that “Rich Dad, Poor Dad” book and she keeps harping that we should buy investment property again.

      I keep telling her that the only property I want is some land up in Big Bear with a small cabin and an easily defendable road.

      Something that we could retreat to, where I can walk out on the back yard in my boxers and do some target practice whenever I feel like.

      Somewhere where we can barricade ourselves when the revolution (or the HOA) decides to come up and check out the color of my back door. ;-D

      On second thought, somewhere where the HOA does not exist and you can put a nice beer keg chiller right out on your front porch so you can drink some cold beer, watch your big TV and smoke cigars all day long without being bothered by some neighbor that will complain that your farts are too noisy. ;-)))

      I dunno know, I think all of this RE ownership stuff is overblown. Maybe a nice ten acre place in Virginia City, a fast internet connection and a well chosen gun collection is what I need.

      Call it a mid life crisis after 23 years of Life In Turtle Rock.

        1. tonye

          I grew up watching Bonanza in Spain… TVE, black and white, in Castilian.

          I wondered why a place in the East Coast of the US would look like the Wild West.

          Eventually we actually visited Virginia City, NV. Took the old road from Carson City… it’s so steep in places that you “look” at the road ahead of you.

          I kind of like places like that. And Reno is close by if you need a big city.

  17. newbie2008

    A follow-up on the WFC FC party house:

    Tonye, Any good ranges around Irine?

    “Rich Dad, Poor Dad” is on obtaining property with positive cash flow, but I really couldn’t find a CA property that fit his model with long-term financing — only negative cash flow properties found. Only with voodoo loans would any property be positive and also lying on the application (non- vs owner- occuppied). Was too much risky for me. With the downturn, IE and IV might have some that are with positive cash flow.

      1. newbie2008

        Mattman, Thanks for the link. Very good IR summary of the markets. Being a successful landlord is difficult. Lots of unexpected expenses that come up and a bad renter can erase years of “profit.” Cash flow investing is great to stay above water, but RE appreciation is needed to make up for the lean years (vacancy with lots of repair bills).

        Tonye has the right idea. Have a working farm to lease out and keep a small cabin on it to have it as owner occupied and a weekend retreat.

  18. Fresh Pillow

    Its gona be hard to get positive cash flow with so many stupid people thinking buying house is their greatest thing in the world… People’s mind is still at caveman’s stage, work hard, get a shelter and get a women.

  19. Mohsi

    🙂 I Think Buying House Is The Best Way To Save Your Money For Future. Its Not A Stupid Thing To Buy a House In Any Part Of The World. Specialy In US Or CA You Can Rental Your House At Very High Cost Like:
    Asking Price: $429,000

    Income Requirement: $107,250
    Downpayment Needed: $85,800

    Purchase Price: $339,000
    Purchase Date: 8/12/2009

    Gain (Loss) after 6% Commission: $64,260
    Percent Change: 26.5%
    Annualized Return: 319%

    Its A Good Average Business You Can Do At The Last.

  20. momopi

    If I’m not mistaken, that floor plan is 2 bed 2 bath sitting above the garage. Not a bad starter condo but guest/street parking in the evenings is tough. Although everyone has 2 car garage, nobody has drive way and street parking is packed.

  21. James Smith

    :smirk: It’s always better to buy a home, if one can afford it. It can be a great asset, esp, as one may sell it or rent it out in the future. However,I think housing market has still to fall because America is losing on Jobs and interest rates have gone higher. There are very little chances of housing reviving. On top of it, the government efforts are not helping as well.
    Recently read an article on a similar premise.

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