When we created AnVi Invest, we knew we wouldn’t be generating a ton of cashflow upfront, and that was okay with us. We were focused on the bigger picture—equity. Thousandaires focus on cash. Millionaires focus on equity.
So what is equity? In real estate, it is simply defined as the difference between what the asset is currently worth and what you owe.
For example, if you own a house worth $100,000 and you owe $50,000 on it to the bank, you have $50,000 in equity.
“Yeah yeah yeah, get on with why you called this blog the DEATH OF CASHFLOW. What does that mean?” I hear you say.
Hang tight, cause here it comes.
When we analyze a deal, we focus on 1. Cashflow and 2. Appreciation.
Let’s discuss both in some detail that matters to you, starting with cashflow. Mathematically it’s very simple. Cashflow = gross income – expenses.
Gross income includes rents, pet fees, laundry service, etc.
Expenses include repairs, capital expenditures, property management, taxes, mortgage, HOA dues, insurance etc.
So if total rents received are $1000 and all of your expenses are $900 there is $100 in cashflow for the property which is a good starting point for any property!
The issue with today is cashflow is extremely hard to find. Real estate values have been inflating like crazy due to 3 main ingredients.
- Record low interest rates
- Limited inventory due to a pandemic
- Construction of new homes not keeping up with population growth
This causes the price-to-rent ratio to become even further tilted than before, therefore creating a bottle-neck in finding any amount of cashflow in a deal. When we started, we made it a rule to cash flow at least $100 per door. Now.. we’re cool with breaking even. Say your final prayers, fam. Let us hold hands as we mourn the death of our dear friend, Mr. Cashflow.
Done crying? Cool. Cause here’s your silver lining.
Even if you start with scraping by with break-even numbers in year one, you can justify getting into a deal before it’s too late and you’re only left with the next level of hell–NEGATIVE CASHFLOW.
Getting into a deal and settling for no cashflow is not ideal, but necessary before markets continue becoming further skewed. Wait too long and you’re out of the game completely. Take comfort in knowing that rents haven’t decreased since WWII which means you could break even in year 1, increase rents on your property in year 2, and again in year 3, and so on. You get the idea. Cashflow is a waiting game in today’s market. So be patient. It’s a virtue. Take it from us. We read it in a fortune cookie last week after dinner.
Now let’s shift the conversation to appreciation. Appreciation is the bigger play. This is the value of the asset increasing year over year and oftentimes without your participation nor effort.
To give you an example of the impact of appreciation direct from our portfolio, we purchased a pink triplex.. yes you read that right, we purchased a pink triplex with our partner, Steve one year ago in almost exactly to the day as we’re writing this. He’s the sexy one pictured left.
The purchase price out the door was $200,000. Today that property is valued at $325,000. That means in 1 year, we as a team made $125,000 in appreciation. This is more than most W2 nine to fives in the United States. This is the real secret to becoming wealthy. Silver lining? Make that gold lining, baby. Well, in this case.. pink I guess. But whatever you get the point.
In summary, cashflow isn’t something you should be stressing about. JUST GET IN THE GAME. If you don’t you risk being kicked out of the game. Even by breaking even in 2021, you will likely have cashflow in 2022 and this will increase year over year. And lastly, in case you didn’t know, the US government printed over 40% of all money EVER PRINTED last year. Do you know what this means? Cash is worth even less than before. The best strategy is to purchase an asset (hint hint: a lovely pink triplex) that stands to benefit from the inevitable inflation wave that is already upon us and likely increasing in the upcoming years.
Remember fam, cashflow pays bills and pays for your lifestyle, equity makes you wealthy!
Wanna learn more? Join our next FREE meetup.
Date: Wednesday November 3rd, 2021 at 6:30pm
Greenleaf Kitchen and Cocktails
234 E. 17th St.
Costa Mesa, CA 92627
Your friends in investing,
Vince and Andrew, AnVi Holdings LLC