[Anonymous]

Anonymous

Did you see Jack’s latest blog post?

It’s great advice. See below:

If you take a close look at truly wealthy people who worked their ways to the top, you?ll discover that they share many traits in common: They started work early and continued to work most of their lives. Many of them stayed married to the same person for many years. All but the tiniest percentage primarily worked for themselves rather than an employer. Most of these started out small, and slowly let their business evolve as market share grew. Many also deferred consuming their net income for decades, choosing instead to re-invest it in the growth of their various enterprises.

You?ll notice that the pattern of successful small real estate entrepreneurs parallels this pattern. They live from hand to mouth on the little snips of income they can derive from their rentals while they let them pay down. As one is paid off, the additional cash flow it generates is used to pay another off. Eventually, all are paid off and the income jumps off the chart. It is then that these entrepreneurs begin to spend money and to enjoy the good life.

By way of contrast, if you take a close look at those who somehow fail to find the pot of gold at the end of the real estate rainbow, you?ll see that they don?t give their profits a chance to compound. They often exhibit a pattern of spending income and loan proceeds from refinancing to support an extravagant lifestyle. Ostentatious homes, expensive cars, lavish entertaining, membership in country clubs, etc. consume their capital as they refinance debt to use up their equity.

There are many public companies that mirror this type of activity: They pay out extremely high compensation packages to their officers and directors, and mollify stock holders by paying out dividends in excess of their earnings hoping to lure na?ve investors into investing for income without considering that the dividends are being paid out of capital rather than current earnings.

Many investors over the past couple of years have fled areas where houses have become too expensive to buy and hold long term. They?ve gone where much lower priced houses can be highly leveraged to produce positive cash flow. What they overlook is that these same houses are inexpensive because they haven?t appreciated; and because there are few buyers in the local market willing to pay as much as those from outside the area. I get calls from these unfortunates who gave up growth for income, and now find that they can neither sell for enough to recover their investment, nor increase rents enough to cover the rising costs of taxes and insurance.