Focus on cash flow but don’t get obsessed

 

Most people work for 40 years or more before they retire.

That’s a long time to commit yourself to building your retirement nest egg.

Not to mention taking 25 or 30 years of that to buy your home.

Did you ever hear that Bill Gates quote – I think it’s Bill Gates – Might be Tony Robbins…

“Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
― Bill Gates or Tony Robbins… Maybe some other fella.

Point is this…

Most people are sprinters at heart but marathon runners in reality. What do I mean by that?

They trudge along for 40 years slogging their way to retirement – that’s the reality. Yet, everyone wants that big win – the hot tip, the sure thing, the golden opportunity… they buy lotto tickets waiting for that one chance to break out of the rat race right now…

What they miss is the medium term.

What they can do in 3, or 5, or 10 years.

The reality is that a savvy commercial investor could go from zero to retired in 5 or 10 years with ease. Push harder and you can do it in even less.

How this often plays out in commercial property is people hear me say focus on the numbers, make sure you’re cash flow positive from day one.

They hear me say that there are properties out there that can get you 8%, 10%… sometimes more…

And they get fixated. They get whiteline fever.

And that’s cool… there’s nothing wrong with driving a hard bargain, negotiating with ice water in your veins and getting a great deal.

That’s all good, but the downside, and I see this all the time, is that people let deals go that don’t meet their idealistic criteria, without realising that they could turn out to be an amazing deal if they just use a bit of creativity or just give it some time.

If you do it right your lease should have a rental review clause. That means that on a regular basis the rent will go up in line with the lease terms – usually in line with CPI.

What that means, in reality, is that a deal that is 7% some people might look at and say – that’s not enough… Especially my students who are always looking for the highest returns in the market will turn into an 8% deal if you just give it a couple of years.

In the time it takes to find, investigate and buy that one perfect deal I could have bought 5 average deals that produce more cash flow than the one amazing deal.

Not only that, in a few years time each of those will be producing fantastic cash flow because their rents and my returns will have grown every year since then.

There’s an opportunity cost to waiting for that one perfect opportunity.

Generally speaking the cash flow you get at the time of purchase (all other things being equal) will be the least cash flow you’ll ever get for that property. As long as it stays tenanted every year that property will bring in more cash flow.

Your returns will be higher every year based on the purchase price and the value will increase in line with those returns.

So yes, while it is possible with the right education, the right starting point and the right deals to replace your income very quickly with commercial property, it can be easier to think mid-term.

If you look at buying an OK property now just know that if you have the right rent review clause in place, that in a couple of years it will be better… in 5 years even better…

In 10 years what was a boring average return will be an awesome return.

And between now and then, you can redraw on the growing value and do it all again… and again.

What you can do in 10 years could be amazing compared to the 40 years the average punter works before retirement.

Get out of the extremes… get out of short terms and ultra-long-term thinking. What you can do in 10 years… Well, just ask Bill Gates.

If you’re like me, you could retire early to somewhere beautiful and spend your days doing whatever you like, well before retirement age.

 

Check out my regular free webinar on commercial property investing here