Cash is Trash
If you’ve been following our stuff for sometime now, you’ve learned that we like to lean in on certain principles. Inflation sucks.. you should probably invest in assets. Your 9 to 5 sucks.. invest in assets. You wanna take care of yourself and your family’s family.. invest. in. assets. Why? Why not just save money like ma and pa said to do. Harsh truth for you. Here it comes. Brace yourself. If your ma and pa said that, they were likely not worth much.. fiscally speaking of course. I’m sure mom has a heart of gold but unless she educated herself on how to generate and sustain deep wealth, it’s unlikely she knew to tell you the simple truth.. CASH IS TRASH! Only telling truths ‘cause we care.
In order to understand why cash is trash, it’s important to become familiar with cash as a currency itself. Sit up in your chair, ‘cause here comes a history lesson.
Money is simply a medium of exchange. Its only value is what we as a society agree on. Before money, there was the barter system, then salt, followed by gold and precious metals. For years, right up until the 70s, our money was backed by that thing in the ground called gold. After we left the gold standard, our dollar became what is called fiat currency aka fake money. This means the feds can hypothetically and sometimes literally go bananas and print say.. oh I don’t know.. 40% of all the money in circulation in a year due to a pandemic. (hint: this actually happened)
This is what is causing the current inflation you see happening today. For more on that, read our last blog on that exact topic below.
I can already hear you say, “Hey guys, how the heck is cash trash? I use it all the time to pay rent, food, gas, etc. You guys are wrong. Cash is KING!”
Ok sure, you need some cash to live and all that but realistically you need that plus a few months living expenses for the rainy day fund and THAT’S IT. Everything else should be making YOU money and working for YOU.
Get rid of that cash because it is currently losing you nearly 6% annually. That means if you had $100,000 last year, today it’s actually worth $94,000. In a way, you actually LOST SIX THOUSAND DOLLARS.
This is why we, for instance, just pulled $150,000 from an asset in a refi and are actively looking to toss that right back into an asset with our next partner (btw that could be YOU) that will keep growing so we can do it again and again and again but for bigger amounts each time.
This strategy is way more effective compared to the theory of just save save save and eventually hope to invest in an asset. You’re playing a losing game at that point because you will likely not be able to increase your income at a rate that comes close to the appreciation rates of homes (the best asset there is). And you know what, even many stocks and broad index ETFs average better than current inflation. You should be AT LEAST doing that!
See our video on Stocks VS Assets below
To wrap, the takeaway is this:
- Save/earn enough to be sure you can cover current expenses
- Save a little extra to cover rainy day just in case emergencies (typically 3 to 5 months living expenses)
- INVEST EVERYTHING ELSE
You’re welcome. Years of financial education and books summed up in 3 steps. Confused still? Come to the meetup on Wednesday December 1st. Link below.
Date: Wednesday December 1st, 2021 at 6:30pm
Location:
Greenleaf Kitchen and Cocktails
234 E. 17th St.
Costa Mesa, CA 92627
Your friends in investing,
Vince and Andrew, AnVi Holdings LLC
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
Location:
Greenleaf Kitchen and Cocktails
234 E. 17th St.
Costa Mesa, CA 92627
Your friends in investing,
Vince and Andrew, AnVi Holdings LLC
Let’s talk about a word. This is a word that divides the wealthy and the struggling (or soon to be struggling). This word has more negative impact on those who wait to own than they could ever even fathom. The word is ‘inflation.’
If you winced at that word, looks like you are already on the wrong side of the line. But wait, why wouldn’t EVERYONE hate that word? That’s because most know what inflation is but only enough to get hurt. So the question remains..
What is inflation, REALLY?
The economic definition (I just googled it) is ‘a general increase in prices and fall in the purchasing value of money.’ Essentially, it’s the cost of goods and services going up every year. In the United States, the Federal Reserve attempts to keep it around 2% to keep things from getting haywire. Anything below is bad for economic growth and anything higher is bad for most of the country as wages tend not to track inflation directly thus, making most the middle class and below less prosperous and therefore further tilting the scales.
Now, I hope you were really paying attention to that official google definition. Why? Because the back half is the real killer. ‘fall in purchasing value of money?’ Oh snap. That means the US dollar gets devalued every year and usually around 2%. Currently that number is almost triple. This is a problem for most people. Let me explain.
Let’s look at a simple real estate example.
Real estate tends to track inflation and has been going up 3 to 5% per year on average. Add in lack of supply due to a once-in-a-century pandemic, a dash of record-shattering low interest rates (this is what we were talking about with the Federal Reserve), and a bit of an already growing issue of lack of housing in general and you get closer to 20%.
What does this mean to YOU? Simply put, if you waited last year to buy real estate because you thought it was going to crash, your penalty for guessing wrong is paying 20% more. For example, a property in Orange County, California worth $500,000 a year ago is now $600,000. This is how people get kicked out of the game. Every year you wait you will be further behind because you cannot save enough to catch up with ever-rising prices aka inflation.
Robert Kiyosaki said it best in an interview. “You will never be able to save enough money to get rich because the Fed can print it much faster than you can earn it.”
Are you ready to really get your head checked? Saving money to buy your dream home is a terrible idea! Why? You will never be able to save enough to keep up with inflating prices of assets in a nice area unless you already have a very high income and/or are expecting a huge promotion. What we recommend is buying something you can afford now so you have a good hedge against inflation. This asset will help mitigate all that erosion on your pocketbook since now you at least own an asset that rides inflation. With said asset, you now benefit from inflation. As inflation increases, so do rents and so does the appreciation of your home.
Inflation makes the poor poorer and the rich richer because the poor do not own assets.
What can you do?
Buy assets so you can surf with the big dogs and ride the wave of inflation. But how? There are many vehicles for creating wealth by hedging against inflation. Real estate is one of them (and our personal favorite), stocks is another, and hell you can even make a case for crypto currencies.
Want some real life examples from our very own portfolio?
Exhibit A:
AnVi bought a triplex (infamously known as the Quincy dilemma that almost bankrupted us) in July of 2018 for $256,000. Last month it appraised at $370,000. That’s a 14.8% increase per year or 44% in 3 years! In Bakersfield? Yes. In Bakersfield. You mad yet?
Exhibit B:
AnVi bought a duplex in Fontana for $530,000 six months ago. This property is now valued at over $600,000. That’s $70,000 in six months. Did your salary increase by $70,000 in only six months? Neither did ours. And neither did our partner on this asset. By the way, that partner is one of our moms here at AnVi.
She grinded and grinded and busted her hump her entire life to raise 3 boys and keep a roof over everyone’s heads and at the end of it all, like a champ, was able to have almost $150,000 saved in retirement. If everything remains constant, she will have essentially made the same amount in a little over a year. Ok, now you’re mad.
With AnVi’s assets combined, if we assume just a 5% appreciation every year, we will passively earn more than $175,000 per year forever. That’s more money than most people make working full time for an entire year. And now.. WE’RE MAD! Mad that we didn’t buy more assets years ago!
-Your friends in investing,
Vince and Andrew from AnVi
Wanna learn more and join us in building real wealth and live close to Orange County? Come to our monthly meetups. The next meetup is on October 13th. Click here to RSVP and be sure to get there early as it is always packed and chairs can be hard to come by.