Capital gain investing vs. cash-flow investing

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When people think of the word "investing" they think about a process whereby they put their own money in to something with the hopes that they can get MORE money out at a later date.

That type of investing (investing for capital gains) is also known as "buy, hold and pray" investing. You buy something at a price that you hope is cheap and you hope to sell at a higher price.

I want you to FLUSH that idea from your head.

FORGET IT. There is NOTHING in that mental process that I consider to be valid when it comes to financial independence. That is gambling as far as I'm concerned.



I am a cash-flow investor.

My investments start writing me checks immediately. If an investment doesn't start paying me DAY ONE, I don't invest in it.

Unlearning your idea of what "investing" is will probably take some time, but you absolutely MUST rewire your brain on this one.

Because my investments start paying me immediately, the risk is damn near ZERO.

I am not concerned with paying too much for an investment as long as the cash flows in my direction.

Even if I pay too much for something, time will cure that mistake. Eventually the investment will pay me back for it.

I will have a lot more to say about this as time goes on.

[AmericanPride]

What are some examples of that? I can think of property, but what else?

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americanpride2 said:

What are some examples of that? I can think of property, but what else?

"property" is an all encompasing word. It includes not only real estate, but the soap in your bathroom.

You can buy the rights to books sales, record sales... virtually anything anyone owns is "property."

Anything people will pay you to use can turn into cash-flow and will work.

Michael Jackson has purchased the rights to a shit load of stuff that doesn't involve real estate - it's all in the music business (or a bunch of it is anyway).

People rent cars, furniture and real estate.

You can buy and rent out STOCK. People pay you for the use of your stock in the market. They can pay you to borrow it and immediately sell it (a short - where they have to replace it at a later date and they think they can buy it back for a lot less money). Don't get mixed up in this kind of thing.

There are lease rights to minerals (oil, water, gas, etc) where you lease out land that's rich in natural deposits and get a big fat check on the royalties for the value of what they take off your property.

There are market rentals for silver, cows (livestock), water skis and snow boards.

I know a guy who rented a pig for a party once. He put it on the bar and it sat there all night grazing in the chips and dip and sucking down a big-ass bowl of beer. That was a very strange evening, now that I think about it. The owner of that pig received cash-flow for renting it out.

Anything you can acquire the rights to and rent out will give you cash-flow.

I'll bet if you really think about it, you could come up with many examples.

I know a guy who rents out margarita machines for $500 a night in Atlanta. He makes a killing off of that and all the mixes and shit that people need to make the fuckers work.

There is a guy here who rents out a mechanical sewer snake with a lighted camera on the end of it for finding problems in sewer lines and septic systems.

In a nut-shell, I acquire shit that people will PAY ME to use and that will go UP in value over the time that I own it. My venue is real estate. I leave the pigs, the rita machines and the sewer snakes to the other guys.

DO NOT make the mistake of thinking "acquire" means "PAY CASH FOR," or pay ANYTHING for necessarily.

"Acquire" means get control of. It doesn't always take MONEY to do that.

[AmericanPride]

I understand that acquiring assets that provide a net in-flow are the key. I don't want to depend on wages or a salary -- I want to use that money in a way that will provide long-term independence. I haven't developed a plan or strategy yet -- I'll be doing that this Christmas Break, discussing the opportunities with my parents. They're newly involved in real estate with a couple rental properties, but we're not the Trump family yet. It's a start. I want to take what I have and run with it -- my parents are doing better than their parents, and they have given me the philosophy to achieve more than them. I might go in with them on something in back East as a start up project to get my bearings straight and set a strong foundation. But that's something being developed.

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Learning about this is worth ONE HELL OF A LOT MORE than a PhD.

[AmericanPride]

I agree. I think my favorite parable of the Richest Man is the one with the son who returns to his father broke but wise and inherits his father's wealth. I think all of them are profound in their simplicity and after each chapter ended, I said to my self "duh!" It's one of those things you think you know but need it to be clarified or articulated. I also enjoyed the discussion with the merchants, which focused upon seizing opportunities.

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I liked those as well.

My favorite was the one where the guy was a slave in Syria. He was once proud and then descended into piracy and was eventually sold into slavery.

When he REALLY DECIDED to change his life, he was willing to do ANYTHING to change his life. That's the point you have to get to to make it happen. It's an "attitude."

He was on the run and he was out of water and his camels were nearly dead. It would have been so easy to quit and die, yet he didn't. His "attitude" became - "What pain? What problems?" He got the fuck up, whipped his camels to get them moving again and eventually made his way to water and then back to civilization.

He faced his problems and his debts and paid them all off. He truly dug his way out of the grave and became prosperous.

That parable reflects ONE THING (to me anyway): Success is 99% attitude. The road is just hard enough to eliminate my competition. Every competitor I have had - QUIT.

The secret to my success in investing is that I didn't quit. I found a way to make shit happen. It hasn't always been on my terms, but I have always found a way to win. That's what winners do.

To do that takes EMOTION. Emotion is the most powerful force in the world. It took the power of two primal emotions to see me through the minefields I have crossed. They are HATE and FEAR.

I HATED my job (I mean pure, unmitigated hate) and I was SCARED TO FUCKING DEATH that things would never change. Every time I came up against an obstacle that seemed insurmountable - and there have been hundreds - I am going through a few right fucking now - I had the power of my emotion to turn to.

That's what it took to keep me focused.

[AmericanPride]

That's a lesson I learned this summer.

[AmericanPride]

If you don't mind, can you tell me how/ where you started and what lessons you learned in that process?

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americanpride2 said:

If you don't mind, can you tell me how/ where you started and what lessons you learned in that process?

I got started in investing when I was about 42 or so. However, leading up to that... I walked away from the military after 8 years because the politics and the lifestyle weren't worth what they were paying me. They were sending us to fucking "sensitivity training" for Christ's sake! We had a mandatory formation one Friday and the Flight Surgeon came in and gave us a lesson in the Four Food Groups! I shit you not! The USAF considered flying to be an additional duty and I just didn't see it that way. People were being promoted on their ass kissing ability and I just couldn't do it as well as the next guy. I was a captain, but I was "reserve" and not "regular" (for what reason, I do not know). I was a Flight Commander (I oversaw the lives of about 15 other pilots) and an Instructor Pilot in the F-16. Although it was the BEST JOB in the USAF, there was no job I wanted AFTER THAT. Any promotion from that point would have been a demotion as far as I was concerned.

The airlines were hiring and the pay was seven or eight times more. I resigned my commission, I walked away and I didn't look back.

In the airlines I started all over again (day one, new hire, entry level, Joe shit the rag man).

After ten years or so, I could see the airlines were as totally devoid of real leadership as the USAF was. There were plenty of managers running around, but NOBODY seemed to have any VISION or leadership ability whatsoever! I could see that we were a ship without a rudder and I started to FEAR for my future.

All I ever wanted to do was fly and the flying thing turned into a mine field. I began to HATE the job and HATE the visionless managers who were making millions in bonuses even as the airline sank into bankruptcy.

Those two primal emotions (HATE AND FEAR) are what gave me the strength to move on. I had no clue what I was going to do, but I decided I had to find something.

I started a flight school and banner towing business. I ran that for five years or so before I sold it. I made some good money, but it was wrong for me because it was too time intensive.

I was looking to leverage my time. Meaning, I wanted to do something once and get paid for it over and over and over again - possibly forever.

I even looked at maybe going to medical school, but shit... you want to talk about something that will eat your life away. There aren't enough hours in the day to do that job.

I tried network marketing. Although that is a really good way to leverage yourself (get paid on the efforts of others), you have to rely on other people to do their part. When they don't do it (which they rarely do) YOU LOSE. I got frustrated with loser people and quit.

Then, I took a look at money. I thought, what if I could buy a house and finance it at 7% and then sell it (owner financing) at a 10% interest rate. I could make 3% on the bank's money! It's free money! It's like reaching down and picking it up off the ground!

Well, I did that very thing except that I did it smarter. I started buying foreclosures for $50K (100% financing at 7%) and sold them for $75K at 10% interest. So, I was making 3% on the bank's $50K and 10% on the other $25K which I made up out of thin air!

I did it again and again and again. I did something like 20 of those and got to where I knew foreclosure law every bit as good as any attorney. There was NOBODY better at foreclosures and owner financing in my area than I was.

I took those profits and launched into commercial.

Commercial is all I do now. I have a niche and am at the point where nobody can compete with me. I can finally write my own ticket. I can grow as big as I care to.

It takes balls of brass though - I promise you that, but the rewards are beyond anything you could imagine.

I was a captain, line check airman and flight instructor for Delta and I resigned (after 17 years) to do my business full time.

There are about 150 people (maybe a few more) who depend on me doing what I do to generate their jobs. When you consider the fact that their kids depend on me too.... it's huge. Moreover, I am still growing like a mother fucker.

I have, I would say just thinking about it now, projects that will create about another 1000 jobs on the drawing board.

It's a worthy endeavor.

[AmericanPride]

That's awesome. That's something I'm definitely interested in. My parents just entered the real estate market, and I hope to build upon what they have accomplished thus far -- they had a late start, but they've come very far for being first generation Americans. I plan to use the Army as a way to stabilize my finances after school and then find a niche for myself.

I'll be starting the next book some time this week.

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americanpride2 said:

That's awesome. That's something I'm definitely interested in. My parents just entered the real estate market, and I hope to build upon what they have accomplished thus far -- they had a late start, but they've come very far for being first generation Americans. I plan to use the Army as a way to stabilize my finances after school and then find a niche for myself.

I'll be starting the next book some time this week.

As far as your parents are concerned - it's never too late to start.

You should talk to that moron buddy of yours (Falcon).

You need to slap some of that simple-mindedness out of his bitch ass. The world already has to fucking many evangelists.

Regardless of which side of the fence he's on, that's a loser's game.

I can see him on the stage Sunday mornings with is microphone:

"Cast away your Bibles! Cast away your Books of Mormon! Cast away your Korans! Cast the religious EVIL out of your lives! AND, please be sure to notice that I do not have a collection dish! Money is EVIL TOO!"

lol

[AmericanPride]

I've always been apprehensive towards ideology, regardless if its Rand, fascism, Islamism, or what have you. Ideology has consistently been the instrument of some underlying political or economic agenda for the benefit of a few at the expense of many. And when it's challenged, it changes shape and assumes some new faces and continues its campaign. The appeal of individual productivity as you have described is not in any kind of ideology (which James has the tendency to grasp to) , but in simply its own objective judgment of personal accomplishment.

[AmericanPride]

Anyway, I'll let get back to you later with some more questions, which I know I'll have after reading Rich Dad, Poor Dad.

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americanpride2 said:

Ideology has consistently been the instrument of some underlying political or economic agenda for the benefit of a few at the expense of many.

You're exactly right.

That's what's so great about capitalism.

It only works in the EXACT OPPOSITE manner.

The MORE people you serve and the MORE VALUE THEY GET, the more successful the owners and employees are.

The consumer has to gain FIRST.

AND, if the business owner gets greedy, their most productive employees will leave and the owner will get less. If the employees get greedy, the owner will replace them and get more productivity out of the next employee.

The proof of who is right will show up in the balance sheet.

Money is a NECESSARY PART of the whole thing because it keeps a TALLY of who is right. It's how we keep track of how well we're serving the consumer.

This is why Falcon's comment that I am a slave to money is SO FUCKING ABSURD. Nobody with any real clue about capitalism could utter something like that.

Capitalism is a wonderful thing. It's a system that people cannot cheat on. Those who try it will lose every time.

This is why the whining I hear from the left about how BAD rich business owners are is so stupid. They clearly don't understand what makes capitalism work.

The really scary thing is that some of these same people are in CHARGE OF OUR NATIONAL ECONOMIC POLICIES!

Our political system is fucked up. Some moron with a GED can win a popularity contest and be put in charge of setting our public policy. It's mindless, but that's politics in America!