July 19, 2022

(WARNING: COLOURFUL LANGUAGE)

Cashflow — another highly used marketing buzz word by real estate buyers who masquerade as investors and coaches to make their ‘deals’ sound better than they are these days. My attempt as usual with this article is this: help as many people understand the difference between cashflow, cashflow management and, MOST IMPORTANTLY, cashflow mindset.

With so many people reaching out these days asking for perspectives, opinions and experiences during a time like this — looming recession and high interest rate (cost of borrowing), I always like to go back to the basics to stay grounded.

According to Investopedia, cashflow is defined as “the movement of money in and out of a company. Cash received signifies inflows, and cash spent signifies outflows. The cash flow statement is a financial statement that reports on a company’s sources and usage of cash over some time.”

First thing first, let’s quickly break this definition down:

• It’s the ‘movement of money’ in and out of a company. If you’ve had the chance to check out some of the My Daily Dose with Tim videos, you’ll know that I treat EACH and EVERY property like an independent business. And like a business, we want to be making a profit at the end of every month (unless it’s meant to be non-profit from the start).
• Cashflow is sometimes synonymous as profit. If you’ve gone to any sort of business school, you’ll learn this very definition in your 101 class: Revenue — Expenses = Profit. As a result, cashflow is also an indicator of how well the business is run — kind of makes sense. At any given point, the goal is to maximize revenue and minimize expenses. That brings me to a very important point here: the emphasis should be on creating POSITIVE CASHFLOW.
• In most real estate investing strategies (refer to the Wheel of Wealth articles), the high level formula actually looks more like this picture (yes, that’s my handwriting on a flip chart — don’t judge 😉):

Well, well, well…it looks like we are missing a crucial component here with the simplified version before: debt service (aka cost of borrowing). Unless you are purchasing your properties with cash (and why would you?!), chances are you need to maintain the debt servicing on a regular basis. And the terms and rates of the debt service will ultimately determine the cashflow/profit.

As I’m writing this, I know many buyers (who have been posing as investors and coaches) have stopped buying while I’m in the process of acquiring/closing on 12 properties (16 doors) from 2 tired landlords — in both Canada and the US. I’m also making the biggest daily gains from trading futures since I started learning last September.

I’m definitely NOT braggin’ since I was not always able to capture every economic downturn to the best of my ability (as mentioned in the previous article). However, I did learn from a mentor at the beginning of my financial education career that Financial education will allow anyone to make money and grow wealth when the market is going up, down and sideways. That was the ‘sales pitch’ that got me. Today, it remains the main reason why I’m pro financial education and NOT just real estate investing.

When you are financially educated, you will learn be excited about economic downturns for these 2 main reasons:

1. Your money will go further when value drops. People see higher interest rate/inflation and decreasing value as a double whammy. When, in fact, it’s the most amazing thing when you are able to leverage debt to build wealth. As mentioned in the previous article, regardless of rate, the devaluation of money is also the devaluation of debt. Plus, most investors are still able to borrow money for a mortgage (depending on types of property) anywhere between 4.5% — 8% in North America when inflation just clocked in at 7.7% in Canada and 9.1% in the US (at time of writing this article). That literally means that your debt is FREE MONEY still. While on paper, the rates are ‘going up’, let’s not forget that it’s based on comparison of what people have gotten used to in the last decade or so largely due to global financial crisis. Mind you, I’m not denying the fact that the higher cost of borrowing can eat into your cashflow as a result initially (see calculation formula above again). This is precisely the reason why time and time again I emphasize on buying for positive cashflow. It’s the survival tool in a recession. However, when values are dropping, it also makes certain asset classes more “affordable” to get into.
2. You can increase your overall net worth dramatically coming out of it if you learn to acquire assets properly during this period of time. The value will bounce back up —it’s cyclical. It’s the good old saying of “buy low, sell high”. And also, what I’ve learned from trading is this — unrealized losses and gains don’t matter as long as you are making a positive cashflow. Think about this example: whenever Elon Musk says something dumb (according to the majority’s opinion or media’s scrutiny), his company value drops. But was he or his company hurting? No! Because they are protected by positive cashflow/performance. The same goes for all big and major companies that we’ve come to know: Coca-Cola, Nike, Microsoft, Google, Facebook/Meta, etc. The values of these companies go up and down on a daily basis — sometimes in the millions and billions — and they continue to grow and thrive over time. This is also when trained stock investors buy more shares — when the values are lower (in comparison). We are simply going through the initial contraction of a recession. So, understand these 3 stages (important!): as money (as currency) devalues with inflation, the value of things (especially assets) also goes down while the price goes up (initially — I know, makes little to no sense sometimes). Then the price will go down due to supply and demand and the loss of buying power. Over time, as inflation gets under control, the value of money stabilizes, value and price will inevitably go up in the long run.

I sincerely hope that you have fully absorbed what was shared here as this article will serve as the foundation for what’s more to come. If you enjoyed it, please give me a clap and a follow so I know how I can continue to create relevant content on this platform.

Tomy dedicated readers, I thank you for your support and feedback. If this is the first time you’re reading one of my publications, I hope you’ve enjoyed it and learned a thing or two.

If you’re wanting to be a part of a community of real estate investors from around the globe, here is the T.A.L.E.N.T.ed Investors Facebook Group. It’s a place where people come together to share experiences, knowledge, successes and challenges, and money making opportunities!

For those of you who prefer watching videos, here is the YouTube channel where some of my work (very raw) has been shared.

If you prefer the live interaction and delivery to help you build some foundation, our next Bootcamp is on July 23 and July 24 (this weekend!). Go ahead and register for a session for either day to help you further your financial education.

Lastly, I just want to say thank you for your continuing support.

I aim to be authentic and adding value to your life.

I invest to build a life. I build business to create better life experiences.

It’s ultimately about LIFE and I appreciate you coming on this journey with me!

(Written at home in Edmonton, AB)

August 30, 2022

The content in this article is likely one of the most popularly used way of a Lease Options deal in North America. I say it’s popular simply because of its street name: Rent to Own. And it’s often used to help people obtain home ownerships when they have been rejected for a mortgage by institutional lenders.

This way of Lease Options is my actual ‘baby strategy’. If you read the previous article, you’d probably already figured that the mechanisms and thought process is relatively similar. Except that, in this case, I am the seller giving my tenant(s) (or tenant-buyer) the options to purchase/renew, etc. at the end of the contract term.

My husband and I chose this as our first focused strategy when we first started for a few simple reasons:

1. Great passive income/cashflow to help us get out of the rat race faster — we needed our time and health back desperately from working demanding corporate jobs (selfish)
2. Little to no tenant and property management once the Lease Options is set up and the tenant-buyers have moved in (selfish)
3. We get to help people achieve their dreams and goals of home ownership (win-win)
4. We get to build a solid team of realtors and mortgage brokers in every market with this strategy (win-win-win)
5. It’s an average of 2–4 years process to see results for both the investors and the tenant buyers. There’s no need to stress over long-term commitments here compared to a traditional buy & hold strategies especially when working with OPM (win-win-win again)
6. This is the ONLY strategy that can feed into all 3 income buckets (GIANT win from an investor’s perspective)

When I labeled certain reasons ‘selfish’, all I’m simply doing is reminding everyone the importance of WHY — (financial) GOAL — SMP again.

We all (at least 100% I’ve come across so far) choose to get financially educated so that we can fast track our desired financial results to help us LIVE A LIFE that we want. Also, to this day, I still strongly believe in the concept that “you can’t pour from an empty cup”. It’s ok to cater to your personal situation and make it better first before you give.

Now that we’ve got those things out of the way, here’s one of the BIGGEST reasons why we stuck it out and did 36 of these deals in the first 25 months of our investing career.

As a Seller

Here’s a little background —

Picture this (yes…I recently started watching the Golden Girls as part of my ‘getting cultured’ journey as an immigrant):

• Edmonton, August 2012 (pretty much exactly 10 years ago this week)
• We’ve acquired a new property for our new tenant-buyers who are a couple in their early 50’s with 4 children
• They are the typical middle class family — hard working parents that only want to provide for their children — and paycheque to paycheque as a result
• Having attempted to get a mortgage to buy their own house many times without success, they were very hesitant about getting into a “Rent to Own Program” (understandably so as there were many people in our home market back then that did not aim to set up their tenant buyers for success — another story altogether later)
• The husband was virtually non-communicative throughout the whole application and house shopping process
• On possession day of the property, we have just finished our walkthrough and now gathered around the kitchen island to finalize some paperwork
• Midway through signing the documents, the husband’s hand started to shake. We are now thinking he’s getting last minute cold feet and might want to back out of the whole arrangement
• We asked him to put the pen down and explain what’s happening…
• To our surprise, real tears started streaming down his cheeks and he’s getting all chocked up wanting to squeeze out words to say how grateful he feels and that he never thought this was possible
• Between the sniffles and his beautiful words (now basically everyone’s crying happy tears), it became clear to us why this is such an amazing strategy and that it became the 2nd of dozens more Rent to Owns so far in our investing career

Rey and I walked away from that meeting feeling immensely empowered and jazzed. Intellectually, we knew why this strategy is great — we get great cashflow from each deal that will allow us to ‘retire’ early and get our time back. But boy…emotionally, we had no idea what was in store for us until that day.

For those of you analyticals, here’s the other side of the deal:

• They did not have enough downpayment saved up as they were paycheque to paycheque for decades
• They did do the ‘typical’ thing and put money away in RRSP (Registered Retirement Savings Plan like the 401K, superannuation, etc.) and TFSA (Tax Free Savings Account) and was able to leverage it to get into and finish the Rent to Own program
• This was a 2-year arrangement and they had 2 adult children living at home willing to pitch in on their monthly rent to own commitment
• As the investors, we were cashflowing $1,700 per month (before JV split)
• There was ZERO issue with them for the entire duration (not all of them are this great to be completely transparent) — the biggest ‘request’ they had was if they could upgrade the flooring and we said yes

Icould never forget the giant smiles on their faces when they took title of the home that they had already lived in for 2 years and treated it as their own.

And that’s just it!

As the investor in this arrangement, we are essentially extending a private mortgage to them while helping them get set up to qualify for a traditional mortgage through an institutional lender.

Most of the tenant-buyers become tenant-buyers because they’re lacking one or all of the necessary criteria demanded by the big banks: income, credit and downpayment. The perfect trifecta needs to be there before anyone can properly qualify for what’s known as the ‘cheapest money’ on mortgage — A lenders.

This is where the knowledge and experience come in: helping your tenant -buyers get to the finish line. We all know life happens and not every tenant-buyer will complete the program. However, when executed properly and with integrity, our own success rate has been over 86% to date.

These 86% include (but not limited to):

• New immigrants who have the savings but no credit or income (yet)
• Self-employed folks who have accountants who do not understand mortgage rules and are advised poorly as a result
• People with bruised history and not knowing how to fix them even though they are making a steady income and have worked hard to save up for their first home

I always advise and encourage EVERYONE to learn more Lease Options even if it’s not their first or chosen strategy simply for the fact that it can make ANYONE a better and more sophisticated investor.

For those of you who are in and close to Toronto, ON — Trust Your Talent is running a 2-day LIVE IN-PERSON Real Estate Investing Bootcamp on September 24 & 25 where you will dig into this particular strategy amongst many others. You can visit the Bootcamp Registration page or talk to a Strategy Coach from Trust Your Talent Academy to learn more.

Tomy dedicated readers, I thank you for your support and feedback. If this is the first time you’re reading one of my publications, I hope you’ve enjoyed it and learned a thing or two.

If you’re wanting to be a part of a community of real estate investors from around the globe, here is the T.A.L.E.N.T.ed Investors Facebook Group. It’s a place where people come together to share experiences, knowledge, successes and challenges, and money making opportunities!

For those of you who prefer watching videos, here is the YouTube channel where some of my work (very raw) has been shared.

Lastly, I just want to say thank you for your continuing support. I aim to be authentic and adding value to your life.

It’s ultimately about LIFE and I appreciate you coming on this journey with me!

(Written at home in Edmonton, AB)