I was speaking with a highly respected and successful fellow investor a few days ago and he said something which really grabbed my attention. He said, "The single most important reason for my success is my ability to rigidly control my expenses." I found that hard to believe, so I pressed him on it.
"John," I said, "You’ve done a lot of things right. How can you single out expense control as the most important contributor to your success?"
"Simple," he replied, "Controlling my expenses has allowed me to control my cash, and EVERYTHING else flows from cash."
Our conversation consisted of just a few sentences, but I’ve been thinking about them ever since. You would be very wise to think about them too. In fact, follow along with me while I dissect what John said.
Let’s begin with his summary, "Everything else flows from cash." Two questions arise- first, what exactly did he mean? Second, is it true?
Cash Is King
Here’s what I think he meant. When an investor has ready cash available, he is free to move when opportunity presents itself. He doesn’t need to pause and consider whether or not he is in a position to take a deal down- he already knows. Therefore, he can move lightning fast. Cash equals speed.
Also, when an investor doesn’t have to get all creative with financing techniques, he can concentrate on other, more crucial aspects of the deal. Cash equals focus.
Finally, when he is able to focus his energy and attention on the most crucial elements of the deal, AND he can move with lightning speed, his confidence soars. He KNOWS he can complete the deal, and he won’t let anything stand in his way. So, cash equals power.
If cash equals speed, focus, and power, why then do so many people talk about "no money down" deals? Because they can be done, that’s why, and for someone just starting out, with little or no cash, it’s important to know that. But just because something CAN be done doesn’t make it the best way to do things. No money down is definitely not the best way- not all the time.
What about the second question? Is it true? Does everything flow from cash? Does it really equal speed, focus, and power in real estate investing?
You bet it does! Every experienced investor I know would agree that having large amounts of ready cash makes his or her investing life much easier. It also opens many doors, allowing quicker growth and bigger profits.
I didn’t realize how important cash was until I had some. I remember the feeling I had when my Realtor called me out of the blue one day and said, "Tom, a deal just fell through on a fantastic foreclosure property. The bank wants another buyer by the end of today. How fast can you move?"
I had already looked at this particular property and I recognized a great deal when I saw one. More important, I had enough cash in my account to take the deal down, and I could prove it to the bank. I told my Realtor, "Buy it."
My ability to move lightning fast, and with complete confidence, ultimately put another $28,000 in my pocket!
No cash, no deal. Remember, cash equals speed, focus, and power. Or, put another way, CASH IS KING!
It’s Your Money- Keep It!
We’ve established that everything flows from cash, so John’s summary statement is true. But what about his premise, "Controlling expenses allows us to control cash?" Is that true as well?
This is more difficult to pin down, but let me just share a little of my own experience with you. When I was a beginning investor I had little or no cash, so I did a couple of "no money down" deals and built up a small reserve. Unfortunately, spending discipline has never been my strong suit, so a lot of that cash went right out again. Every expense was justifiable, at least in my own mind. After all, I was building a business wasn’t I? The things I was buying were certainly necessary, weren’t they?
In hindsight, most of them were not. I now realize that if I had eliminated or reduced most of the expenses I thought were essential, my cash reserves, and therefore my portfolio, would have grown much faster. That’s what John learned early on, and what I have finally learned as well.
If you learn it now you will thank yourself a thousand times down the road. Be ruthless when spending your hard won profits. Keep excellent records, and verify each and every expense. Check all of your bills and receipts. Most important, sleep on every decision to spend money, or talk to a trusted adviser . Any technique that slows you down just enough to THINK IT THROUGH will pay you back over and over. The one exception is when you need to move fast on a property, and you have already done your due diligence, or can do it after the offer is accepted.
Most investors put a great amount of effort into finding deals and getting to the closing table. Unfortunately, most don’t put the same effort into safeguarding the profits they take out of those deals. They allow bad spending and expense habits to cripple their growth. This includes overpaying contractors and other service providers, buying unnecessary supplies and equipment, and not carefully checking receipts and invoices. Defeating these bad habits now is like putting money in your investing account. After all, it’s your money- KEEP IT!
So John was right. Controlling expenses allows an investor to control cash, and everything else flows from cash. It looks like it really was the number one reason for his success. Will it be yours?
Now, go make more offers!
Tom Dunn is a successful real estate investor and author of the popular DealFiles Real Estate Investor Stories free newsletter. You are welcome to share this report, unedited and in it’s entirety, with anyone you like. You may not remove this text.? 2006 by Tom Dunn. Website: http://www.dealfiles.com e-mail: firstname.lastname@example.org