What is better, cash-flow or equity?
Several years ago, after reading the "The Millionaire Real Estate Agent" by Gary Keller, I began the process to secure the franchise rights for a Keller Williams office in Lake County, Ohio. I spent a great deal of time meeting with some of the top guys here in the Cleveland, Ohio area. They were simply fantastic.They would have been great partners.
As I moved through the process, I sat down and pondered what I really wanted from my business. I asked myself one very important question. The question I asked was:
Do I want cash-flow or do I want equity?
My answer was: CASH-FLOW
This answer was extremely important because it pointed my business in a different direction. Securing a Keller Williams franchise would have been the best move if I had answered "equity." By building a large Keller Williams office, I would have created a substantial equity position in the business.
Instead, I made a decision to keep building my own little brokerage. I also decided to re-invent my entire business to be a cash-flow machine. I focused my business around real estate investors. I stopped taking listings and I added several new income streams within the business. I was ruthless in applying the 80/20 rule.
My decision led me to create a fantastic small "cash-flow" business generating $1.4 million dollars a year.
Guess what happened?
I sold my little "cash-flow" business for a very attractive price. This meant that I had created substantial equity in the process of building a "cash-flow" business. I learned very valuable lesson from this experience. The lesson I learned was:
Always go for cash-flow first. If you’re successful in creating cash-flow, equity will come along for the ride.
Had I chosen to build a business for equity, I would have sacrificed a great deal of cash-flow in the process. Building a business for equity requires different decisions than building a business for cash-flow.
What is more important to you: equity or cash-flow?
Apply your answer in everything you do. If you invest in real estate, focus on cash-flow properties instead of deals with equity. If you are investing in the stock market (scary thought), focus your investments on companies paying dividends. If you’re building your real estate business, focus on income instead of the number of transactions.
Can you see the differences?