You can’t eat an IRR or a cash-on-cash return.
What that means is that you can’t live off of the fancy number. Personally I cannot stand people that throw around big words that do not make sense just so they can sound intelligent.
The real estate investment world is FULL of these kids of people.
All that really matters at the end of the day is how much money is left over after you pay all of your property expenses so that you can pay your personal expenses!
THAT IS FREEDOM
The number is called NET CASH FLOW and it is all that really matters.
If someone says to you that their cash-on-cash is 18%, that means nothing. You can’t live off of an 18%.
What matters is what the net cashflow is because I can live off of that.
So if the net cashflow is $10,000 a month, then you can live off of that, even if that’s a 6% cash-on-cash return.
That is what I focus on as an investor. What is my net cashflow because that’s what I can actually live off of and pay myself, even if the cash-on-cash return is really high or really low. It’s irrelevant. It comes down to net cashflow.
Now, I do want to know what it is just for my personal understanding of what we’re buying and what cash I put into it and what it’s returning. But at the end of the day, what we all live off of is that net number.
Potential investors love to ask me what my historical IRR, and cash on cash returns are because they read it in a book or someone with a giant ego told them thats what they needed to care about. These kinds of questions are fine and I am happy to answer them, but the only number that really truly matters is how much can you pay yourself!
You can live off of and eat NET CASH FLOW.