Hello, my friends and welcome to another episode of Ask Marco where I answer your investing related questions.

Today's question is a great one and it comes in from Kramer and he says, Hey Marco, quick question for you. It's really more of a viewpoint that I'd like you to address for me. Maybe there is something I'm not seeing or considering if I'm going to buy a $100,000 investment property where I have to put $20,000 of my own money down for it and my cash flow is going to be around $200 per month based on several properties listed on your site. I'm having a hard time getting excited about that. It would take just over eight years to recover my initial investment through the property's cash flow in quotes. More to the point I'm having a hard time considering it cashflow when I already had $20,000 in my bank account.

Does that make sense? It reminds me of the concept of an annuity except I'm not earning interest unless I raise rents every year, but even then, how much can I reasonably raise rents without losing tenants. It seems like the real reward or gain comes from the price appreciation and equity accumulation over time, which I could then use to either cash out for a windfall or 1031 for more property, 1031 being the tax-deferred exchange. Perhaps at that point, the cashflow would see more attractive. Is this about right or is there something I'm missing from the concept of the near future cashflow? Thanks for reading. I love the podcast and plan to work with you.





Okay, so Kramer, this is a great question. Yes, you are overlooking something very basic and fundamental, but I can see how this would trip up a lot of people.

So I'm going to break it down for you and I'm going to begin by saying that in order to change your viewpoint on this, you have to understand that your $20,000 that you currently have probably in a savings account at the bank, is not money that is actually being spent. You're simply investing it and you're investing it by moving it and putting it to better use. So you're taking it out of the bank in the form of liquid cash, and you're using that as a down payment towards the purchase or investment in a piece of real estate. In this case, a rental property. So that liquid cash now becomes equity. It's still yours. It's still on your personal financial statement. It's on your personal balance sheet. It's under the asset column. But now instead of being listed as cash, it is listed as equity in the form of property.

So your quote-unquote recovery is not eight years. It's not any years. There is no recovery because that $20,000 is still yours. It's still on your balance sheet. You still own it. But now instead of losing money in the bank because your purchasing power is being eroded every year from the effects of inflation, you are now actually getting a real rate of return in the real world because you have real assets that are generating real returns for you. Real cashflow. So that's the major viewpoint. That's the hopefully the aha moment here is again, you're not spending that $20,000 a year investing that $20,000 by simply moving it out of the bank and into real estate. And that means that you're simply turning liquid cash, which by the way is inflated away into the real estate, which will hopefully appreciate for you. So hopefully that changes your understanding and your viewpoint.

So you understand that you are making money from day one, you are generating a return. So let's break that down and use some real-world numbers here. So first of all, in order to break this down, you have to remember that real estate is the ideal investment. Now I say that half-jokingly, it really is an ideal investment. In fact, it is by far the best investment, but I use the word IDEAL because it's an acronym I D, E, a, L and those all represent something different. So that represents income depreciation appreciation, which is equity growth, the amortization,