When buying your dream car/home too soon can hurt your business

[Trent D.]

I like to ball out as much as the next guy!  As a successful investor and business owner, I felt like I had enough active and passive income and cash reserves to start having a little fun.  First I went and got the Mercedes CLS550 with the custom 20" Lexani wheels, then I later traded up to the Maserati Quattroporte (which is a beast of a vehicle by the way).  I start looking into buying a nice big home after renting out a penthouse condo in the middle of the city when I ran into a speed bump.

Buying too many luxuries, whether you're paying cash or financing them, can hurt your business as an entrepreneur in the long run.  I'll explain how....

First, there's something called Global Cash Flow.  This is something banks look at when they're underwriting  you for loans.  If you're looking to build your portfolio and add more single family homes, apartments, hotels, etc, they are going to look at you and your business as 1 entity until your business alone is grossing around the $5 Million+ mark. 

For example, I was talking to a banker friend of mine that did the underwriting for the last apartment building I bought.  He was telling me about an investor that owned property and grossed over $1MM per year in revenue.  He was trying to get a loan for around $500k and was denied!  Why?  Because he had a mortgage of $6k/mth and a car note of $2k/mth...in addition to his other household expenses.  This made him look globally unstable to the bank.  If his business happens to run into trouble and he has an expensive lifestyle, he might be at a higher risk of not repaying the loan.

Secondly, if you think it's ok because you have the cash to buy your toys, you might want to think again.  Banks also look at personal cash on hand when underwriting.  If you spend a good bit of money on cars and mortgages, you have to think how much better you'd look if you had that money in their bank for them to see. 

Not only that, but when you start leveling up in the development and multifamily investment game, you have to present yourself as a responsible fiduciary of money.  People will eventually want to give you money to invest into your projects and you don't want to come across as a materialistic flashy person.  Because if a deal happens to go bad, the first thing your investors are going to think is that their money went towards your Bentley and mansion payments!  That's just how people think.

This really resonated with me and made me sell my cars and rethink the home I wanted.  It can wait!  I WILL get the toys I want, but in due time. 

Build your business first, and ball out later!

#FoodForThought   

#EnjoyTheJourney

[Jay Hinrichs]

nice post...

I have been there done that.. owned a few airplanes  ( those make cars of any cost look like a pittance) but I used them in business and they were fabulous write offs and very fun to use and it made my business better because of be able to maximize my time and spread my wings so to speak to markets I could never have covered if I had to rely on car or Gasp airlines.  And well since I piloted them personally it was a life long desire.. you can't take It all with you... I could have been buying apartment blocks with what I spent on planes but they do not bring me the joy of an aircraft.

Just go through any apartment complex parking lot ... NICER one's A quality and look at all the renters with 100k cars.. LOL.

many in the fix and flip business though can get a nice tax deduction when buying a nice new truck they use in the business.

But limiting debt to your personal resi.. 1 car for you one for spouse.. and then NO other consumer debt ever .. is a good recipe..  cost of personal residence vary widely depending where you live.

A  900 Sq ft 3 and 1 in Palo Alto is 2 million dollars.. hardly a mansion.. but cost the same. Look what 2 mil will buy in most any other market.

And as you age you start to appreciate less leverage more paid off things and making sure your personal resi if not paid for is very inexpensive to own compared to if you had to go buy like kind in todays market.

that all said I picked up my new Tesla Monday and LOVE IT>