Better to Have $25K in Cash and No Debt OR.....

[Scott Trench]

It seems like the folks that are actually succeeding at a high rate in real estate have lots of cash, little debt, a strong savings rate, and excellent credit. The folks that are buying while lacking in those areas succeed in spite of those shortcomings and are the exception.

Something I've been thinking about a lot lately is the concept of "Real" Net Worth - Net Worth that directly contributes towards financial freedom by producing cash flow or that is accessible easily like cash or cash equivalents. 

So, who would you rather be:

Option A: Guy with $25,000 in cash, no debts, and no other assets, and a $50,000 per year salary.

Option B: Guy with a $300,000 home, with a $260,000 mortgage, a $30,000 car with a $20,000 loan, $10,000 in his IRA, $15,000 in student loans, and $5,000 in his checking/savings account. $65,000 per year salary.

Both have good credit. Both are 30 years old.

Guy A has $25,000 in net worth.

Guy B has $50,000 in net worth.

Call me crazy, but I think that Guy A is in better position to invest in real estate. He has no debt, cash for the down payment, and wealth that he can access penalty free. He has no fixed debt expenses that he's bought himself into, and can flexibly deploy his cash in the manner he sees fit. I'd take his financial position all day long over option B if I'm interested in early financial freedom. Guy A has Real wealth, compared to the "Fake" wealth of Guy B, wealth that actually decreases his ability to purchase assets, compared with cash equivalents.

The point is that it seems to me that the guy that is unable to accumulate accessible wealth is at a huge disadvantage in this business to the point where much of his net worth is rendered useless in his pursuit of early financial freedom. 

Seems to me like Guy B needs to sell his home and his car, and pay off his debts, then use the proceeds to buy something that will actually stand a chance of bringing about early financial freedom.

Love to hear some perspective on this.

[Andrey Y.]

Originally posted by @Scott Trench:

It seems like the folks that are actually succeeding at a high rate in real estate have lots of cash, little debt, a strong savings rate, and excellent credit. The folks that are buying while lacking in those areas succeed in spite of those shortcomings and are the exception.

Something I've been thinking about a lot lately is the concept of "Real" Net Worth - Net Worth that directly contributes towards financial freedom by producing cash flow or that is accessible easily like cash or cash equivalents. 

So, who would you rather be:

Option A: Guy with $25,000 in cash, no debts, and no other assets, and a $50,000 per year salary.

Option B: Guy with a $300,000 home, with a $260,000 mortgage, a $30,000 car with a $20,000 loan, $10,000 in his IRA, $15,000 in student loans, and $5,000 in his checking/savings account. $65,000 per year salary.

Both have good credit. Both are 30 years old.

Guy A has $25,000 in net worth.

Guy B has $50,000 in net worth.

Call me crazy, but I think that Guy A is in better position to invest in real estate. He has no debt, cash for the down payment, and wealth that he can access penalty free. He has no fixed debt expenses that he's bought himself into, and can flexibly deploy his cash in the manner he sees fit. I'd take his financial position all day long over option B if I'm interested in early financial freedom. Guy A has Real wealth, compared to the "Fake" wealth of Guy B, wealth that actually decreases his ability to purchase assets, compared with cash equivalents.

The point is that it seems to me that the guy that is unable to accumulate accessible wealth is at a huge disadvantage in this business to the point where much of his net worth is rendered useless in his pursuit of early financial freedom. 

Seems to me like Guy B needs to sell his home and his car, and pay off his debts, then use the proceeds to buy something that will actually stand a chance of bringing about early financial freedom.

Love to hear some perspective on this.

 Interesting questions. It depends on what each guy's goals are. A $300k home is a mansion in some states, and that guy can be driving a Lexus LS (maybe a slightly used one). He might be throwing parties in that mansion, or living with the girl of his dreams. I can't believe I am saying this, but option two might be better in a lot of cases. Who is in a better position to buy real estate, PROBABLY the first guy, but $25k cash isn't much. Maybe the 2nd guy is so comfy, he is more clear-headed to put together a creative deal or syndication than the first guy! $5k to spend vs. $25k to spend is basically the same, IMO.