Estate Building through Real Estate Investing

[Don Konipol]

Estate Building through Real Estate Investing was a topic of much interest in the 1970s that’s not discussed much, if at all anymore.  And that’s too bad, because the concept can lend “clarity of purpose” for many investors.

Often, we in the real estate arena, get caught up in our real estate “business”, with an emphasis on “cash flow” or “spendable” income, the professional investors equivalent to salary for the wage earner  and met income to the small business owner.  And of course we all need money to live on.  But once our expenses are covered, what is our emphasis.  Is it to earn as much cash flow - current income - as possible? Or is it to build up our “estate”, i.e., “net worth”, in the best risk adjusted manner possible? 

In reviewing the ESTATE BUILDING goal, I’ve come to realize that SOME of my strategies, tactics, and decisions were in need of review or revision.  I was tending to make decisions based on how much “net income” was produced rather than increases in my wealth, or estate value.  An example is a retail/service center I currently own with a couple of other investors.  We have an offer to cash us out, and from a “cash/spendable” basis this is a good deal. But we also have an offer that provides a moderate amount of cash and a longer term note as a first lien.  The current lender on the property is willing to allow us to do a wrap around.  Essentially we carry back about $1,350,000 at 10% wrapped around a $620,000 note at 4%.  Even valuing the note at a hefty discount, the result is a clear decision for latter based on wealth building.  So, that now is my decision; I just have to convince my 2 partners!