feel like this needs to be said and I
don’t see anybody else saying this
anywhere else and so I guess I’ll be the
one to say it investing in real estate
for cash flow is dumb if your goal is to
be a part of the fire movement and
retire early or you want to replace your
nine to five job really real estate
investing is not the best route to go to
replace your income and cover your
expenses as quickly as possible now
before you tune me out or turn me off or
crucify me in the comments do me two
quick favors number one just hear me out
for a couple minutes because I have an
interesting point I think to make and I
would love to hear what your thoughts on
it are down in the comments and number
two if you find this intriguing maybe
share this video with a couple of your
real estate investor friends because I’d
love to hear what they have to say about
it too and if you’re one of those real
estate investor friends let us know down
in the comments let’s have a
conversation about it now before I get
too deep into bashing real estate for
cash flow I want to talk about what I do
think real estate is great for and now I
can think of three things off top of my
head there’s probably more than this and
maybe you guys can share in the comments
more things but number one I think real
estate investing is great for building
equity and therefore your net worth I
think real estate does a really great
job at that and there’s a lot of
different levers to pull that help you
do that number two is tax advantages I
think real estate has some great tax
advantages another good reason to invest
in real estate and number three real
estate can be a great source of creating
lump sums quickly so whether that’s
fixing and flipping or maybe using the
bur method and refinancing your property
and pulling money out to redeploy it
elsewhere I think real estate does a
great job at those things and like I
said there’s probably some other things
that real estate does a great job at but
cash flow is not one of them in fact I
think real estate is basically just an
insurance policy that you take out on
your property in case of something like
a 2008 crash happens and your value
drops you can maintain some positive
cash flow pay all your expenses and wait
out the dip until values rise back up to
to their normal values and you recoup
your equity and cash flow only really
comes into play in real estate when you
scale up big it’s kind of a slow method
of accumulating cash flow so let me tell
you a quick story when I first learned
about real estate investing and positive
cash flow I got super excited about I
was listening to all these podcasts and
getting super excited about cash flowing
real estate and I started doing the
mental math as I’ve been hearing more
and more about this this was kind of
after 2008 but before 2020 and uh you
know people were getting 100 200
positive cash flow a door on these
average deals and I got really excited
until I really started to think about it
and was like man how many properties do
I have to buy to replace my income from
rental properties it’s going to take me
forever that’s so many properties to buy
and to manage and all those things and I
got kind of discouraged to be honest
with you maybe you’ve had similar
thoughts Maybe not maybe you’re on that
path and you’re gung-ho go for it I’m
not saying don’t do it but I’m just
saying it’s just low way to go about it
investing in real estate for cash flow
so the question then becomes what’s a
better route to go than real estate
investing for cash flow well I’m gonna
make the case to you in just a second
that small businesses in general and
specifically of course Jordan from
laundromat resource that laundromats are
a far better way of accumulating cash
flow if your goal is to retire early or
your goal is to leave your nine to five
job or even if your goal is to maximize
your cash flow returns I think
laundromat is a far better investment
than real estate now you may be
wondering why is that why would a
laundromat be a better cash flowing
investment than real estate and it all
comes down to the way that laundromats
or small businesses are valued versus
the way that real estate is valued let’s
jump over the Whiteboard real quick and
let me show you an example of what I
mean okay so if the cash flow potential
of real estate and laundromats is rooted
in how they’re valued let’s talk real
quickly about how each one of them are
valued real estate we need to break into
two different different categories
number one is residential real estate
and residential real estate’s typically
value based on comparable sales what
everything around it is valued that’s
similar and it really has no correlation
to the income potential of that property
commercial real estate on the other hand
is based on what’s called a
capitalization rate that’s applied to
the net income of that property now I
don’t want to get too deep into the
woods of how commercial real estate is
valued but as a quick explainer
capitalization rate or cap rate is the
amount of net income you could expect if
you bought a commercial property with
all cash so for example just a quick
simple easy one if you find a commercial
real estate property for a hundred
thousand dollars and the capitalization
rate is eight percent then you could
expect eight thousand dollars of annual
net income from that property
laundromats are valued similarly to
commercial real estate except for
instead of using a capitalization rate
we use a multiple and it’s basically
just the inverse of the cap rate so in
our example we have eight thousand
dollars of net income for a commercial
property if you divide that by .08 or
eight percent or cap rate you’re gonna
get a hundred thousand dollars for a
laundromat however instead of dividing
by point eight percent in this example
we would multiply it by 12.5 and that
would give us a hundred thousand dollars
that’s just the inverse of .08 and the
way you could get there if your mind
works in capitalization rate is just one
divided by the capitalization rate so
one divided by .08 is 12.5 so if you
multiply eight thousand dollars times
twelve point five you’re gonna get your
hundred thousand dollars now I just said
that as a little bit of background if
you’re not tracking with me no worries
don’t worry we’re going to do an example
right now all right let’s say that you
you have a hundred thousand dollars to
invest in either real estate or
laundromats and you’re looking for cash
flow what should you do with that
hundred thousand dollars great question
let’s let the numbers decide now if you
want to buy real estate you could
probably get a loan with 20 down so with
your hundred thousand dollars if you put
all that down you could buy a property
worth five hundred thousand dollars with
laundromats however typically you’re
gonna need about thirty percent down for
your first deal so that means you could
buy a laundromat for 333
333.33 so as you can see you can buy
more real estate than you can
laundromats for your hundred thousand
dollars all right we’re gonna use a six
percent interest rate for our loans now
they’re all over the place right now but
as long as they’re the same we can kind
of make an Apples to Apples comparison
so six percent interest rate you’re
gonna have a loan on your real estate of
four hundred thousand dollars with your
hundred thousand dollars down and on
your laundromat you’re gonna have a loan
of two hundred and 33
333.33 with your hundred thousand
dollars down so here’s what your loan
payments are gonna look like for the
real estate and for the laundromat
foreign
so for Real Estate we’re going to have a
monthly payment of twenty four thousand
dollars a month which is 28 800 annually
for your loan payment for your
laundromat you’re going to have a loan
payment of two thousand five hundred and
ninety dollars per month or Thirty one
thousand two hundred dollars per year
now here’s where things kind of get
interesting okay so let’s go back to our
real estate deal and say we get a pretty
average return on investment which I
would say is about eight percent cash on
cash return on investment now I’m aware
that there’s other ways to create value
in real estate for example tax
deductions uh building equity loan pay
down all that stuff but we’re talking
about cash flow we’re talking about
exiting your nine to five getting
Financial Freedom talking about cash
flow here so eight percent cash flow is
a pretty average deal you should be able
to find a real estate deal that has
about eight percent return on your money
that means based on a valuation of 500
000 and an eight percent return on your
real estate State investment that means
based on a five hundred thousand dollar
investment in a real estate property
that has an eight percent return you can
expect about forty thousand dollars of
net income before your loan payments in
the real estate deal now we talked about
how laundromats are valued but I didn’t
mention the best part yet and the best
part of laundromat valuation is what the
multiples are in order to determine the
valuation of a laundromat so I mentioned
before that eight percent pretty average
return on investment for a real estate
investment that’s a 12.5 times the net
income multiple the average multiple for
a laundromat however is not 12.5 it’s
not 10 it’s not eight in fact the
average multiple is somewhere between
three and a half and five times the net
income that means in your average deal
you’re getting somewhere between a 20
and 25 percent return on your money on
Leverage without using a loan however we
are using a loan in this example so
let’s talk about what that means let’s
to use an average deal an average
multiplier to determine what kind of
cash flow we can expect from this
particular laundromat so we won’t use
like a 3.5 or even a four let’s use a
4.5 multiplier which means we’re going
to take our purchase price and divide it
by 4.5 that’s going to leave us with the
net income that we can reasonably expect
from this laundromat at 74 074 so let’s
round it to 74 000 of net income before
our loan payments for the laundromat
okay already we’re looking pretty good
at forty thousand dollars of net income
for the real estate investment and
seventy four thousand dollars of net
income for the laundromat however we
still have to apply our loan payments so
once we subtract our 28 800 from our
forty thousand dollars of net income we
get a cash flow of eleven thousand two
hundred dollars that’s not bad leverage
that’s an 11.2 percent return on our
hundred thousand dollars that’s pretty
good however when we take a look at our
cash flow from our laundromat we can see
that once we subtract the thirty one
thousand two hundred dollars from our
seventy four thousand dollars of net
income we get a whopping 42 800 dollars
that’s a 42.8 return on our original 100
000 investment now I don’t know about
you but 11.2 sounded really nice there
for a second until I learned that
leveraged I could get a 42.8 return on
my money for an average laundromat deal
this is not even a home run deal it’s an
average deal this example right here of
an average real estate deal and an
average laundromat deal is exactly why I
say buying real estate for cash flow is
just dumb and slow buy yourself a
laundromat or to replace your income as
quickly as possible and then start
plowing some of this cash flow into the
real estate to build up the equity and
your net worth in the real estate
properties I’m Gonna Leave a shot of
this in case you want to screenshot it
and take a look at it a little deeper
and then I’ll close this thing out if
you want to take a quick screenshot so
you can take a closer look here you go
okay we’ve run the numbers we’ve done
the math now I’m curious what do you
think do you think real estate cash flow
is still a better way to go or are you
interested in considering a laundromat
if your interests have been Peak number
one let us know down in the comments
number two check out the link that’s in
the description below and in the pin
first comment and go check out the free
course on how to buy your first
laundromat it’s three lessons long
jam-packed with great information and
let’s get started on your laundromat
Journey but if you’re not quite quite
sold yet on how great laundromats can be
for your business then check out this
video right up here because it’s going
to give you 10 reasons why laundromats
are the best investment you can make
