“When young build assets…Then build cash flow,” – by Rupert De Castro

“When young build assets…Then build cash flow,” by A. Rupert De Castro, CMA

In most western democracies, inflation is a given. It is how the politicians make us believe we are better off so we can continue to vote for their promises.

Here are some Inflation examples:

1) I arrived in Toronto as an immigrant from Guyana on February 4, 1965. My first job as a clerk in an Insurance company paid $58 per week. Wow! You say “That’s not a lot of money” but… a cup of coffee was 5 cents. Let me go through the calculation to demonstrate:

A cup of coffee today is say $1.20… that is 24 times the price in 1965. 24 times my salary of $58 as a clerk is 24 x $58 = $1392 per week x 52 = $72,384 per annum… do you know of any clerk making $72,384 per annum? That’s inflation.

2) Camille and I bought our first house in 1971. A detached, side-split at Don Mills and Lawrence for $32,000. I remember, that’s the year I became a CMA, Certified Management Accountant. I was making $10,000 per year. The house cost $32,000 divided by $10,000 = 3.2 times my salary. That house today is $850,000; I would have to be making $265,625 to have the bargain we got in 1971. Now, and this is the enlightening part: we paid 9 ½% on a 5 year term mortgage. Ask yourself the question, “What will happen to real estate values when mortgage rates rise?”

3) Many of you know Camille and I were involved in buying and renting houses. Hey! We moved 15 times in the first 15 years of marriage; from one house to the next cleaning up some tenant’s mess. In the 70’s + 80’s, I read every book on buying and renting houses I could get my hands on.

The best line I ever read was, “Make money while you sleep.” It seems ridiculous but it is true. Camille and I are no smarter than any of you. Inflation (courtesy of the politicians) made us a lot of money over the years

So I say, “When young build assets…Then build cash flow.”

“Build a portfolio of houses, attract good tenants, keep your properties in good shape…in time, as you pay down your mortgages and refinance, your positive cash flow will be significant by the time you retire. It ain’t rocket science.

Should you start buying investment properties (houses) now? I say NO. Not now. In my opinion (and I am not a genius ) you wait for the effect on real estate values rising interest rates will have.

Some do not know mortgages rates in 1982 hit 22%. Some do not know short term interest rates in 1980 went from 6% to 17% in SIX MONTHS. I am certainly not suggesting that this will occur again but life being a pendulum , we cannot forever stay at 3.14% for a 5 year term mortgage.

This article is meant to make you think. One can disagree with everything I have written but whatever you do, PROTECT YOUR ASSETS… and build on them especially while you are young.

I do not sell real estate as a conventional real estate agent. I listen to that which the customer has to say, ask lots of questions, bring my experience and expertise to bear on the issues and advise. I approach all potential customers as LONG TERM clients. My goal is always to share my knowledge gained over the last three decades, to help my clients to make the right decisions.

Guyanese Online