How to Go from Zero to $1 Million in Cash Flow

Don't Make Business Complicated. Calculating How to Get to $10 Million in Wealth through Real Estate, Stocks, or Other Assets is pretty simple. Executing on it is more challenging and requires persistence & perseverance.

Business is business. When you break a business into its core component, you sell a product or a service for a profit. It's no more complex than that. Every unit of a product or service generates a certain amount of cash flow called Net Income, Profit in Your Pocket, etc. I will call them Cash Flowing Units. The Cash Flow from a single Cash Flowing Unit is the basic building block to creating wealth. If you are looking to develop large sums of wealth, your goal should be to own as many of these Cash Flowing Units as possible. Here are some examples of Cash Flowing Units that provide cash flow; a stock paying a dividend, a washing machine in a laundromat that produces income, an apartment unit paying rent, and thousands of other products or services that pay you to own them. Our goal as investors is to hold as many of these Cash Flowing Units of these products or services as possible. The more you own, the larger your cash flows. This article will look at how you can generate $10 Million from two different Cash Flowing Units; an Apartment and a Dividend Paying Stocks.

How to Calculate How Many Units You Require to Reach Your Wealth Goals

When calculating how to reach a measurable result (read this article on MRs), you start by calculating how much a Cash Flowing Unit like an apartment produces in cash flow per year. Then create your wealth goal for total Cash Flows per year. A wealth goal would be $1 Million in Cash Flows per year. Finally, divide the Cash Flow per unit / by your profit goal, which equals the number of units required to reach your goal. If your washing machine produced $20,000 per year in Free Cash Flow, you would divide $1,000,000 / $20,000, which equals 50 Washing Machines. In the following 2 sections of this article, we look at what it takes to reach $1 Million in Cash Flows from Real Estate and Stock Dividends.

Tried and Proven Multi-Family Real Estate

Multi-family Real Estate is another word for Apartment buildings. In this current market, it's one of the hottest Real Estate & Investment products for investors. Why? It provides consistent Returns on Invested Capital, it's a simple business model to operate, there are many tax benefits, and people require a place to stay.?

So how do you go from zero to $1 Million in Cashflow? You define what a Cash Flowing Unit is for Real Estate. It's One Apartment. For this example, I will use the actual cash flows from units my wife and I owned in the Mid-City, Los Angeles. Each Cash Flowing Unit produced $1,000 per month in Free Cash Flow, $12,000 grand per year. So how many units would I need to buy to reach $1 Million in Yearly Free Cash Flow? Divided $1 Million / $12,000 = 83 Units. That's doable considering there are 139 Million plus housing units in the US. I am certain if you put your mind to it, you could own 83 of those housing units over 20 years or however quickly you do it. When you start at zero, it will seem daunting. So start small. Buy a four-plex, then an eight plex, then a 16 plex, etc. After doing this a few times, you will have developed efficient systems. Trust me; you will see the financial pathway forwards after a few deals.??

As a caveat, a $1000 per month is LA pricing and not Lousianna Pricing. If your Cash Flow per Unit is $6,000 per year, it requires 166 units to reach $1 Million in Revenue. Also, these units were AirBnBs, which commanded a $500 - $900 more per month over an unfurnished rental. Airbnb is more management intensive than unfurnished units. Each market will have different dynamics and rental pricing. As the investor, it's up to you to crunch the number and determine how you will reach $1 Million in Free Cash Flows.

The Old School Not So Exciting Dividend-Paying Stock

Uber, Lyft, Tesla, Shopify, and many more are the companies that are all the rage these days in the market. However, none of these stocks pay you to own them. If you invest in any of these stocks, maybe they increase in value, and perhaps they don't. Most dividend-paying businesses have a proven history of paying because they have a proven record of profitability. Since they are profitable, they have extra cash to pay out to investors. Some of the companies mentioned above are focusing on expanding or have a terrible business model, making no money, so they can't pay a dividend.??

Like a rental unit, each dividend-paying stock pays out a yearly return from its Cash Flow from Operating Activities (the cash it makes from selling its services or products). Let's look at Oracle. Currently, it trades at $94, and its dividend pays $1.28, which equals a return of 1.3%. This return is pretty poor because Oracle and the stock market are extremely overvalued. Dividing $1 Million by $1.28 = 781,250 shares required to generate $1 Million in revenue per share. Right now, generating $1 Million in revenue from Oracle is not an efficient use of your capital. In a follow on article, I will discuss how to think about investing your capital for superior returns. When there is high demand for stocks, prices will increase, and returns will reduce. Any over-inflated asset will provide poor returns. To maximize returns, you want to buy great businesses at low prices. We are looking for our capital to grow as fast as possible. If you are looking to grow your capital with a 1% return, it will take a while to generate superior returns. We will discuss all of this in more detail in future articles.

Closing Thoughts

Ask yourself whats the core economic unit of any business. Then calculate each Unit's Cash Flow per year. A Cash Flowing Unit for an apartment building is one apartment unit, and for a publicly-traded business is one stock share or one bond. You can mix and match some real estate units, stock units, and any other unit of the thousands of other businesses to produce cash flows. We also talk about how to mix and match different revenue streams in the future. Remember that similar Cash Flowing Units, like an apartment, will have different cash flows depending on the location, environment, and customers. You can set a goal to only buy Cash Flowing Apartment Units that Cash Flow more than $10,000 per year. You will buy less deals per year because only cheaply priced deals will meet your criteria when you crunch the numbers. Play with the numbers and decide what cash flows you are looking to get per Cash Flowing Unit. Your goals for Return on Invested Capital will determine your Cash Flow per Unit required.