Do you know people real estate/asset rich, yet cash poor?

[63dot]

Share your stories.

I know one young man who owned a hardware franchise that grossed a lot of money, but he always kept a tight lid on expenses and never paid himself more than ten an hour. But he did pay his people well to keep a steady and loayl staff. His thinking on his low salary was that he may need the saved up capital for the business, that nobody but the board has access to, to save the business if a recession ever came. When bad times hit, his store was one of the few that survived the post Reagan-Bush years when all went south in '89-'90.

One man I know has a family that owns a lot of rental apartments. He works like a dog to maintain and adminstrate them and his pay is almost nothing. Almost all monies are kept in case of major repairs that can crop up at the strangest times. Though he can live in a nice house and draw a lot of cash he won't and lives in one of the units. And due to that frugalness, the apartments, which started with few became many.

And the stories go on and on. But there are so many rich people who don't have cash but reinvest most of what they get and live way below their means.

 

[ejb190]

Sounds like you are describing a farmer!

I know a lot of guys who are worth millions on paper. Their gross income is astronomical (especially with the high commodity prices we have seen in the last couple of years). But when you figure that taxes and rents are going up and the price of oil pushes up the cost of fertilizer and pesticides (both made from oil), not to mention fuel prices (any idea how many gallons per mile it takes to pull a planter across a field?), there is a lot of money in the ground for five to six months before you ever see a dime in return - that is if the floods or droughts don't take that away.

Yah, Farmer Smith up the road just bought a new combine, but he had to use the farm as collateral and it put him almost half a million in debt.

 

[63dot]

Sounds like you are describing a farmer!

Or a lawyer.

Let me explain. I know a person from last year's law study review group who went to a $30K a year institution for undergrad. Then there are the several years in law school. She wants to do public service/PI law which averages around 40K a year to start and in some areas never goes up much more than that.

With student loans for seven years of private universities, with even the nominal interest of such a huge amount on a Sallie Mae loan, one would be hard pressed to pay off $200-250K in loans and interest from a 20 year public law career starting at $40K and probably ending around $120K if lucky, with taxes and cost of living factored in. Few public lawyers, who average passing the bar at 26 in California, will not be free of seven years of private university education before age 40. Skip meals and never go on vacation and it could be done. One Harvard law grad I know was in her early 40s was debt free and literally the day she paid off her last loan, she quit law and decided to do someting she would like. Any law she does now is all pro-bono every now and then when her bleeding heart gets poked.

The law field has become so competitive that the Ivys and top privates are full of independently rich kids who will do public interest, low paying law, so they can save the world. Most of the rest of us don't have that option. The ultra rich don't need to worry about money since their inheritance or double inheritance will take care of that.

 

[Scepticalscribe]

With the recent credit crunch, bank crashes and looming recession, I know quite a few people/institutions that are, on paper, quite asset rich, but have become rather cash poor. However, in times of recession, the challenge lies in being able to realise the assets successfully which is easier said than done. Cheers.

 

[Sun Baked]

The best advice anyone can give some of these people is to put some money into a safety net, something not tied to the business.

Aka, buy a modest house and car -- and pay them off completely.

---

But, remember while you may be doing the company a favor by keeping the expenses low and working like a dog ...

When it comes time to sell the business so and so profit may be fine and dandy, the buyer is going to be looking at the owners take home pay.

80hrs a week for 30-60k dollars for a couple, won't allow someone to see it as real viable if the current profit vanishes in order to pay for the debt incurred in the purchase.

---

Sort of amazing where I am now there are a lot of old family businesses still around, and the chains haven't really eaten them for lunch yet. Quite a few businesses with the family since 1940s.

 

[63dot]

The best advice anyone can give some of these people is to put some money into a safety net, something not tied to the business.

Aka, buy a modest house and car -- and pay them off completely.

---

But, remember while you may be doing the company a favor by keeping the expenses low and working like a dog ...

When it comes time to sell the business so and so profit may be fine and dandy, the buyer is going to be looking at the owners take home pay.

80hrs a week for 30-60k dollars for a couple, won't allow someone to see it as real viable if the current profit vanishes in order to pay for the debt incurred in the purchase.

---

Sort of amazing where I am now there are a lot of old family businesses still around, and the chains haven't really eaten them for lunch yet. Quite a few businesses with the family since 1940s.

He was a franchise of mega-giant Ace Hardware so that was helpful. Some called him the "chain" store. But he kept his franchise alive during what would have been total disaster for them.

If you play your cards right, every dollar that you forsake in salary and dump into a smart business, like a worldwide/respected franchise for instace, you can reap far more than any gains from real estate and a savings account. But this can be risky, but with bigger risk usually comes bigger rewards in the long run.

Most of us will play it safe and have the standard IRA, house, and mutual funds if we can get one, two, or all three. The brave, but usually unlucky ones get into speculation, venture capital, and individual stock day trading. I know people who do this but it usually isn't from a point of extra knowledge, but almost an addiction to the game of playing it dangerously (think Trump).

 

[Denny Crane]

The best advice anyone can give some of these people is to put some money into a safety net, something not tied to the business.

Aka, buy a modest house and car -- and pay them off completely.

Dave Ramsey would be proud of your advice!

 

[Chip NoVaMac]

Sadly here in the DC area we have many that are asset "rich" but cash poor... they want their Mc Mansions and their big cars... without concern about the future

Unlike many of us in the service sector that may live paycheck to paycheck with modest cars and homes...

For myself I MIGHT fair better off from some in the same boat - given the Depression Era values that my parents gave me..

 

[0098386]

Suppose we're one of them. We've always had a few houses abroad (mainland Europe) just for holiday homes. Saves money in the long run from going on package holidays, plus it's another home from home.

Sadly though, what with the current state of the global economy we've got 1 plot of land in Poland that's currently doing nothing. Going to ride out the next few years to see if it's a good investment or not.