Thread: asset rich, cash poor?

Originally Posted by onmyway

Can someone please explain to what this mean and how to avoid it? Also, what is considered paper assets? Thanks

well, why are you trying to avoid it? do you think it's a bad thing?

an asset can a good thing.

according to dictionary

• Something or someone that is an asset is considered useful or helps a person or organization to be successful.
• The assets of a company or a person are all the things that they own.

as you can see from the second defintion it is anything that we own, however, somethings we own are good, and some are bad. if it's making you money, it's good asset, if it's costing you money it's "bad asset" aka liability.

and you already know what cash is right?

so if you own properties, business, those are assets, cash poor means you don't have a lot of cash. simple. i saw an old interview of donald trump, they asked him how much cash he has on him, he said none or very little. he rarely has cash or deals with cash.


so someone who has maybe properties, business that is worth $2million but $20k in the bank is asset rich, cash poor. (i know $20k is a lot of cash to some, but relatively speaking...)

sometimes, this works for some people. sometimes people are heavily invested, and just have enough cash to get by. now some assets are easier to liquidate than some. for example, it's easier and faster to sell your stocks (another asset) than your house, and you get market value for it too without fire sale.

what you gotta avoid is liability rich and cash poor. which some people wrongly call asset rich, cash poor. such as owning an expensive mortgage and car loan and no cash. however the slow lanes, like to see it as owning a big house and nice car. we saw this the last few years, people who owned $1million homes, $50k cars and little to no savings. Now that's liability rich, cash poor.

personally, i never ever count any car as an investment. and i never count a primary residence as an asset, even if the mortgage is paid off. sell it first, then count it! until then, if you are going to live in it for the rest of your life, you will never realize the worth of it, the only thing you can do is maybe leverage it to get loans. so i always count primary residence as liability, well in some rare exceptions you might be able to rent out a portion of it, and it will actually cover all your mortgage, then you can count it as an asset.

hope this helped.

I don't think the word "cash" in that statement really refers to cash as such, but more specifically it refers to positive cash flow.

I consider this statement to really mean - own lots of stuff but have little (or no) positive cash flow from those things. When someone says it their money is tied up in things (such as their own residence) that don't produce an income.

Bonds, shares in a listed company, derivatives and mortgages are examples of paper assets.

Someone might have millions of dollars worth of real estate ("asset rich"). But they also might not have enough cash to pay the mortgages-- or the property tax ("cash poor").

This is an example of a bad situation.

In this predicament, the investor might have to trade off part of their wealth in exchange for enough cash to pay their bills. Since they are in a tough spot, they stand to lose more than normal, as the outside investor knows they stand to lose everything if they don't get some cash.

*******

Another situation:

Someone has great cashflowing real estate or other investments (worth hundreds of thousands, or even millions of dollars), but they *just* cover their expenses (loans, upkeep, etc). So at the end of each month, they still can cover their bills, but they have NO cash or extra reserves.

So, if they had an opportunity to buy another property-- at HALF the going rate-- which would cashflow TONS-- they could not take advantage of this-- because they would not have the small amount of cash to make the down payment.

Hence, "Cash poor, Asset Rich"

******

Another example:

Someone has a lot of options invested. They have a very high probability (say, 90%+) that in 6 months, the investment will be worth 10 or even 50x what it is now.

But they don't have any cash to pay for food-- or rent/mortgage. Everything is tied up in the investment. If they can last 6 months, they can "cash out"-- with lots of money.

Cash poor. Asset rich.

*****

Another example:

Guy has a few stock options-- futures.

One hits the dirt. Then goes even lower. He doesn't pay. He owes $100,000. Finally gets to the point where his creditors will seize all of his assets.

On of his assets is an option that will pay off in 2 months. It's going to be worth $1,500,000, easy.

But he can't do anything w/it until then.

Asset rich. Cash poor.

*****

One more example:

Someone is a founder of a website or internet company (eg, facebook, or google). Company sells, and owner/founder is paid in shares-- so on paper, they are worth gazillions.

But they can't sell any stock for a set period of time, say 12 months (part of their agreement when they sold the company). So here they sit, worth, say, $80,000,000-- and don't have enough money to buy ANYTHING for the next 12 months.

Asset rich. Cash poor.

None of these are necessarily a good situation to be in, but they are not the end of the world, either. These are often scenarios savvy investors find themselves in if things take a turn for the worse, or if markets change.

Since the recession hit, there are LOTS of very smart investors who find themselves asset rich and cash poor.

They don't have enough cash to make ends meet-- but they have LOTS of assets.

During these times, investors that get themselves caught often trade/sell some of their assets at deep discounts, just to survive.

This is when having lots of CASH is king. You can cherry pick some sweet deals from struggling investors who are asset rich, but cash poor.

Does that make sense?

-Russ H

thanks for the input!

It means all your money is tied up in things that are not easy to convert to cash. Like right now most of my cash is tied up in a house I'm closing on in three weeks.

Personaly I don't like having a lot of cash around because I will spend it.

No need to reiterate what the others have said ... asset rich and cash poor really is just a midpoint in the Fastlane process.

Concentrate on being "asset rich" and eventually, you will eventually fix the problem of "cash poor"

Think of it like a garden ... focus on the garden (the asset) grow it, water it, give it sun, get rid of the weeds ... and it will grow and give fruit ... the fruit is the cash. Once the garden in producing, everyone wants a piece of the garden and will pay for it. (Fixing cash poor).

Originally Posted by Russ H

So, if they had an opportunity to buy another property-- at HALF the going rate-- which would cashflow TONS-- they could not take advantage of this-- because they would not have the small amount of cash to make the down payment.

Hence, "Cash poor, Asset Rich"

Since the recession hit, there are LOTS of very smart investors who find themselves asset rich and cash poor.

This is when having lots of CASH is king. You can cherry pick some sweet deals from struggling investors who are asset rich, but cash poor. YES AND NOW THEY'RE BANKS!

Does that make sense?

-Russ H

One way to WORK around this problem !

RE-FI’S

As part of my property portfolio I have 2 SFH that I re-fied. 2 years ago.... giving me my total cash back that I invested into these homes. I have them rented which covers my carrying costs ( PITI )& maintenance, and now gives me very little cash flow, but I have NO MONEY tied up in them. I am now using that CASH to purchase REO’s at a price that gives me much better returns than I ever received before. My last purchase was a SFH for $25,500 and even after some minor re -hab costs gives me $850 rent a month. No mortgage on the property as I used my re-fi money to pay for it so most of the rent is free & clear increasing my ROI dramatically.

Originally Posted by onmyway

Can someone please explain to what this mean and how to avoid it? Also, what is considered paper assets? Thanks

Asset rich, cash poor? Avoid it? Are you crazy?

In my opinion you are simply reducing your potential to grow your assets if you try and stay cash rich. Only your assets will ever make you more money, never your cash. Being asset rich, cash poor is a stepping stone on the way to success. If you believe in yourself then you will pump everything into your assets to watch them grow. Yes, it's always a risk. But pretty much every multimillionaire out there has risked it all, and probably lost alot at some point.

I sold most of my assets last year and became "cash rich" for the first time. I've spent the last 5 months desperately trying to buy up assets because I know that cash can stagnate, lose value, and frankly large amounts are not insured should the bank go bust (Remember Iceland?). The only difference is that now my assets are lower risk and split up, so should I ever require the cash I can offload paper assets without risking them all.

Now in order to prevent you holding back a large cash pot to live off, or reguarly selling assets, the secret is passive income. That's why I now invest in property.

Asset rich and cash poor is a way of life for me right now. Sure, it would be nice to see a pile of cash in my bank account right now, but being cash poor keeps me focused and persistant on reaching goals.

Like Cat Man Du, I am ready to re-fi a property I re-habbed, then rented. I will get all the cash back invested, have a cash flow, and money for the next one. I am also building a good relationship with a commercial lender. These are building blocks for me, once I get a strong foundation, I can move to larger properties.

It would be nice to have some cash though.....

Originally Posted by BuffaloBill

I am ready to re-fi a property I re-habbed, then rented. I will get all the cash back invested, have a cash flow, and money for the next one. I am also building a good relationship with a commercial lender. These are building blocks for me, once I get a strong foundation, I can move to larger properties.

It would be nice to have some cash though.....

Wow, please let us know if you are able to REFI and take cash out.

The market here for that is zip right now.

-Russ H.

Well, this is not a large deal, and I have about 50% equity in it right now. It is a mixed commercial with a 3 year lease to a tax prep franchise and upper apartment. Safe and secure in the eyes of a local lender. This will be my second property financed thru my LLC, I am still building the relationship with this lender. My other properties are in my name. This area has not seen the price swings as other parts of the country, so lending never dried up.

As said, I am slowly building my portfolio. Relationships with lenders, builders, towns, etc. have opened many doors. Confidence and momentum is building, I can feel it!

For me, the problem with cash is that it needs to be deployed intelligently.

I prefer being "asset rich" and "cash poor" rather than being "asset poor" and "cash rich", but that's a personal preference.

I like the no-hassle holding of tax-deferred compounding assets and I have very very few materialistic wants.

Also keep in mind that the terms are relative, but I think that goes without saying.

Right now I'm in the same position again, all my cash is tied up in a house I'm building and three lots I just bought. Never enough money to go around, I'm working on signing a contract now on 3 more lots that I won't close on until next year.

Its a mixed bag being busy is really great, but if a good deal comes along I don't have the money to jump right now. Nothing pisses me off more than missing out on deals.

Asset Rich, Cash Poor = Land

The first case I heard this term, and still believe it really applies best, is in regards to farm/ranch land. Sometimes these large parcels of land have been held in the family for generations and, as towns and cities grew up around the parcels, the land has grown greatly in value. As a result, the taxes on the land have also gone up.

However, the property does not cashflow any more than it ever has. Hence, the underlying asset is worth large $$, but the land is illiquid. Furthermore the sellers may be very reluctant to sell the family parcel that has been held in one name for 150 years; something akin to selling the birthright.

We know dairy farmers in California and Ranchers in California/Nevada who are in a very tough spot right now. Milk and beef have not experienced the same boom that many other hard commodities have experienced in the past 10 years. This fact is compounded by price fixing by the government. (In California, Department of Food and Agriculture sets the price of milk).

More regulations, especially the Concentrated Animal Feeding Operations section of the Clean Water Act have really squeezed dairy operations.

Of course, the mom and pop farmers also have to compete against an increasingly consolidated corporate farm. Mom and pop don’t have the array of lawyers that Monsanto, Con Agra and Archers Daniel Midland have. SO, the small family unit has become squeezed out of markets. If you are forced to use GMO seed, and the market for such if falling, you lose market share. This compounds the problem of increasing price of supplies (especially fuel and seed).

Rather than sale the land outright, some of the mom and pop family farmers have put their land into conservancy land trusts. Depending upon how the trust is set up (through either the Williamson Act or Farmland Conservancy Program), this trust either freezes the tax rate or may even pay a large one-time cash payment in return for keeping the land farmed ‘in perpetuity’. In essence the state puts a conservancy lien (‘easement’) on the property.

Nevada faces different challenges to land value and illiquidity. Some of these factors have been quite recent due to major land deflation across the state (and a very challenging water rights environment).

Naturally, the political machinations have set up some very nice means to profit from the scenario via special tax districting, but that goes beyond the initial forum topic (but I must insert that fact before someone cries ‘non-fast lane’ post, lol).

Never seen this topic of dairy/farm land illiquidity, conservancy trusts, and land tax sheltering presented on fastlane before, so there you go…

Originally Posted by max momo

Asset Rich, Cash Poor = Land

Never seen this topic of dairy/farm land illiquidity, conservancy trusts, and land tax sheltering presented on fastlane before, so there you go…

Actually, I did a post years ago about a client I had who owned thousands of acres, and specifically chose crops that were actively subsidized NOT to grow.

In other words, he'd buy land, turn it into a "XYZ" farm if the Fed govt was paying farmers NOT to grow XYZ, and he had pretty close to zero farming costs ('cause he was paid to NOT grow the crop).

This was never designed to be a system to make money (you could make MUCH more money by just switching over to a crop you could sell)--- but the system was never designed for someone who owned thousands and thousands of acres.

What this farmer did (and his dad before him) was use the federal money to buy more acreage-- amassing thousands and thousands and thousands of acres, all where he was paid to NOT grow the crops.

Kinda fastlane, in a weird way.

-Russ H.