What is the number one reason that businesses fall apart?
Improperly managed supply and cash flow.
What we’re seeing right now is tight supply chains and business decision being made trying to navigate them.
As these changes are made, it’s crucial to look at your cashflow and ensure you have liquidity.
Made.com was recently bought out by Next due to liquidity and supply chain issues.
Real estate investors and real estate businesses are no different.
With real estate, your “Supply Chain” is akin to your monthly costs of owning the property. You are borrowing the supply and selling it to tenants.
As rates and costs go up, the cost of your “supply” increases. If you aren’t tracking your cashflow you could run into challenges.
Remember, in general, A lender don’t normally pull a mortgage unless you miss your payment!
Recently valued at 755mn GBP, the company was bout by Next for a mere 3.4mn GBP!
Made skyrocketed into the space. They’ve spent a lot of capital and invested in long term digital media. They had one of the top websites in the space for furniture website ranking #4 in the category.
Last month they received a whopping 5.7mn page views!
This is substantial. The annual view count is likely worth more than what Next bought it for.
The reason that they went under:
They did try to work around it by raising capital to inject the needed cash but were unsuccessful. (Another risk when you have low liquidity, usually problems happen during credit tightening cycles and raising more capital is much harder).
Liquidity is important.
Supply chains (a.k.a. your mortgage and other expenses) are important.
Capital management is the key to successful long term investing.
Real estate values and rental income goes up over time – your goal is to stay in the game through turmoil!
I’ve written about cash flows before and I think it’s worth a read or re-read if you haven’t seen it yet.
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