Cashflow game – lessons learnt

If you think playing the Cashflow game is just like playing another silly round of Monoploy, then you need to seriously think again.  Cashflow boardgame is not just like a game, it is a educational tool for you to sharpen your finanical acumen and you get to learn different lessons each time you play the game.  

The author of Rat Race Escapes ( shares his learnings from his recently cashflow game:

Sue, Bob, Terry and I played Cashflow 101.

I played the teacher. Because the monthly cash flow is lower than occupations I normally play, it was much longer before I started taking big deals. Things moved pretty slowly for me for quite some time, buying 400 shares of MYT4U at a reasonable price of $10, even though I immediately landed on charity and in my next 3 roles I had for paychecks. Shortly thereafter, I partnered with Bob and Sue on a limited partnership with a doctor’s office and then immediately I was downsized.

Things were looking great when I bought a “great deal” for $35,000, a government owned home with a tenant, for $2000 down and $220 per month cash flow. Just before my next turn, a buyer appeared and I sold the house for $135,000, putting $102,000 in my pocket. I paid my bank loan plus my credit card and retail debt and still had $90,000 in cash!

On my next turn I drew a Big Deal and it was the 60 unit apartment building. Perhaps I should have passed on it. It was initially a net neutral deal for my monthly cash flow: with a down payment of $200,000, I borrowed $110,000 to make up the difference in the cash I had on hand but the $11,000 in monthly cash flow covered the loan. I still had a decent monthly cash flow of about $1600. Had I passed and taken a different big deal on a subsequent turn, I’d have retained cash, increased my cash flow and I may or may not have exited the Rat Race sooner.

After a couple more turns, and starting a software company in my basement, received a paycheck and borrowing more money from the bank, I got laid off again. My cash flow shrank to less than $100 and on a subsequent turn to about -$300. I survived and then sold the limited partnership, double the money for myself and partners and then sold the MYT4U stock for $40 after a split. After paying debt down, I was back to good cash flow and still had cash. In the mean time, Bob exited the Rat Race getting $600,000 as his initial Cash Flow Day.

Bingo, now there was a private lender offering better rates than the bank. I had a Big Deal Opportunity for a 8-Plex but didn’t have the cash for the down payment and there were no partners in sight. But with the private money rates from Bob, borrowing the amount I didn’t have the cash flow made the property cash flow. Bingo!

Now I refinanced my remaining bank debt with Bob increasing my loan from him to $127,000 but my monthly payment was only $6350! Adding the cash flow from the 8-Plex and refinancing the remaining $104,000 bank loan dropped that payment from $10,400 to $5200 and Bob had $6350 cash flow from me in the Fast Track. Great investment for him and such better financing for me that I was immediately out of the Rat Race with passive income of $12,700!

Ultimately I won because of a little luck. I loaned money to Sue in the Rat Race so she could buy a property that now made sense where it wouldn’t have before because the cost of the money would have been too high and I bought several businesses. But I won because the Russian Oil Deal paid off with $75,000 in cash flow.

So I learned two good lessons:

(1) I jumped on a huge deal that immediately netted me no extra income, took all of my cash and gave me a lot of debt. Had I waited for a less expensive big deal, I would have had more flexibility and cash. I don’t know if I would have exited the Rat Race sooner but I do know it wouldn’t have felt like a struggle. Ultimately, despite some financial pain, it still paid off handsomely, primarily when I got to the Fast Track with monthly cash flow of $1.3 Million. Maybe sometimes being circumspect pays off. Or not. It’s a matter of risk tolerance and while I still did the deal, I had less stomach for it than usual.

(2) Debt strategy and exit is a major component of success. Sometimes, paying a seemingly high rate for debt is okay (think hard money, borrowing downpayments, or even using credit cards on a daily basis while running a balance), IF you have exit strategies for this debt. For example, paying down to reduce what you pay monthly is a valid strategy and the only one that “stock” rules allow for. But life isn’t like that. Refinancing and restructuring of debt are real world examples of debt strategies that allow you to get cash or reduce the cost of debt.

Strategies change over time and debt should be no different. Say you bought a property with hard money for the purchase and rehab. You bought well and now the property is occupied and you have an appraisal that shows your debt is 65% of it value. Maybe you paid 5 points are paying 15% on the hard money. You’d want to refinance, right, especially if you could at Fanny Mae rates. You’d cut you debt payments in 1/2!

My strategy changed for debt when Bob got out of the Rat Race since I now could get a money backer that would help me along beautifully while giving him returns he was happy with. I call that WIN-WIN! He got a 60% yield and there’s only one business with that kind of yield in the Fast Track. Does he have risk? Sure, if I were to go bankrupt in the game on unsecured debt, he’d have a problem and lose his money. Would it kill him? Hardly but no one would like it. The bank takes the same risk on bank loans.

I went from struggling to being free because my strategy evolved and I had a new exit. So look for your options and act when conditions change.