As you look to begin your real estate investing journey, it is likely that you will encounter a question that could affect the type of investment that you decide to pursue: Is it better to invest for cash flow or appreciation? To provide some insights into how best answer this question, let us first start with some basic definitions:
Appreciation refers to the increase in the value of an asset over a given period of time. This increase in price can be driven by several factors such as location, physical condition of the asset, market drivers, and supply and demand, among other factors.
Cash flow, on the other hand, is the money that you have left over from rental income after all expenses and obligations have been met (the net amount).
To be clear, these two factors are not mutually exclusive i.e., you can have both, but what you typically see is that as you focus more on cash flow, the less appreciation you see, and vice versa. So, which should you choose? Long story short, it depends on your investment strategy, your overall goals, and whether you are an active or passive investor. For those of you that decide to take advantage of the arbitrage concept (i.e., buy low and sell high), it is important that you understand the difference between natural appreciation and forced appreciation.
Natural appreciation is the increase in the value of an asset due to changes in the market where the asset is located while forced appreciation is an increase in the value of an asset due to an action that an investor takes.
Thus, while you can control forced appreciation, you cannot control natural appreciation given that it is driven by the market. Additionally, while you can control forced appreciation, to execute this investment strategy, please make sure that you are working with an experienced real estate investor that has a track record. When deciding between either natural or forced appreciation, individuals often prefer to have control.
Given that there are so many factors at play with appreciation, many investors often resort to investing for cash flow. Our team follows several immutable laws to real estate investing – one being to “buy for cash flow,” as opposed to acquiring an asset and betting on the natural appreciation.
Conclusion
At the end of the day, only you can determine whether real estate investing is right for you. As a starting point, think through your personal circumstances and the aforementioned considerations. Know that every investment strategy will be different, that each investment strategy has it’s own pros/cons, and that all investing carries a risk so as you continue to gauge whether you should invest in real estate, do your proper due diligence.
Investing in Real Estate comes with several advantages. Navigating the real estate investing process can be difficult, but you do not have to do it alone. We are here to help.
How You Can Get in On the Action
Cash Flow Champs is a privately held investment company that focuses on acquiring and managing opportunistic and value-add multifamily real estate properties. The company specializes in repositioning well-located assets in emerging markets surrounded by positive demand drivers such as population growth and job growth.
Cash Flow Champs partners with entrepreneurs and busy working professionals interested in investing in real estate but who lack the time to navigate the process. Alongside our partners, we aim to bridge purpose and profits in a manner that allows us to improve the lives of the residents in our communities and the neighborhoods where we operate.
In the words of Robert Kiyosaki, the poor and the middle-class work for money. The rich have money to work for them. If you are an individual that wants to build and maintain generational wealth through real estate, all while making a positive impact on the lives of residents and the communities where you invest, we’d love to explore opportunities for synergies.
Schedule a brief call with us so we can get to know you better, understand your life goals, and determine where synergies may exist.
This information presented on this site is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities in the company or any related or associated company and is not a recommendation to pursue a specific investment opportunity. Any such offer or solicitation will be made only by means of the company’s confidential Offering Memorandum and in accordance with the terms of all applicable securities laws and other laws.
