Should I Invest For Cash Flow or Appreciation?
TL;DR - Cash flow investing provides steady income and allows you to reach your financial goals faster. Appreciation investing allows for massive upside or massive loss.
Like most people, you want to make as much money as possible. And, also like most people, you want to retire as quickly as possible.
What’s the easiest way to achieve these goals? Well, if you’re reading this article, you’ve figured out that it’s through investing in real estate.
But then there’s a big question...
Should you invest for cash flow or appreciation? Glad you asked - let’s get into it.
Cash Flow or Appreciation?
These Options Are Not Equal
We’ve said it before, and we’ll say it again. At Undoor, we’re just happy that you’re thinking about your future.
You’re educating yourself about the benefits of real estate, and that’s awesome.
But know that your situation is your own. We can’t make up your mind for you - only you can do that.
We provide you with the facts so that you can make an informed decision. You’ll more than likely lean toward one side after reading this...
But! If you ever want to chat more in-depth with us, we’d love to get in touch. We’ve helped plenty of people begin their real estate investing journeys...
We can help you too. Just go here and send us a message!
It’s A Game of Strategy
There are two main strategies investors use when it comes to real estate investing. They either invest for cash flow or appreciation.
So, let’s break both strategies. What they are, the benefits, and things to look out for.
Cash Flow
Investors that buy real estate for cash flow are looking to make more revenue in rent than their expenses for that property. Some examples of expenses would be a mortgage payment, insurance, and property tax.
With this strategy, your property cash flow would cover all of your expenses and provide you with some extra cash as well.
Benefits
Make Some Money - The renters of your property will be paying all of your expenses. This means any extra revenue you bring in is yours to keep and reinvest.
Passive Income - Money you used to invest in your property will bring you a steady stream of income. This makes it much easier to retire early and achieve your financial dreams.
Consistent - You don’t have to worry about your property costing you anything after you purchase it. You’ll know exactly how much you’re making from the property and can use the additional income to impact other areas of your life.
Stress-Free Appreciation - While appreciation-focused investing can involve much speculation and risk, cash flow investing is the opposite. You’ll be making steady money each month. Any appreciation - real estate appreciates around 2-4% a year - is extra value to you!
Something To Consider
Less Upside - Of course, for the consistent cash flow and low stress, you might sacrifice some appreciation potential. But we like playing the long game anyway.
Appreciation
Investors who purchase for appreciation are hoping that the value of their property will increase with time.
With the speculation involved comes a lot of research and a lot of extra time trying to make sure everything lines up. Still, it can be hit or miss.
Benefits
Massive Upside - If you invest in the right property, in the right area, at the right time, you could be looking at a huge payday. We’re talking millions here.
Build Wealth Fast (or lose it) - It’s kind of like gambling. If you bet on the right properties, you could really strike big. That means you could have a money throne waiting for you on the other side of your investing journey. Of course, you could lose everything as well.
Something To Consider
High Speculation - As mentioned earlier, appreciation investing can seem a lot like gambling. You’re literally betting your money that a property will increase in value over time. While real estate appreciation rates normally hover around 2-4%, there are also occasional dips in the market. Your timing can be perfect or horrible.
An Undoor Property Example
We aren’t advocates of cash flow investing without reason. We’ve benefitted from appreciation but have seen the potential risks that come with it as well.
One of the properties Undoor owned was located in an appreciating market. San Francisco, to be exact.
And boy, did we ride that appreciation wave. We ended up netting $300k in profit after selling that property in only 3 years. Crazy, right?
Want to hear something even crazier?
This week, we found out that a larger property, 3 doors down from ours, sold for less than ours did. And it was in the same neighborhood that our old property was.
What’s the takeaway?
Appreciation investing is a huge gamble.
Sometimes you’re lucky like we were. You can ride the appreciation wave and get out in time - earning you tons of profit.
Or...
The wave dies just as quickly as it came, and your profit goes with it. You might be lucky if you simply break even.
Consistency or Upside?
Essentially, this is the decision you have to make.
Do you want the steady, consistent income that cash flow investing provides?
Or do you want the potential that comes with appreciation investing?
One ensures that you’re reaching financial goals and taking steps to retire when you want.
The other offers a chance, a lottery ticket, to generational wealth.
Another thing to keep in mind: you cannot spend appreciation to pay the bills, but you can with cash flow.
Which strategy is right for you?
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing, and what we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.
