When it comes to investing, the bottom line is always going to be making a good return on your investment. There are lots of ways to do this, but when it comes to Real Estate there are two primary ways; cash flow or appreciation. Is one of these better than the other? Can you do both or do you have to choose only one?
Of course, it’s not always black and white. It depends on your investment goals, and which will enable you to reach them faster. In this article, we’ll take a look at things that you should consider when it comes to investing for appreciation or cash flow. See which one’s best for your needs.
Investing for cash flow:
When it comes to real estate, multifamily, and other rental properties like industrial and commercial, cash flow is king. As we discussed previously on this blog, Cash Flow is the Holy Grail.
When you have an income-producing property and the income from that is greater than any expenses to maintain it, you have “positive cash flow” Let’s face it, all of us want to be cash-flow positive.
Many investors try to find a property that gives them a certain percentage back in cash flow that fits in with their goals. If they have an aggressive investment strategy they may be looking for properties that will produce the most cash flow the quickest and they will tend to look for something to produce returns in the 12% to 15% range and sometimes no lower than 10%.
Cash flow can also be generated through passive investing. If you are looking for cash flow without the hassle of being a landlord, you can purchase properties through apartment syndication. Syndication is where multiple investors pool their money to own a property that they wouldn’t be able to manage alone. In the case of multifamily syndication, the property and its daily management are taken care of by the general partners of the deal, assuring the profits for both themselves and the passive investors.
Investing for Appreciation:
Appreciation is entirely different from Cash-flow, here instead of earning monthly income, your ROI (Return On Investment) accumulates over time. The value of your investment can grow due to several reasons: increased demand for the asset or deferred maintenance which you then remedy, etc. Investing for appreciation in real estate is often a long-term strategy, although it does have some benefits. There is a potential for either faster profit or long-term wealth. If you do find a property that is below market due to deferred maintenance or another fixable issue, you can immediately remediate the issue and turn the property around and sell it. This is the fix and flip model. If you hold property over time, it will appreciate. No matter what the housing market does, after a time it always goes up.
Investing for Both:
No matter what, the taxable gain from appreciation is only realized once you sell the property. At that time you are taxed on those gains but have hopefully got some systems in place to mitigate much of the tax burden. However, there is another option that combines the best of Cash Flow and appreciation. You can choose instead to do a cash-out refinance and use the funds to purchase additional cash-flowing real estate. To get the best of both worlds you have to know what your end goal is and look at properties that support that end goal.
Invest Confidently with Shannon Robnett
Knowing the best way to find out more about Real Estate Investing isn’t just a skill—it’s the key to aligning your investment strategy with your personal financial goals. At Shannon Robnett Industries, we bring decades of experience structuring both types of opportunities, with a proven track record of helping investors build wealth through carefully vetted, tax-advantaged real estate projects. Whether you’re seeking steady income through debt or long-term growth through equity, our team is here to help you make the right move.