Is It Better to Invest for Cash Flow or Appreciation?


The debate continues…


What’s in it for you?

  • There are all types of reasons and benefits for investing, obviously, the common goal is to make money.

  • I always say that passive income beats active income any day, but there is a difference in opinion out there for how to best receive that passive income. 

  • Should you invest for cash flow (a value that starts returning immediately) or appreciation (a value that grows for the future)?

  • Keep in mind there is no right strategy and both reap returns, but it all depends on the investor’s business goals and objectives.

Investing for Cash Flow on a Real Estate Investment

  • To calculate your cash flow returns, you take gross income (rent) and subtract your total expenses (i.e. mortgage payments, taxes, insurance, repairs, etc.).

  • Cash flow is technically the difference in the amount of income and the aggregate expenses each month from an investment. So, if you earn $900 in rent and have $600 in expenses monthly, your cash flow from the above real estate investment would be $300 for the month.

  • Note that cash flow can go both ways — if you earn rent of $900 and have expenses of $1200 in a month, your cash flow is -$300.


Investing for Appreciation on a Real Estate Investment

  • On the other hand, investing for appreciation is a lot different from investing for cash flow.

  • Unlike cash returns, appreciation is accumulated over a period of time and your ROI is realized over a much longer term than investing for a surplus of rental income every month.

  • With this said, investors who focus on appreciation take on a much riskier Real Estate Investment because their returns come back years down the line.

  • Perhaps you have reason to believe property values in the area will increase, or you might intend to rehab and put money into the property to increase its value before you sell it.

  • For example, Los Angeles, California, is one of the best areas for real estate appreciation and many real estate investors made a fortune for capitalizing on real estate investments in this State.

Can you do both? 

Personally, I’m looking for both of these benefits: some extra money to fund today’s lifestyle and security for tomorrow.


Have a great day!


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Demetrius L. Brown


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