Passive Investing: Cash Flow vs Equity

There’s a common saying in the world of personal finance:

“Don’t put all your eggs in one basket.”

This piece of wisdom holds true, especially for passive real estate investors.

As a passive investor, you have a unique opportunity to distribute your “eggs” (or investments) across different “baskets” (or assets).

Your strategy will hinge on your personal financial goals, risk appetite, and timeline.

Today, we’re going to discuss two elements that should guide your investment strategy:

• Cash Flow
• Equity Growth
  

Let’s dive in.

Cash Flow or Equity Growth?

Cash flow and equity growth are two critical elements of a successful real estate investment strategy.

Cash flow refers to the net income generated from your investments, providing a steady stream of income over the life of the investment.

This income can be particularly beneficial for investors nearing retirement or those seeking to supplement their regular income.

Equity growth (also known as appreciation) refers to the increase in a property’s value over time. Appreciation offers a larger, lump-sum payout when the property sells or is refinanced.

Equity growth is generally a long-term strategy, realized over a 5-7 year period or longer. You park your cash and wait.

So, Which One Should You Focus On?

The answer to this question depends on your financial goals and personal circumstances.

Are you nearing retirement and looking for a steady income stream to cover living expenses? Cash flow might be your go-to strategy.

Or perhaps you’re in the early stages of your career, and you’re looking to build wealth over time? In this case, focusing on equity growth might make more sense.

But what if you’re looking for a balanced blend of both?

The good news is that many real estate investments, particularly in multifamily apartment investing, offer the potential for both consistent cash flow and equity growth.

The Balanced Blend

A balanced blend of cash flow and equity growth allows you to enjoy the best of both worlds.

You receive regular cash flow distributions, and as the property appreciates over time, you also participate in the equity growth.

This investment strategy offers stability and the potential for significant wealth creation.

Achieving this balanced blend requires partnering with an experienced partner who knows how to navigate the real estate market and manage properties.

The Wrap

In the end, it all comes down to what you want from your passive investments. Whether you prioritize cash flow, equity growth, or a balanced blend of both, passive real estate investing with an experienced partner provides an excellent opportunity to achieve your financial goals.

Remember, your investment strategy should align with your personal financial goals, risk tolerance, and timeline.