Can you be a capital gain investor or a cash flow investor? Well, here’s a simple answer to your question.
First of all, in case you don’t know, let me explain the difference.
When you are a capital gain investor, meaning that you want to buy low and sell high, you want to buy something at this price point, and you want to sell it at this price point.
For example, you want to buy this piece of property for, let’s say, $100,000, and hopefully, within a number of years, you may sell it for $350,000, that’s a capital gain investor.
A cash flow investor, on the other hand, you’re not looking just into appreciation but you’re looking at the cash flow, we talk about the cash-on-cash returns.
Let’s say I invest X amount of dollars, and I want to get a return of say 5%, 6%, 8%, 10% return on my cash investment.
I put in $10, if I get a dollar back every year, for the first year let’s say that’s a 10% return, that’s a cash flow investor.
So, which one is better? Well, I believe there’s no such thing, now myself, I am more a cash flow investor because I want to make money when I buy.
The appreciation, on the other hand, is not something you can simply opt-in for having or not, I do want the appreciation in capital gain, however, I’m not counting on it.
To me, they’re like icing on the cake, if I’m buying a piece of property, I want to make sure that the cash flow makes sense, the rental income that’s coming in makes sense.
I will not buy negative cash flow property, meaning that the rent that I collect from the tenants don’t even cover my overhead, my mortgage, or my other management fees from the management company, that’s a negative cash flow property.
People do that because they hope that, “Well, you know what, I’m losing a couple of hundred bucks a month, it’s not a big deal, I could sustain it.”
They hope that they would in whatever how many years, they’re going to sell it at a way higher price and exit and be able to get a lot of capital gain.
That’s okay but, I don’t want to count on that, I believe when I buy it right, the right location, the right timing, and you give it some time it will do well in both categories.
“This is why we don’t wait to buy real estate, we buy real estate and then wait.“
It makes sense on day one, I’m making a decent return day one, and after a number of years and when it goes up, if I do sell it, or if I don’t sell it.
I just do a refinance, meaning that I borrow money from the bank, I still keep the asset, but now I take the cash out, some capital out, that I could re-invest again.
I like cash flow investing more, but it doesn’t mean within my portfolio, I don’t have some investments that are capital gain.
This has a lot to do more with asset location, versus which one is better, maybe 80% of your investment portfolio is more cash flow based, and maybe 20% are capital gain based which’s okay.
What you don’t want is all your investments being capital gain-based, because then you’re hoping, you’re speculating, no different than a casino, and that’s very risky.
But if you have some that are cash flow-based, and then if you buy right, they will appreciate anyway, so that’s my recommendation.
Now, comment below, what kind of investor are you? Or What kind of investor do you want to be?
Before you invest anything, I always say investigate before you invest, educate yourself as an investor first, before you spend, and put in your hard-earned dollars.
Know a little bit about how investment works, learn about the rules, the game of investing. What are some of the regulations you need to know? What are some of the approaches? What is your strategy? You must know those things.
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