Understanding Cash Vs Cash Flow in Real Estate Investing
In some previous articles, I offered to you some general tips and strategies for working with the abundant and often lucrative opportunities that exist with REO properties. In these articles, I discussed at some length the idea of generating cash for your real estate investment business. This might seem a little contrarian for me, given that I am usually a bigger proponent of cash flow (such that you might see from larger commercial properties), so I wanted to explain this seeming change of heart.
Many of the programs I offer concern the acquisition of cash flowing apartment buildings, which may leave some investors feeling like this isn’t for them, or that the time isn’t right. I have built a significant portfolio of commercial apartments, but it also didn’t happen overnight. I started out as many of you are, looking for quality deals and working to acquire the funds necessary to get into these deals.
There’s an old adage among investors that has remained true throughout many market cycles and other trends that have influenced the ways real estate investors do business. It goes like this:
“We buy and sell real estate to create cash, so we can then buy and hold to create long-term wealth and cash flow.”
This adage is one that very much captures the essence of what I am writing about in this article. Is it contrary to the basic fundamentals of real estate investing to flip properties for quick cash? Of course not. What is contrary (in my opinion)to these fundamentals is to make a career out of flipping properties for cash, with no long range vision for buying and holding for cash flow.
Quick cash from buying and selling real estate is a necessary tool for many novice real estate investors, and it so happens to be a tool that can produce some impressive profits. However, I never met a real estate investor who got rich by flipping properties. Why?
It’s because once the property is sold and the profits are collected, the investment ceases to be an investment! You have to repeat the process to earn more. Long-term cash flow centers on the accumulation of income-producing assets, a much stronger long-term approach that has made countless wealth for investors worldwide.
Overall, I still believe that cash flow should be your ultimate goal as a real estate investor, and that the best opportunities for doing this lie within commercial apartments. Cash flowing properties are those that you keep as long-term investments, meaning that they not only provide income, but also help build significant asset value and wealth.
That said, we often have to crawl before we walk, so the idea of generating cash in order to generate cash flow is very viable and one that you should strongly consider as you grow your own real estate investment business.