Cash Flow Investing or Equity Growth Investing- Which is Best for You?

Growing up and starting my investing career in the Midwest (Southern Minnesota) everyone I knew, including myself at the time, was investing for equity growth (appreciation). We all understood that 90 %+ of Americans made their wealth in real estate and we all wanted to be a part of that. Cash Flow Investing or Equity Growth Investing- Which is Best for You?We understood that buying a property, renting it out and banking on great appreciation of the property would fairly rapidly build solid equity. We understood that based on national average, the average appreciation was over 5.5% per year.

My first big self-discovery

The Midwest definitely fit the picture of the national average where slow and steady would win the race. Buy a property hold it over time and you would gain between 5 and 6 percent per year in appreciation.

As I moved from Minnesota to the South, my AHA moment was WOW, how different the investment arena was. Over the past decade I have worked with hundreds of investors and indeed discovered a large variety of reasons that people invest. Equity Growth, Cash flow, Lifestyle investments, second home investing and the list goes on.

Yes investor’s number one objective of what they want out of investment varies and is perhaps the number one thing you, as an investor, want to identify. What is your number one objective? You cannot find the best investment until you identify this. Here are the attributes to what I have uncovered as the top three reasons people invest.


What to invest in?

While there are dozens of different reasons that people invest there are also many types of investments that suit the individual investor. I find it interesting how so adamantly investors feel that what they are interested in as an investment is by far and away the best investment. Perhaps for their objective yes, but other objectives warrant different investments.

Identifying your investment style or what you want to invest in is your second big decision. The reason this is so important is it helps you avoid the biggest problem investors have. That is chasing the next shiny object. Investors who do not have a clear understanding of what they want to invest in tend to wander all over and often do little to no investing as they are so concerned they will miss out on the big kahuna. Find the niche that resonates with you and stick with it at least until you perfect it. Remember there is no right or wrong investment class as long as the investment itself generates the returns you are comfortable with.

Single family homes:

As of late this has been the most highly sought after rental. The benefit here is tenants typically pay all the utilities and takes care of their own land service, making this an easily managed property.

Condos or townhomes:

Perhaps the next easiest management class, similar to the single family homes. The differences are controllable expenses. On one hand the lawn care and exterior maintenance is taken care of by the HOA or CONDO Association, but this is payed through HOA and CONDO fees and these can change without warning or controls to your ROI.

Multi Family Property:

This investment class gives you economies of scale benefits such as reduced cost per door for management fees and cheaper repairs as a tradesmen may be at your unit anyway. Another benefit is collecting multiple rents for one property instead of just one income source. However, to accomplish this requires more management headaches as you have multiple tenants to contend with, which often leads to domestic types of challenges when more than one family lives under one roof.

Everything is a tradeoff

All investment styles have their advantages and disadvantages. There is not one right one way to invest. The biggest obstacle is when you spend so much time waiting to make sure that you pick the right investment that you fail to invest at all. Like this client I had from the U.K. and how his indecision cost him over $80,000.

Building a successful investment portfolio requires lots of great decisions. Once you make a decision get behind it and nurture it.

Happy investing!