Understanding Cash vs. Cash Flow in Real Estate Investing
In a few previous articles, I’ve given 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 investing business. This may seem a little counterintuitive to me, since I’m generally a bigger cash flow proposition (as you can see in larger commercial properties), so I wanted to explain this apparent change of heart.
Many of the programs I offer involve the acquisition of cash flowing apartment buildings, which can make some investors feel like this is not for them or the time is not right. I’ve built a significant portfolio of commercial apartments, but it didn’t happen overnight either. I started out like many of you, looking for quality deals and working to acquire the necessary funds to enter these deals.
There is an old adage among investors that has held true through many market cycles and other trends that have influenced the way real estate investors do business. He says like this:
“We buy and sell real estate to create cash so that we can 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 sell property for a quick buck? Of course not. What is contrary (in my opinion) to these fundamentals is making a career of selling property for cash, without a long-term view to buy and hold cash flow.
Quick cash from buying and selling real estate is a necessary tool for many novice real estate investors, and it just so happens to be a tool that can yield impressive returns. However, I have never met a real estate investor who got rich selling property. Because?
It’s because once the property is sold and the proceeds are collected, the investment is no longer an investment! You have to repeat the process to earn more. Long-term cash flow focuses on accumulating income-producing assets, a much stronger long-term approach that has generated countless wealth for investors around the world.
In general, I continue to believe that cash flow should be your ultimate goal as a real estate investor, and that the best opportunities to do so are within the commercial departments. Cash-flowing properties are those you hold as long-term investments, which means they not only provide income, but also help build significant asset value and wealth.
That being said, we often have to crawl before we walk, so the idea of making cash to generate cash flow is very viable and one you should seriously consider as you grow your own real estate investment business.