Capital Gains or Cash Flow?

Not so very long ago the rage of the day was investing for capital gains and future appreciation with very little consideration given to cash flow. In fact, many so-called real estate “investors” were more than willing to buy high with the hope of selling even higher while carrying a negative cash flow all the way. Debt was viewed as only a temporary situation likely to be rapidly resolved as soon as the property sold…and properties were selling in record numbers at record prices. Unfortunately, the tide changed (as it is prone to do) and by 2009, the vast majority of “investors” that purchased exclusively with capital gains in mind are now crying the blues. It’s not limited to real estate investors; the stock market dropped by over 50 percent at the low while home prices plummeted by a third.

On the other hand, those investors that invested for cash flow are in a much better position since rents have not experienced such a dramatic decline. They are able to sit out the financial storm while collecting a steady stream of earnings each and every month or even purchasing additional properties via short sales at bargain basement prices. Remember, rentals are not the only way to invest for cash flow; flips, lease and even owner finance all present the potential for cash flow but the basic idea is always the same….make sure you buy low enough to generate cash flow and keep a little “buffer” just for emergencies.

So, is there a time to invest exclusively for capital gains without regard to cash? Perhaps. Like any investment, if you have additional money to burn and can afford to support the property during any downturns it is possible to generate major returns. However, always be aware of the inherent risk of a property unable to “pay for itself” while still generating a profit.

The bigger question is why settle for a high risk endeavor when there are so many short sale properties that are able to generate substantial cash flow for the taking? If you are still stuck in the capital gains only mindset try out these quick tips:

1. Crunch the numbers. We have said it time and time again –know the numbers for each and every property. Buy right and selling is simple but even if faced with a delay, the property is able to generate enough cash flow to pay for itself and put a little extra in your pocket for the trouble. Learn to do the math…

2. Use a “worst case” cash flow example and a “best case” cash flow combined with capital gains scenario.

3. Improve or purchase currently owned properties. Not only are there plenty of properties to chose from but labor is less expensive thanks in part to extremely competitive bids among contractors. Increase the earning potential of properties to enhance long term capital gains while continuing to college cash flow.

4. Don’t be afraid to sell. Cash is still king and another important source of cash flow that can be used to finance or expand your present forms of property.

5. Calculate your cash flow from assets independent from “earned income” or work. It is more important than ever not to risk your entire financial future solely upon your job.


By: Chris McLaughlin
http://www.shortsalesriches.com/




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