Cash Flow or Appreciation?

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A lot of people consider when is the right time to invest in real estate. The timing they’re considering is the market, though. They don’t often consider when is the right time for them, and their financial situation.

I have been a proponent of real estate investing for decades now. I personally bought my first piece of real estate when I was 25 years old. So, take that into account when I say that I’m concerned with how many I still see rush to buy real estate, before they are financially ready.

A year or so ago, I ran into people at seminars who excitedly proclaimed that they had just bought a piece of real estate. Yet, when questioned, it turned out to be a bad deal. Generally, they had bought it just hoping for the same run-away appreciation that had beset the market so far. There was no cash flow, and often no understanding of the loan terms for the property. Those were the people I was most worried about.

Today, I get concerned when I talk to people with little money, looking excitedly for new real estate, not for appreciation, but for cash flow. The problem is that it’s very rare in today’s world to find a big cash-flowing deal with no money down.

I think passive cash flow should be the ultimate goal from real estate, but only after you have sufficient net worth built up. Otherwise, you limit yourself to small amounts of cash flow each month, and try to “make do” on limited income. I don’t think that’s anybody’s definition of rich!

There are two options here, I think. (1) Invest for forced appreciation or (2) Have a secondary source of revenue, preferably your own business, as you create passive income.


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