Real Estate Options: Cash Flow vs. Wealth
Anyone who’s spoken with a real estate investor lately knows that there are as many different strategies as there are investors. Some people will tell you that you need to buy and sell as quickly as possible in order to maximize your cash flow.Others will tell you that you need to buy and hold in order to accumulate long term wealth. The truth probably is that neither of these options is viable all the time, and in order to maximize your success, you should probably choose between these strategies based on the deal and the market.
All of us have our personal preferences, but a successful investor will learn how to modify his or her personality to create a harmony between the investor and the investment. Some properties in some markets lend themselves to quick turnaround. Others call out for a long term solution. It depends on the property, the market, and on you. For example, you may find yourself with a really good house in a really good neighborhood. It doesn’t need a whole lot of renovation, and if you sell right away, you’ll be lucky to break even. You know, based on current market trends and economic data, that in a few years, this area’s going to be hot. But the cash flow if you choose to rent the property today is going to barely break even, and maybe even leave you with a shortfall. So the question is, can you find other sources of cash flow to offset or leverage this property? If the answer is yes, then you want to hold. If the answer is no, then chalk it up to a learning experience and sell it off.
You have to remember that real estate is a changing market, and deals or strategies that don’t make sense today can easily make sense tomorrow. Buying a house in a depressed neighborhood may not look like a smart idea, but if the local government decides to rehabilitate that section of the community, it could turn out to be a winner. To a certain extent, you need to speculate a bit in order to forecast the future trends in an area. You want to know what kinds of jobs are coming in, what kind of people are going to want to live there, and try to get in today before the rush hits. The real ticket is figuring out how to hold in a tight market. When you know that the trends are in your favor, that a specific property has the potential to pay off big, if you can find the lowest possible rates on financing, and a rental situation that will at least allow you to break even, you can cash in on a real windfall in a few short years. You may even want to consider using positive cash flow from another rental unit to offset this one, or investing some income you might be earning from a side job. That sounds crazy to some, but the payoff might make it worth your while.