Cash Flow and Appreciation, The Best of Two Worlds

There are two ways to make money investing – and only two ways.

First, there is cash flow, which is when monthly rental income exceeds the monthly expenses required to operate the building. This generally pays out each month and is a pure definition of passive income that repeats over time.

Second, there is appreciation, which is when an asset is sold for more than it was purchased for. Importantly, this is only paid once an asset is sold and transferred to a new owner. This type of gain is a pure example of portfolio income and is a one time event.

That’s it and that’s all! Any positive scenario in any investment will be included in one of those two ‘ways to make money.’

And here’s the fascinating thing about investments – most of them only provide one of the two avenues to profits. Take dividend stocks…they pay a 2% or 3% yield, but consistently underperform the market in terms of price appreciation and long-term gains. Your other option for equities are growth stocks – those that are expected to appreciate over time, but almost none of them pay a dividend or provide any cash along the way.

For us, those are incomplete and watered down investments. It might be what the mass public buys, but we know from research and direct experience that there are assets out there that can provide both. And the time-tested asset that wins in this double-dip case is large multifamily real estate.

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