By Jevons Property Management
Following the collapse of the Real Estate market in 2008 many people have invested money in Real Estate especially in Yakima Washington.
Over the years one of the top questions that we’ve had from investors is whether it’s important to invest for cash flow or appreciation?
In this article, we will break down the answer to if you should invest for cash flow or appreciation and what’s the difference between the two.
Investing for Cash Flow
What is cash flow? Cash flow refers to the amount of money that you are able to collect from your rental property each month.
How does it work specifically? Your property management company collects the rent (gross income) from your tenant, they deposit it into your account, and you pay your expenses including insurance, mortgage, taxes, management fees, and repairs, then what’s left is your cash flow (net income).
Cash flow is ideal because it’s money that you’ve earned from your Real Estate investment each month that you can also use for covering your expenses rather than paying for those expenses yourself out of pocket.
The key to success when investing for cash flow is to take the time to calculate in advance what returns you can expect before you invest in a rental property.
Another important thing to do when investing for cash flow is to calculate the price to rent ratio because not every area of the United States offers rental properties with good price-to-rent ratios.
For example: In Los Angeles, CA many properties have high purchase prices, with lower rents, making them have bad price to rent ratios for investors.
Investing for Appreciation
What is appreciation? It’s the increase in the value of the rental property (or asset) over a period of time.
Appreciation can occur for a variety of reasons including low mortgage interest rates, demand for Real Estate, or weakening supply.
Since the Real Estate market started rebounding in Washington and across the United States it’s almost impossible for most Real Estate investors to have not seen their Real Estate investments appreciate during the last two to four years.
Investing for appreciation can offer excellent returns especially if the property you invested in is located in a state like California where Real Estate has appreciated significantly there in recent years.
The key to success with investing for appreciation is all about timing because you have to know specifically where the Real Estate market is or you could face the real possibility of having to hold onto your Real Estate for a lot longer than you expected.
Cash Flow Vs. Appreciation – Which Option Is Better?
Now that’s we’ve discussed cash flow and appreciation the big question you may have is which option is better for you? The answer to this question is it all depends on your financial goals.
Investing for cash flow requires dedication because it may only bring in only a few hundred dollars per rental property each month, but those returns will add up over time while investing for appreciation can reap a big return once the property has appreciated but you have to know where and when to invest for appreciation.
To learn more about if you should invest for cash flow, appreciation, or to speak with us about our property management services, contact us today by calling (509) 895-7777 or connect with us online through our website.