Cash Flow or Appreciation? Understanding Your Goals

Dear Investor ,
It is so important to understand your investment goals as a passive real estate investor. There are numerous strategies that can be used to generate returns in real estate, so you need to have clarity on your investment goals to know which strategy to use.

Two major return drivers for real estate investors are cash flow and appreciation, so let’s take a look at each of these.

Investing for cash flow is a great strategy resulting in a passive income stream for investors by receiving monthly income from tenants paying their rent. With enough passive cash flow, you can essentially obtain “financial freedom” where your passive income exceeds your living expenses. That is why obtaining rental properties for the long term, where rent is due from the tenants month after month, is perfect for an investor looking for a regular income stream.

Investing just for appreciation has a potential for higher profits than a cash flow investor, but there is usually some more risk or active involvement. An example of investing for appreciation is buying an old property, you can hold onto it and wait for the land to go up in value or you can force some appreciation by renovating the property to add value and sell for large profits. This strategy usually requires you to wait a period of time to receive all of the profits, and you usually don’t get to experience the cash flow during the project.

At CPI, we understand the benefits of both strategies so we use a hybrid model where we can get cash flow and appreciation to get the best of both worlds. We look to buy multifamily properties that are generating a strong cash flow on day one, allowing us to pay our passive investors quarterly distributions. We also want our properties to have some value-add potential where we can force appreciation through renovations and operational improvements. The ongoing cash flow allows our passive investors to compliment their job income, and then there can be lucrative profits that are realized when the property is sold.

If you want to learn more about participating as a passive investor in one of our multifamily deals, join our Exclusive Investor Club.

– August Biniaz
CEO & Founder, Canadian Passive Investing