Cashflow vs Capital Gains in Property Investing

The rich have a different attitude towards money - they put their money to work instead of working for them. They don’t let their money sit in a bank account or savings and not get anything from very little interests. They invest it and make it work! Money will not grow if not planted.

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Different investments produce different results. The question is, what results do you want?


There are 2 different property investing strategies and it all depends on what you are after - Capital appreciation/gains and Cashflow.


Before you think about which strategy to use - ask yourself;

Do you want to ‘Buy Low and Sell High?’ or Do you want a consistent moving income?

Buying Low and Selling High

This is something very familiar and is what others mostly call ‘flipping houses’. You see this all the time too as it’s a very common practice.


In property investing, when you buy a single-family house and land for $200,000. You make renovations, repairs, and upgrades to the property, and you sell it for $240,000. This is what you call Capital Gains.


The Disadvantage of Capital Gains

It is true that there’s a lot of money to be made through capital gains but understand too that risks are inevitable. It should be included in your projection and you make sure that each investment is stress-tested however bad the economic situation goes.

  1. Cycle - know that this is something you have to keep repeating over and over again. You buy and flip and sell each time so the income never stops.

  2. Recession - if the property market gets hit with something like recession, it can be hard to sell. Worse when the market crashes and reverses like what happened in the housing bubble of 2008, the property prices can go down - they won’t be worth what flippers bought them for.

  3. Tax implications mean you have to give some of the hard-earned money back to the Government

As long as market prices go up, capital-gains investors win.

But when the markets turn down and prices fall — something nobody can predict — capital-gains investors lose.

Is this something you are prepared for?


Consistent and moving income

Cash flow is when you purchase an investment and hold on to it. Every month, quarter, or year that investment returns money to you. Cash-flow investors, unlike capital-gains investors, do not want to sell their investments because they want to keep collecting the regular income of cash flow.


In property investing, cash flow is purchasing a single-family house and, instead of renovating to sell, you rent it out. You get the rent every month and pay the expenses, including the mortgage.


If you bought it at a good price and managed the property well, you will receive a profit or a positive cash flow.


In this case, the property investor is not overly concerned about the market condition. He is only focused on long-term trends.


Another name for this is Passive Income, you are not exchanging hours worked for money spent.


Cash Flow versus Capital Gains

The best thing about cash flow is that it’s money flowing into your pocket on a continual basis — whether you're working or not. You could be doing anything and anywhere in the world while your money is busy working for you.


One big factor is that cash-flow investing is based on fundamentals that aren't as susceptible to market swings like capital-gains investments, which means that even in bad times, money still flows into your pockets.


Additionally, cash flow is what is known as passive income, and is the lowest taxed type of income. This is not always the case with capital gains taxes, which vary depending on the type of asset you've invested in and how long you've owned that asset. In some cases, taxes can be very high.


This is one of the reasons why Positive Income Properties focuses on selling positive cash flow investment properties - we are more geared toward low risk investing. We also support our property stocks with rental guarantees to as much as 3 years to secure the cash flow which is a great option for any starter investor.


At the end of the day, a property investor can choose to go with cash flow or capital appreciation strategy - it all boils down to what he/she wants to achieve, what type of property investor he is, and the type of property portfolio he is currently building or already have.