Ep 129 - Cash Flow VS Appreciation

Hey, everybody. Flipndaddy here, founders of the Freedom Real Estate Group family of companies, and welcome to another episode of our podcast, which.

Is called Freedom through Passive Income.

That's right. And today's episode is called Cash Flow versus Appreciation.

Yes. Can we duke it out?

Be like Mike Tyson.

Yeah, yeah, yeah.

On an airplane. Anyway, so what is cash flow?

Cash flow is your net operating income, essentially. So depending on what types of properties you have or what you. What. What type of investment you're looking at, you're going to have a certain amount of income after expenses that you get every single month. That is your cash flow.

Got it? So what is appreciation?

Appreciation is when the value of the property or multifamily or whatever it is that we're talking about here, increases in value over time. So maybe you bought it for 12 million and you refinance it out three years later at 16 or 17 million. That would have been appreciation. Those numbers sound familiar because we just did that video. It was fresh in my head.

Okay, so what is forced depreciation? You must depreciate.

Forced depreciation is related to multifamily properties where the appreciation is forced by increasing the income or decreasing the expenses.

So what are your investing goals and your risk tolerance? It's really the risk tolerance. That's the. And patience.

Yes.

Patience is in there, too.

Yes. Yeah. I think the goal. Risk tolerance, patience. I think all of that goes together as to whether you want cash flow or appreciation. And I think that's a really, really important question to ask before you go on investing, because there are certain types of properties that you are investing for, for one or the other, and every now and then you get the sweet spot of getting both.

Right. And so freedom through passive income is. Well, we're focused.

It's our podcast, Freedom. Oh, cash flow. If you're not watching on the video, he's showing up.

I'm holding up our coffee mug that says Cash flow.

Cash flow, yeah.

Freedom through passive Income. That sounds very familiar. Yeah, that's the name of our podcast.

Yes. So what do we like?

Cash flow.

Cash flow.

It's less risk. You're not trying to time the market for hoping for the upside, going, let's buy now or let's sell. No, no. You know, in multifamily, there's even less.

Risk due to forced appreciation.

You must appreciate.

Yeah. And so that's the cash flow. That's kind of the benefits of cash flow, and that's what you're looking for when you're looking at cash flow. I Like the less risk part and the not being speculative part. So because let's look at appreciation. That's when you're really focused on the growth of your capital, right? You want to insert some, some money into some vehicle and you want a big exit. You're really looking at that as opposed to maybe I don't want the monthly income, I could care less about the distributions. I just want it to grow. So if you're looking at appreciation specifically in that capital growth type of concept, it is more risky and it's speculative, right? Because you are trying to time the market. You're trying to swoop in and buy something at a value in which you feel like there's opportunity for it to increase. And then you're trying to time the market of when do you think, like when we're doing multifamily properties, we say three to seven years is like the time, you know, if we're not gonna hold it. And most of our stuff we're holding long term. We're not even selling it. But if we are going to sell it, we're saying three to seven years. Because we too are trying to make sure that we've put ourselves into a position to be able to sell it after it has appreciated or when there's that forced appreciation value add completed and depending on when the market is, if it's down and it's not a good time to sell, we want to keep it and we want to hold it until the market is right and we feel good. Now in a market like this, there's people selling assets, including us, because the market is so hot right now. We're like, everybody's a genius. That's the big joke. Everybody's a genius because they're making so much money. Because the market's crazy right now and people are paying crazy prices. So people are selling what they intended to hold for five or seven years. They're selling now because they're meeting or beating their existing performic projections when they bought the deal because. But it was speculation. Nobody knew that this was going to happen. Right?

Exactly.

It just happened. So there is more risk involved. It's going to be more reliable for you to do that with multifamily. If you're going to do the appreciation play because it's forced appreciation, right? You have control over it. I know you're just wanting to go.

Oh, you won't say it.

It's less reliable if you're looking at single family properties. Because you might be trying to buy a property that's An A class property, a class area, you may be going to spend $400,000 on the. But maybe your rents are like 2,520, 800, 3,000. And so you're not really having that cash flow that people like when they're buying rental properties. But you're thinking this is a great area, it's going to appreciate. But you just don't know because you don't have the forced appreciation availability in that particular deal. Unless there's exceptions to that rule. That I'm not going to get into this video. But for the most part, you're relying on hoping that the market is going to be good and you're going to get that swing of capital growth. Now what happens if it's a down market and you need to get your capital back? Because you're doing the appreciation play and you know you can't. You can either break even, you can lose money. Just depends on what other market cycles. That's the risk that you play if you're just going to play the appreciation game. Cash flow. Investors aren't taking the same risks because whether if the market is up or down, we don't care because our cash flow and our rent is coming in all of the time. And even in environments like these right now, we are able to continue to increase our rents, which is part of that forced appreciation play. I know you want to. You are just. He is holding himself back.

I'm good.

You've done it like twice in this recording already, so I think we're all good.

I think there's a limit.

Yes.

So you can tell cash flow to appreciation is really. It's not apples to apples, it's apples to oranges. And it just really depends on, again, what we talked about at the beginning, what you're comfortable with, what your patience level is, what your risk level is. You know, that's. It all comes down to that because as you can see, there's so many different things in play. And obviously you can tell too, the moral of the story is make sure you're doing multifamily, you have more control. It's for both. But I think that wraps that one up. Yes.

Yeah, it does. I do want to say before I end this, not that Tanya is necessarily watching this video, but I'm wearing her shirt. Flip it.

I thought that was for me.

Flip it. Good.

Sorry I had to do that. So, anyway, me make sure you're going over to our website, freedomcapitalinvestments.com and joining our investor club because you're going to learn about things on our investor club that you won't learn about anywhere. Anywhere. Anywhere. Not even here. Anywhere else. So make sure you're going over the investor globe. We're also on all the social media channels, so make sure you're checking us out there, letting us know how you're doing, how's the weather, and all that fun stuff. But we always like to end all of our episodes with Invest Smart, Live Happy.

Bye, everybody.

You must appreciate nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss, y'. All.

Sam.