The Importance of Investing in Cashflow
One of the interesting things about real estate is that you can become a certain type of an investor. Anyone who invests in real estate can choose or be comfortable into any types of category.
For example, one investor might be interested in investing on condos rather than land-based houses. Some might be inclined in residential properties rather than commercial ones. Or some even are aggresive on a quick buy and sell.
Whatever it is, every investor has a unique character and inclination towards real estate.
I'd like to share with you what I have learn about these two investment purposes from books. One is investing in cashflow and the other is speculation.
Investing in cashflow means the moment you bought your property, it is already generating rental income for you.
Speculation on the other hand is buying a property with the intention to sell at a higher price due to appreciation. The main question is should you focus on building cashflow rather than selling for a profit?
Learning from Robert Kiyosaki's books, the ultimate purpose of investing in real estate is cashflow. The story of building pipelines versus hauling buckets from rich dad are really inspiring as it reflects the true thinking of the rich.
Another story from Rich Dad's Who Took My Money about the difference between cattle ranches and dairy farms made it clear the real differences of investing in cashflow versus speculating.
It also highlights how the rich build their wealth by having cashflow (the milk from cows) instead of speculating investors (the slaughtered cow).
Besides that, investing in cashflow also enable you to build your portfolio as you have both property and rental income.
As for speculation, you acquire the profits by selling the property which means you reduced your portfolio by trading it with money. In other words, you reduce your asset once you sold it.
Nevertheless, there are still many people invest without financial education as Robert Kiyosaki said. They either invest for the purpose of speculation or have a negatively geared property (expenses more than rental income).
For some people who are experts at flipping or speculating properties, I think it is not a good strategy for the long term because it requires hard work and timing.
Moreover, speculations depend on property appreciation subject to the market. In the end, you are working for the properties and not the other way around.
Overall, it is investing in cashflow that can generate passive income for you in the long run. As rich dad said, your money is working hard for you.