Cashflow Investing

Happy July!  We hope your summer is going wonderfully.  A classic topic that’s again very popular now is real estate investing.  This month we will cover the concept and benefits of cashflow investing.

Q:  I hear a lot about real estate investing.  I also hear the stock market has done very well.  I know you are an avid real estate investor.  Can you share with me your perspective?

A: Certainly.  I am financially conservative and appreciate secure investments.  I invest in real estate by buying and holding homes long term, focusing on cashflow.  To start investing, you must have savings.  Saving is basically spending less money than you make.  To save more, you can either make more money, or spend less.  Making more is often not in our control, but spending less certainly is.   Lifestyle choices determine this first step.

Once you have savings, you have to invest it.  You cannot save to riches.  With inflation, cash decreases in value overtime.  You have to do something with your money to make it grow overtime.  You worked hard for your money, you can make your money work hard for you.

Of course, there are many types of financial investment.  Most of them are outside of my area of expertise.  You should consult appropriate professionals regarding other types of investment.  What I do know, is real estate.  I’ve written about different types of real estate investments, including recently house-flipping.  My personal favorite is long term buy-and-hold.  The focus is on cash-flow.

When you buy and rent out a home, the rent you receive is the income.  You pay expenses such as property taxes, insurance, HOA dues, maintenance and repairs.  You may also have a mortgage payment or professional management fees.  When the rent is more than all the expenses, you have positive cashflow.

In majority of financial investments such as stocks, precious metals, collectibles, cryptocurrencies, you only make money if the value of your holding goes up.  If it does not, you lose money.  There is only one outcome that will pay off.

It’s not the same with real estate cashflow investment.  If you have a disciplined focus on cashflow, you are buying homes that generate more income than the cost to own.  Even if the home value goes down, you have positive cashflow.  And if the home value goes up, you have positive cash flow plus appreciated equity.   This is the foundation of the security with cashflow investment in real estate.

Over the long term, real estate values have always gone up.  I can sleep soundly at night and not worry about political changes, stock performances, or financial market fluctuations.

On this foundation, many important benefits of real estate investments are built.  I have written about them in the past.   For example, remember leverage.  That is, you can borrow money to invest in real estate!  You can borrow as much as 80%, there is nothing like it elsewhere.

I will stop here.  In the future we will certainly discuss real estate investment again!  Until then, take care.

~ Yien and The Yao Team