Why Cash Flow Beats Out Appreciation in Real Estate Any Day of the Week

Why Cash Flow Beats Out Appreciation in Real Estate Any Day of the Week

3 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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There is absolutely no doubt that real estate investing can be risky if it is not taken seriously. However, there is no question that the payoffs can be huge if it is done the right way. Real estate investments are often looked at from two different perspectives — the monthly cash flow and the gradual appreciation. Personally, as you can already tell if you have been keeping up to date with many of my other articles, you can see that I am a cash flow investor. I have absolutely nothing against appreciation, but I prefer to be less reliant on hoping that a property will go up in value and more reliant on a steady stream of cash flow.

All in all, what I want to do is to make sure that I am earning some cash in hand straightaway on a continuous basis rather than playing my share in a gambling game where I have to wait patiently over a long time with little to no income and absolutely no clue as to whether or not my investment will pay off.

buy-hold-retirement

Related: Does Forced Appreciation Really Work? Sure, But Beware of THIS Caveat.

Lessened Risk

Some people believe that cash flow is a rather foolish way to earn money since you can only receive a few hundred dollars every month — something that they believe pales in comparison to what you can make off appreciation. However, the thing is, while this can be true, investing for cash flow is also a lot less risky, as it is built on more solid and well-known fundamentals. For me, this is great because it will help give you your return in small but sure sums over a longer period of time. Meanwhile, appreciation is a riskier game, as it isn’t guaranteed. So while you might be able to earn back your investment in a nice way, it is balanced out by the fact that you can also make a loss in an equally unfavorable way.

You Can’t Predict the Market With Any Certainty

While the prices might be going up in your area now, there is absolutely nobody who can help you predict what those figures will be doing in the future. Honestly, there are simply too many economic unknowns to be able to accurately determine what the housing market is going to do. For example, interest rates might begin rising, the economy might find itself contracting, and as a consequence, it may completely tank the housing market. Sure, if you buy for cash flow, these factors will affect you a little bit, but at least you are still generating income on a regular basis so they won’t completely pull you down under.

Reliable Returns vs. Taking a Gamble

Lost? Well, perhaps a little scenario will help you understand where I am coming from. If I had to depict cash flow and appreciation as real life situations, then I would most probably relate them to this: cash flow is your workplace, and appreciation is the lotto kiosk. Could you ever imagine yourself completely giving up your job and putting all your hopes into the lotto kiosk to provide for you? I sure hope that your answer is no because while the win might be big, it is not one that is safe to put your bet on.

performance-indicators

Related: Cash Flow vs. Appreciation: What Experienced Investors Know About the Debate That You Don’t

In addition, there is absolutely nothing worse than investing in something and having to face negative cash flow after paying down the mortgage and allocating for expenses. So if you are investing solely for appreciation, you will find yourself under a lot of financial strain to provide for the upkeep of the house while not earning a single cent in return, something I am pleased to say that people investing for cash flow won’t be facing (if they bought right). After all, positive cash flow means that you are earning more money than you are having to spend on expenses.

So all in all, I hope you can see where I am coming from when I say that cash flow is surely the way to go for a profitable future as a real estate investor. Cash flow is king!

What numbers do you weigh most heavily when choosing investments?

Let me know with a comment!

Should you choose properties for their monthly cash flow or appreciation potential? Here's an argument for why cash flow wins, hands down.