Cash Flow vs Appreciation: Which is better?

[Mason Vitalis]

It's a question philosophers have debated forever. Should I be chasing cash flow or equity? It's a good question and one worth exploring when starting out your investment journey towards financial freedom. Some say cash flow is king because appreciation isn't guaranteed, even though in the Twin Cities, small multifamily values have increased about 4%-6% consistently over the last 8 years. In the end nothing is truly guaranteed in real estate, even cash flow, but we can get pretty close when analyzing markets. 

From a purely numerical stance, equity takes the cake without question when it comes to growing wealth. While cash flow is where the "freedom" in "financial freedom" comes from, equity can exponentially grow wealth. Think about it this way. Your tenants are paying for your property through loan paydown and that money grows 6% every year. It doesn't stop there however because you can do a cash out refinance or 1031 exchange to acquire more properties while essentially using your tenant's money. With time, all you need is the initial investment for a down payment on the first property. After that it's just a matter of moving the pieces around the board and redeploying equity. That is exponential growth my friends. Cash flow is cool and all if you want to quit your job, but if you have the time, equity will 10x your net worth.

I'm obviously in favor of equity over cash flow right now, but that could change in the future. This is just my opinion. That's the beauty of real estate. There are so many different options and directions your business could take. There are no wrong answers! Just because I prefer appreciation, doesn't mean going for cash flow is bad. They're both powerful levers you can pull on. And who's to say you can't do both? Finding a deal that cash flows and appreciates is certainly possible. I come across amazing deals daily in every market. It's just a matter of finding them!

Which do you all prefer? Cash flow or equity? How have these strategies affected your own investment? I'd love to hear your thoughts in the community!