“Real estate investing, even on a very small scale, remains a tried-and-true means of building an individual’s cash flow and wealth.”
– Robert Kiyosaki
I have interviewed over 2,500 high-net-worth investors.
We often talk about what is more important: Cash flow or appreciation.
Most people have their preferences.
Some love cash flow, while others love appreciation.
For me, cash flow is superior.
It reduces risk.
You can cover living expenses as you get paid.
Don’t get me wrong – appreciation can be great.
It has the potential to be a lot of money someday.
But it doesn’t help me today.
Today, I’m going to make my case for why cash flow is superior in three easy steps.
Let’s get into it!
1. Predictability and Stability
The first reason why I love cash flow over appreciation is that it’s predictable and stable.
In order for me to live on my investment income, I needed to make around $70,000 per year.
That equals out to about $6,000 a month.
If I can achieve that number, I am financially free.
Monthly—or even quarterly—cash flow allows you to do this.
Having predictable returns means you can cover your living expenses.
It offers consistent security.
With appreciation, you’ll make money one day in the future.
But after you cash out, that’s it.
It’s a finite amount.
You can live off that money for a while, but it’s not limitless.
Given enough time, you’ll run out.
You can’t cover things like your mortgage or car payments or travel.
If you want to cover those things, you need to think long-term.
2. Weathering Downturns
Cash flow helps you weather economic downturns.
It often stays steady during recessions.
In those same circumstances, valuations will go up and down.
Appreciation can fluctuate unpredictably.
During a recession, we don’t know how a lot of things will go.
Cash flow is not one of those things.
It can be a stabilizing force when the economy turns volatile.
In the last several years, we’ve had a lot of cash flow in our business from real estate.
Now, there’s not as much cash flow there.
What happened?
Debt costs have risen.
Valuations have gone down.
According to The Wall Street Journal, people now pay more in insurance and taxes than they do in their mortgages.1
That’s crazy!
You can’t control insurance and taxes going up.
But you can control the money you put into cash flow investments.
You should also be sure to invest outside of real estate.
We’ve gone into private businesses, oil and gas, and are currently in the process of buying an e-commerce company.
Diversifying your portfolio is key to getting the most out of your cash flow.
Diversification can also reduce volatility without sacrificing expected returns.2
3. Reinvest for Growth
When you have cash flow, you can reinvest for growth.
If you don’t spend the money on living expenses, you can find another deal and grow your wealth.
As you’re investing, your risk declines as your funds flow back to you.
And then, as you reinvest, it juices your IRR, or your internal rate of return.
Instead of letting that money sit around, you let it work for you.
To sum it up: Start with finding your ideal cash flow.
I know people worth hundreds of millions of dollars who look for cash flow.
This is why I like investments like oil and gas and private business.
Cash flow is great for people who aren’t wealthy, too!
It gets you one step closer to leaving your job or retiring.
That’s most people’s concern when they want to live off of their investments.
It’s not just about having a nest egg; it’s having that nest egg generate cash for you.
That way, you’re not burning through your savings.
Your cash will replenish and grow without you having to do anything.
Doesn’t that sound great?
Now I want to hear from you!
What kinds of cash flow investments will you get into?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.
Works Cited
1. Friedman, Nicole. “Insurance and Taxes Now Cost More than Mortgages For …” The Wall Street Journal, December 23, 2024. https://www.wsj.com/economy/housing/home-insurance-property-tax-vs-mortgage-cost-43ab76ed.
2. Nicholas Reinholtz, Philip M. Fernbach and B. D. Langhe. “Do People Understand the Benefit of Diversification?.” Financial Literacy eJournal (2016). https://doi.org/10.2139/ssrn.2719144.
