Epic Real Estate Investing - Cash Flow vs. Appreciation: The Real Estate Debate That Could Change Your Future | 1326

Episode Date: August 7, 2024

Are you torn between pursuing cash flow or appreciation in real estate? This episode unravels the critical debate that could redefine your financial future. We'll break down the benefits and pitfalls of each strategy: steady rental income vs. long-term property value increase. Learn how to build a balanced portfolio that maximizes both passive income and net worth growth. Don't miss out on these game-changing insights—tune in now to transform your real estate investment strategy and secure a prosperous financial future! P.S. Whenever you're ready to go deeper and further with your real estate investing, looking into my partner program to help you get your first deal might be the move... take the first step here for free 👉 Here’s the deal, I’ll partner with you on your first real estate deal, and we’ll split the profits. It’s that simple. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the Epic Real Estate Investing Show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. Hello and welcome. Welcome to the Epic Real Estate. investing podcast. My name is Mercedes Torres and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire. So have you ever wondered or pondered the thought of whether to chase cash flow or appreciation in real estate? Now, this debate could shape your financial future. So get ready to uncover the secrets that could change your investment strategy forever. But before, what's hear a word from our sponsor? Ever wondered how

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That's freeentity.com and learn how the wealthy do it themselves. All right. Let's dive right in. If you're eyeballing real estate and have always, heard that real estate is the best investment, you've probably asked yourself, should I invest in cash flow or should I invest for appreciation? Well, let's break it down. Let's start with cash flow. Cash flow is all about that steady income from rental properties. So imagine, imagine that your tenant's rent is covering your mortgage, your taxes, the insurance that you're paying on the property and still living you

and little extra cash at the end of each month. This is actually a thing. No, not all markets in America are conducive to cash flow, but if you know where to look and if you have access to the right markets, these markets, that cash flow,

do actually exist. This is a great way to build wealth by creating passive income. It gives you financial income. financial predictability, and it gives you a buffer against economic downturns. Plus, as your tenants pay rent, they're building your equity. And all you have to do is hold your property. The longer you hold on to your property, the more money you actually make, both in equity and in cash flow. Now, this sounds perfect, right? But here's the kicker,

and this is the reality of most properties. Cash flow. properties don't appreciate as quickly. They're usually in areas where the value grows, but it grows significantly slower. However, I'm just going to share with you a story that happened literally to me. Now, I've been investing in my Birmingham, Alabama market since 2015. And when I bought these properties in 2015, I was buying them strictly for cash flow. They were in area. They were in areas where I knew that the purchase price and the rent ratio were going to give me a solid return, and I knew that the market was stable. I was very clear that that market does not appreciate like the California market, for example. So I started buying these properties in

Birmingham, Alabama. Before I knew it, I had a mini portfolio in Birmingham. And within about three years, this amazing thing happened. And it's called Amazon. Amazon created a hub in Birmingham, Alabama. And I literally mean overnight, the properties appreciated the moment that the hub officially opened for business, people started moving to the area. Rents went up. And before I knew it, literally the equity went up a tremendous amount. So it happened by default, and that doesn't happen in every market, but that is a perfect example of you're in a stable market that cash flows comfortably, and all of a sudden something huge like an Amazon hub being built in a specific area comes, takes over, and changes everything. Right. So speaking of that, let's talk about appreciation. This is

when your property's value increases over time. And even if the market dips, real estate tends to appreciate in the long run because land, well, it's scarce. This is when I often preach that history repeats itself. I mean, we don't have a crystal ball. Nobody does. But what we can certainly bank on based off of history is that over time, the value of your property will increase. Now, you can boost the value of your property through improvements and renovations or you could add square footage. You can also buy a vacant lot. You can build on it and watch the value skyrocket. The downside you ask, well, real estate can depreciate short term due to the wear and tear of the property or the market conditions. But generally speaking, over time,

the market appreciates. Now, here's something that we often oversee. At the beginning of the year, we do something called your taxes. So when you do your taxes, there's something called depreciation. I consider depreciation your bonus, because at the end of the year, you literally are able to depreciate on rental properties, typically at a rate of about 3.6, 3.7 each year, for the next 27 and a half years.

Now, that's incredible. You're able to depreciate the building, just the building, so the asset itself, the single family or the duplex, could even be a commercial building. However, you can only depreciate the house. You are not able to appreciate the land. But at the end of the day,

that depreciation adds up, and it helps you offset your taxes. Now, timing the market is tricky, but there's one thing you know for sure, and that is that every human needs shelter. Every human needs a roof over their head, and therefore, real estate is a necessity. So, which strategy is best? The truth is a balanced portfolio that includes both. that, in my opinion, is the best strategy. So if you're seeking passive income and financial stability, we'll go for cash flow. If you're looking for more of a long-term play, then focus on appreciation.

And here's what I can say for sure. Cash flow has to be strategically purchased, if you will. The purchase price and the rent ratio for a property has to absolutely pencil. out in order for you to cash flow. Meaning, you have to take everything into account. Not only are you taking into account the taxes, the insurance, the mortgage payment, but you're taking into account if, for whatever reason, your tenant doesn't pay rent. However, with appreciation, although we have no crystal ball, it's almost certain that if you

hold on to your property, over time, your property will appreate. without having to do a whole lot to the property. Now, on the flip side, to grow your net worth and to gain tangible assets, aim for appreciation. Truthfully, it's very, very difficult to find properties that offer both. However, with new construction and specifically the newer manufactured properties, those are a really, really good play that could potentially carry both, the appreciation aspect and the cash flow.

So are you ready to explore your real estate opportunities? With the right balance of cash flow and appreciation, you can secure a prosperous financial future. Here is food for thought and my personal rule of thumb. I personally purchase for cash flow because appreciation will naturally happen when you hold your asset. That's it for today. Hey, and if you like what you heard and if you feel like somebody else can benefit from this, why don't you share us? Give us a five-star review. Tell me what you

liked best or better yet. Tell me what topic in real estate you'd like me to cover and I will be happy to dig in. Share my experience. I'll be happy to find experts that can speak on the matter. And if you'd like more information on how to jump into the world of cashflow, go to cashflow savvy.com. I share a lot of information on how to do it yourself. And if you get on our mailing list, you can absolutely get the constant information that I'm sending to help you elevate your real estate game. Until next time, where cash flow is queen. Talk to you soon.

And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them. And ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you. I'm Matt Terrio.

Living the dream. Yeah, yeah, we got the cash flow. You didn't know home for us. We got the cash flow. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.