• Cash Flow Vs. Equity: What’s Really The Best Investment Strategy?

  • When it comes to investing, Canadians like rock solid investment solutions. When investing in rental properties then, what people ideally want to see is as immediate as possible returns on such investments. But what is the best way to actually accomplish such returns? Either by investing in cash-flowing rental properties? Or by investing in equity properties (flips for example) alone in the hope that property prices will appreciate timely enough in order to generate similarly as worth while returns?

    Many people will say that there isn’t as simple answer to this question. In truth though, there is. No one should ever invest on the basis that property prices are going to continually appreciate. This isn’t after all, investing, this is speculating. Moreover, when people invest in cash flow from rental properties, they are actually investing in equity also.

    When investing in cash-flowing properties for example, buying properties below market value puts investors in a position to easily add a significant profit margin to rents on properties in order for them to cover mortgage and maintenance costs. In this case, property owners are able to put cash aside each month in the form of savings. The result? Cash savings and increased equity should a property appreciate in value in the long term.
    Cash Flow
    The best part though, is that if properties do appreciate in value, built up equity can be used to finance other rental property purchases. Meanwhile, positive cash flow and profit each month on rents means that investors can insulate themselves against vacant periods, not to mention full blown market crashes (highly unlikely in this market), which may necessitate property owners having to offer more competitive rents to tenants.

    Compare cash-flowing investment strategies then, to equity investment strategies where property owners stand to make significant losses every time the housing market falters, and cash flow wins every time. Even better, positive cash flow investments equate to money in the bank, which people can access whenever they need to. Equity on the other hand, is static and locked into properties until property owners actually choose to sell a property.

    Of course, investing in equity has its advantages also. In the long run, most properties do appreciate in value. Moreover, managing tenanted rental properties can be time consuming unless one employs a third party agency to manage properties on their behalf. The only question either way is, do you actually have a well thought out investment strategy?

    Not sure? Still weighing the pros and cons of both options?

    Being a licensed mortgage agent, I have a wealth of personal and professional experience helping people just like you get to grips with the Canadian housing market. In this case, if you are thinking about investing, feel free to contact me in order to arrange a pro-bono consultation to discuss your options. My name is Amina Mohamed and you can contact me directly by clicking here.