Cash Flow is obvious – it is about generating regular, passive income. For example, income-producing real estate, bonds, dividend-paying stocks, etc. You buy these assets, and they generate regular income.
Capital Gains is about buying something, hoping it goes up, and selling it for a higher value. For example, stocks. You buy a stock, pray it goes up in value, then sell it for a gain. Similarly, real estate, gold, silver, etc. You buy them, hope they go up in value, and sell them for a gain.
The middle class and the poor primarily invest in capital gains, typically stocks. The wealthy invest primarily in cash flow, and then in capital gains, second. There are FOUR profit centers in real estate:
- Income
- Appreciation
- Mortgage Pay-down
- Tax Benefits
That’s it. I’ve listed them in order of popularity, from the most to the least popular. In other words, ‘passive income’ is the number 1 reason investors buy real estate, followed by Appreciation. If you combine #2 and #3, you can call this new category ‘Equity Buildup’ (through appreciation and mortgage pay-down). This leads us back to our core two reasons we invest – Cash Flow and Capital Gains (Income and Equity Buildup). It turns out real estate options investing is the most efficient strategy for building capital gains. In fact, it offers the least hassle, the best leverage, and the highest return method to increase your net worth FAST. Realize also, that when you buy a property, the top 10% of the value is immediately LOST. That means if you buy a property for $500k, the top $50K is LOST. Why? Try selling the property and see what happens. You have to pay commission, closing costs, etc. How does that affect you? Well, you have to wait for the property to appreciate 10% for you to break even, which means waiting for at least 2 years if you are lucky, just to get your money back. Obviously, buy under market value to guarantee your gain (aka, forced appreciation). Whenever you are considering ANY investment, ask yourself FIRST: Is this for Capital Gains or Cash Flow? Next ask yourself, is this an EFFICIENT way to generate that? Then ask yourself, are you speculating or investing? Speculating is buying an asset at retail and hoping it goes up in value. Investing is buying an asset KNOWING you will make money at the time of purchase.
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