Instead, your approach should be to first identify the opportunities and then continue investing, bit by bit. So for instance, if you have an existing property in your portfolio from which you are generating reasonable amount of rental income, then continue reaping the rewards for a while. At the same time, using this income that you are generating on a continuous basis, channelize the returns towards exploring additional investment avenues. This could include say more properties which could be given out on rent and rental income generated from the same. Further, you could also kick start a small business of your own or help fund the same, which could again get going and generate cash flow returns from you on a constant basis.
The thing with cash flow investments is that they tend to generate a constant stream of cash flow returns; whether it is on a weekly, monthly or any other basis; you at least see the cash flowing in regularly. Otherwise, in the case of speculative investments, you might have to hold on to the same for long, before witnessing any major income flows coming in. So for instance, after having bought a property, you might have to let it lie for a substantial period of time, before there is any major increase in its valuation. And mind you, there is also the risk that the valuation of the property may actually come down drastically, as happened in the case of the real estate bubble that burst in the US, circa 2008.
Cash flow investments on the other hand not only tend to generate income on a constant basis; they also tend to do so, usually at an appreciating level. So if today you are at a certain level of return as far as your cash flow investments are concerned, you would quite likely be at a higher rate of return as time passes by.
Again, if we are to take the case of rented properties, we find that there is at least a basic rate of appreciation in rentals which to a large extent is assured, even if that rate of appreciation is small. So for instance, if you have multiple properties whose total rental receipts accrue to say $20,000 a month, even if we take a 5 per cent appreciation year-on-year, you would definitely be seeing an increase of a $1,000 in gross rental receipts.
When you apply this principle on various other cash flow investment avenues, you find that the returns continue to increase phenomenally. That is the reason it is always advised to spread one’s investments to the maximum extent possible. And this spread should ideally happen not only within the same investment opportunity but also across diverse investment avenues. To explain, instead of only relying on rental properties for cash flow investments, you could have a mix of say small businesses, rental properties as well as dividend stocks which will together ensure a substantial income flow being generated, month after month.
Further, with this kind of a spread in place, you would essentially not be relying on a single avenue as your source of income. After all, it is very much possible that the single avenue that you focused on – say a small business saw a major slump and perhaps even collapsed altogether. Or the company whose dividend stocks you hold went belly up whereby your investments ended up being rendered as worthless junk.
An important aspect of being able to capitalize on cash flow investment opportunities lies in identifying them with reasonable accuracy. You should also have a very good toehold over the market wherein you are totally clued in as to what is going on within the same. That way, as and when opportunities surface, you might be able to cash in on the same in time and then continue to reap rewards for a longer period of time. So for instance, if rentals are seen to be on a definitive upswing in a certain part of town, it would make good sense for you to invest on rental property over there. That, coupled with a heady mix of properties in various other lucrative areas, would together ensure that the gravy train keeps flowing for you, at a steady pace.
End of the day, isn’t that what you want?
