Cash Flow Investing
There are many investment strategies and opportunities out there, and there isn’t going to be one right answer in terms of what’s “the best'' type for you. But diversifying your portfolio can ensure you’ll get the best return on your investment with a mitigated risk. Cash flowing investments are a great way to accomplish this. Here’s a breakdown of what you need to know about a cash flow investment strategy.
What is Cash-Flow Investing?
Cash-flow investing means prioritizing investments so you have at least some assets generating profits. There are hundreds, if not thousands, of cash flowing investment opportunities out there, but some are better than others, depending on the type of investor you are. Think of cash flow investments like you would dividends - you’ll earn consistent, regular cash distributions off your investment.
Buying a property or business, peer-to-peer lending, buying dividend stock or investing in real estate are all examples of ways you can focus on investing for cash flow.
Why Should You Focus on Cash Flow
Most investment opportunities rely on the level of return you can get on your investment. And often, returns are dependent on the long-game. While these returns are indeed genuine, and may even be highly lucrative, they’re not always the best option depending on your financial investment goals. Additionally, money earned from some investments may not be automatically available for use.
When you invest focusing on available cash flow options, it can be a lot easier to access your gains. For example, a time that cash flow investments would be beneficial is if you ever have an emergency and need immediate access to cash (like an economic downturn or medical concern). Cash flow investments also have the advantage of being less volatile and allowing you to access funds for future investment opportunities as well.
Cash Flow Investment Options
There are a number of cash-flow investments that can quickly generate cash flow. It’s important to understand each, so you can make the best investment decisions for your short and long term goals.
A Real Estate Investment Trust (REIT) is a great way to get started investing in real estate. It can be especially enticing for investors who may be concerned about diversifying their portfolios but still want access to cash flow that some traditional real estate investments may not allow for.
REITs involve investing in a company that has a wide range of big-scale property investments. Rather than purchasing property outright, your investment goes into a larger stockpile that funds the management of multiple properties. In exchange, you earn returns on your investment. If you ever need to pull your money out, it’s likely available, as you’re working through a Trust and not through real estate sales.
PROS to REITs:
- No corporate tax
- Gain access to commercial real estate opportunities you likely couldn’t get into as a solo investor
- Liquidity (sometimes!)
- High dividend yields
- Encouraging return potential
CONS To REITs:
- Taxation on dividend earnings
- Risks to property (individual REITs themselves don’t tend to be very diversified)
- Long-term investments (on some)
- Interest rate fluctuation
Investing in rental property can mean regular cash flow. Once a tenant is secured, there is an assured monthly payment. The more properties you’re able to invest in, the more potential rental income you can count on. But managing property can be time consuming. You may want to consider working with a property management group that can help.
PROS to Rental Property:
- Offers regular income
- Tax benefits
CONS To Rental Property:
- Need to tend to tenants
- Care for property/deal with repairs
- Deal with empty spaces
Dividend stocks are another great way to generate income. When working with a dividend stock, you’ll typically be given the option outright for quarterly or annual distributions. At that time, you’ll automatically get your funds. However, if you’re in need of funding at an earlier date, most dividend stocks will permit you to pull funds out. This can allow you to increase your net worth and liquid value virtually overnight with little difficulty.
PROS to Dividend Stocks:
- You can hedge against inflation
- Passive dividend income stream
- Reinvestment opportunities (for compound-returns)
- Tax beneficial
CONS To Dividend Stocks:
- Can also result in tax inefficiencies
- Need to be committed to research
- Dividend policy changes can be confusing
Peer-to-peer lending is yet another form of cash flowing investments. This style of lending allows borrowers to get loans directly from an individual lender through online platforms, completely cutting out the traditional bank form of lending.
There are websites that help facilitate the process of peer-to-peer lending, helping to build this alternative method of financing - also called “social lending” or “crowdsourcing.” For those who have the assets, investing in peers who need the money is another way to earn income back from investments.
PROS to Peer-to-Peer Lending:
- Fast and convenient
- Generally more affordable for borrowers
CONS To Peer-to-Peer Lending:
- Paying fees to platform
Crowdfunded Real Estate
Crowdfunded Real Estate (like REITs) can generate cash flow and may be a great way for you to delve into the world of large scale real estate investments. Cash flowing real estate opportunities can be a great diversification opportunity.
PROS to Crowdfunded Real Estate:
- Access to huge real estate development deals
- Stability and diversification
- Smaller initial investment needed
- Cash flow and high ROI potential
- Easy to get started
CONS To Crowdfunded Real Estate:
- Relatively new concept, risky
- Not totally liquid
- Can be difficult to research
- No control over management
- No guarantee of distribution
Create Cash Flow with Connect Invest
Investing for cash-flow is one real option for investors looking to diversify their portfolio. Investing in opportunities that’ll generate automatic cash flow can help ensure your portfolio is doing all it can for you. And that can be one of the single best methods for generating wealth.
Sign up with Connect Invest today to create investment cash flows through crowdfunded real estate investments.