Capital Growth vs. Cash Flow: How to Grow Your Portfolio


If you’re new to real estate investing, you might be overwhelmed with a deluge of information on how to grow your portfolio. In a recent YouTube video, real estate investor PK Gupta dove into the details to help discern the roles of these two factors when researching, evaluating and choosing properties.

Here are his tips for leveraging cash flow and capital growth to drive your investment engine:

1. Cash flow is king, but performance alone is not enough

The ultimate goal of many investors must eventually quit their nine-to-five jobs. Therefore, the cash flow is useful to cover living expenses when the time comes.

However, Mr Gupta said it was not enough to focus on a property’s performance.

For example, he says, if you buy a $400,000 property with a 6% yield, that could generate $5,000 in cash flow.

If your goal is to earn $100,000 in passive income, to achieve that goal you’ll need 20 of these properties – quite a challenge these days.

“Unless you get capital growth, rental growth doesn’t happen. If rent growth is low, there is no increase in income,” he explained – before adding that cash is good for increasing borrowing power.

2. Growth is the engine, cash flow is the oil of your investment

Repeating a simple rule of real estate investing, Mr. Gupta noted: “Hold a property if it goes up in value, leave it if it’s costing you thousands of dollars to own.”

Maintaining a negative-geared property with only 2-3% efficiency, even if it’s in a popular location, could cost you dearly, according to Gupta.

He argued that building wealth by “losing a tax dollar, only to get half back” is not a good real estate strategy. because losing money won’t help you earn income to buy your next investment property.

And that’s where cash flow comes in.

Growth is the engine. You want a really powerful motor. But without oil, your engine will not run. Cash flow is oil,” Gupta pointed out.

Further explaining the synergy of cash flow and growth, he used an example of a $2 million portfolio consisting of four properties valued at $500,000 each. If the value of the portfolio hypothetically doubles ($4 million) in 10-15 years, he suggested that you could sell two properties to pay off the remaining two properties.

“By liquidating some of your assets to pay for the rest, you can build your portfolio,” Gupta said.

Initially, cash flow can help your portfolio function by increasing your borrowing capacity through well-managed debt. But over time, “growth allows income to be drawn from a debt-free portfolio,” he said.

Gupta pointed to the practice of matching properties touted by some agents. It’s about buying one property for cash flow and another for capital growth.

“Don’t settle for half a profit to be paired with another half a profit because it won’t work,” he warned new investors, saying such a strategy could lead to borrowing capacity. lesser.

Sharing his own strategy for rapid growth when he got into real estate, Mr. Gupta stressed the importance of data (up to 30-35 data factors) “for consistent and predictable short-term growth.”

He touted the formula of cash flow with capital growth and short-term growth as key to his success and while some may be skeptical, he said there are still plenty of places you can put it in. artwork.

“Look for locations with a 6% return and double-digit growth,” Gupta concluded.

Capital Growth vs. Cash Flow: How to Grow Your Portfolio

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Last update: March 03, 2022

Posted: March 04, 2022


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