Idle Cash and the War Chest Strategy

[Mike Dymski]

A - Invest $100, add value to $120, market corrects to $100 in year 1, but you achieve an 8% return from cash flow and principal reduction.

B - Invest $100, add value to $120, market remains as-is (or it takes longer to correct), you achieve target returns of 15-20%

C - Invest $0, earn $0.

Substitute appropriate figures...just trying to generate dialogue.

It's hard to model things like a market correction or rising cap rates, get excited about lower returns, and make a purchase but idle cash and the war chest strategy (scenario C) can be costly relative to scenario A (except with an appreciation only/market timing strategy...let's ignore that one for simplicity).

Many of us have analyzed and turned down a ridiculous number of deals and we see a lot of posts about waiting for a correction but the math seems to suggest otherwise if investors are adding enough value (and generating cash flow, using long-term debt, buying in solid locations, or investing for the very long-term).  Please share your thoughts.