There Are Two Types of Investors - Which One Are You?

[Ellie Perlman]

The first type of investor is The Appreciation Investor. This type of investor is someone who is not looking to make money on the short run, but rather, expects the property’s value to SIGNIFICANTLY increase over time. These are speculative investors, because let’s face it – nobody has a crystal ball. Yet if investors know the market well, how it behaved in the last recession and have a strong belief that it will improve significantly, they invest in this market. They are not looking for immediate returns. Amon those investors you will find foreign investors, who need to park their money somewhere, and any alternative is better than what they have right now in their hometown. Another type are REITs and large real state companies.

The second type of investor is The Cash Flow Investor. This investor is more conservative than the Appreciation Investor and look for short term returns. This investor doesn’t put a large emphasis on the future appreciation of the property, and will never invest in a property that does not produce positive cash flow (money left after all expenses and debt have been paid). Some Cash Flow Investors are willing to accept no or little cash flow during a rehab period if they invest in a value add deal – because they expect to get a much higher cash flow once the rehab period is over.

As for me? I am a classic Cash Flow Investor. When I look at a deal, I always assume that when I plan to exit (in 5-7 years from the purchase date), the market is not strong and that real estate prices are falling. If the property is not cash flowing from day 1 – I pass on the opportunity.

There is no right or wrong here. It’s a matter of personal preference, appetite for risk and investing philosophy. What type of investor are you?