Cash Building versus Equity Accumulation Strategies

November 28, 2012

There are two major types of real estate investment strategies: cash-building versus equity accumulation. For investors who’d like to make quick return within a short time frame such as 3- to 6-months, cash building strategy is the way to go. There are several ways to accomplish this strategy. One way is to identify a property for sale, secure the contract and then assign it to another buyer by making a smaller margin. For investors who are interested to make a higher return, they shall buy a fixed-upper type of property at a deep discount, have the property remodeled and then sell it at the open market. Obviously there is risk involved. Investors opting this route will have to make sure they have enough capital to acquire the property and inject more fund for renovation. They must have some cash reserve to cover carrying costs while the property is being remodeled and listed on the market before transferring title to the new buyer.

For equity accumulation, investors would hold the investment property for long term; the longer the property is held, the higher the return tends to be. We have recently sold a house for a client who had bought the house back in 1945 for $5,000. The sold price of this property in this past summer was $460,000. Had the seller sold the property 10 years ago, she would have made $100,000 less. Equity accumulation strategy focuses on two main factors — ongoing cash flow and future appreciation. Investors would typically rent out the property and systematically pay down the mortgage principal to build up the equity. If the property is located in a desirable neighborhood, its market value will appreciate overtime, thus increasing the owner’s equity as well.

To learn more about these two very different investment strategies, please attend our seminar on this specific topic. You may contact us to get on our email distribution list.

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