Assuming that you're investing in property to make money, does it really matter whether you focus on capital appreciation or positive cashflow returns?

This question has been the centre of a lot of debate recently and the property gurus seem divided. Some swear that capital appreciation is the way to go whereas others strongly advocate positive cashflow income returns.

Depends on what? Well, the reason why you want to make a profit in the first place.
You need to clarify your investing purpose so that you can decide what type of property you should buy to obtain an outcome that is consistent with your investing objective.

For example, if you want to buy a property that's likely to appreciate in value, then you'd be wise to focus primarily on location. However if you want a positive income return, then a property's location isn't as important as the likely income and expenses.

Financial Independence and Passive Income

Financial independence is an investing outcome that is becoming increasingly more popular as disgruntled employees look for a better quality of life.

Financial independence means the freedom or release from the need to have to work.

It can occur in varying degrees from partial independence (when you get to take a few hours off work a week) to complete financial freedom (where you no longer need to work at all).

The way to attain financial independence is through acquiring passive income.
Passive income is something that flows to you and is largely independent of the number of hours worked in a job.

It needs to be pointed out that there is really no such thing as completely passive income because every dollar of passive income must flow from some kind of work or effort in the first place.

For example, while rental income might seem to be passive income, the task of finding and investing in property, together with managing the tenant, filling in tax returns etc. is anything but passive!

A good example of passive income is royalty payments paid to musicians. They write a song once and are potentially paid a royalty each time the song is played. The initial act of writing and recording the song wasn't passive, but the ongoing payments when it is included on music CDs (sometimes many years later) is. Just think of the Beatles!

The word 'passive' really means avoiding being paid by the hour.

Instead you seek to do some work today and leverage off it tomorrow. This leverage is in the form of receiving multiple payments without the need to work again.

For example, if you invest in a positive cashflow property then you hope that the work involved in finding and acquiring the property will create a positive income stream that will last until you sell the property. One days work now for a lifetime of return later.

It's like an extended form of delayed gratification.

Time And Money

A myth about financial independence is that it's all about money. It's not. It's all about time.

As we age we begin to realise that we're getting older, we begin to see that time is quickly running out. Sooner or later we even realise that time is actually more valuable than money. For example, if you knew the exact moment that you were going to pass away, what price would you put on your last hour alive?

Time is finite - Money Isn't.

Yet money in the form of regular and constant passive income can buy us freedom to spend time (that we would otherwise allocate to working in a job) doing the things that we really love. That is, money can buy us control of our time that we would normally otherwise sell to an employer in exchange for money to fund our lifestyle.

Now for some people the freedom from having to work means little because they love their job to begin with. That's fine... but it would be even better if you were the one calling the shots and not your boss!

But the reality is that most of us have other things that we'd rather be doing, such as giving time to the kids, exploring spiritual matters, making the world a better place or maybe even playing more golf.

And all this would be possible, if only we didn't have to work in the first place! After all, electricity isn't free and neither are the groceries.

If you want to work less but don't want to take a cut in your lifestyle then you're going to need to focus on finding some sort of passive income to replace the salary you'll forgo when you cut back your hours.

Look at it this way... if you were paid $100,000 per annum in a standard 9 to 5 job, how much passive income would you need per week in order to give up your day job without suffering a drop in lifestyle? [Hint: go grab a calculator!]