A few weeks ago, I was talking with a younger investor who was reviewing the pitch deck for one of our deals. After a few moments of silence, he looked up with furrowed brows.
“The cash flow looks solid,” he said, “but what about appreciation? Shouldn't I be focusing more on growth at my age?”
This question reveals one of the fundamental tensions in investing: cash flow versus growth. Most investors instinctively feel they must choose one path or the other, but is that really true?
The Two Paths of Wealth Building
Path #1: Cash Flow Focus
With a cash flow focus, you own assets that actually pay you to own them, sending regular deposits to your bank account.
Examples include:
Income-producing businesses (laundromats, car washes, etc.)
Stabilized real estate (multifamily, self-storage, etc.)
Mineral rights or royalty investments
Private credit investments
While “cash flow investing” is traditionally associated with retirees, I believe cash flow is for everyone who wants optionality in life.
When your investments generate passive income, you gain tremendous freedom. You can say “no” to things you'd otherwise tolerate, and you can say “yes” to opportunities you'd otherwise miss. Or you can simply enjoy an enhanced lifestyle with that extra disposable income.
Path #2: Growth Focus
This is the more conventional approach that most people think of when they hear "investing." All returns come from equity appreciation – often nothing more than a gamble that the number goes up.
Examples include:
Venture capital
Ground-up development
Stock market index funds
Speculative oil and gas exploration
With growth-focused investments, you care less about the cash hitting your account and more about IRR and equity multiples.
And while there's nothing inherently wrong with this approach, it does come with different risk factors.
These Paths Are Not Created Equal
Let's be honest: betting on future appreciation is inherently more speculative than buying an asset that sends you monthly checks. With a growth-only focus, you're often at the mercy of market forces beyond your control.
This is exactly why value-add multifamily has been so attractive to us. Through “forced appreciation“ we can actively increase a property's value with specific improvements rather than passively hoping market valuations rise.
This illustrates the real insight that most investors miss: you don't have to choose between cash flow and growth.
Some of the wealthiest real estate investors I've learned from taught me that if you buy for cash flow first, the equity growth often follows naturally – even without forced appreciation.
Why?
Because we live in a debt-based monetary system where inflation is baked in by design. Over time, this tends to push asset values higher. In other words, prioritizing cash flow doesn't mean sacrificing growth potential.
The Hidden Costs of Each Path
Both approaches come with trade-offs worth considering:
If you're ultra-conservative and focus solely on cash flow without any growth component (think Treasury bills), you may hamper your long-term wealth building. All your wealth creation would need to come from either reinvesting the cash flow or continuing to earn high income from other sources.
Conversely, if you focus exclusively on growth, you face the ultimate challenge: you can't eat equity. That number on paper might look impressive, but to actually use it in your life, you typically need to sell the asset. And once you sell, you no longer own the thing that was making you wealthy.
Finding YOUR Perfect Balance
So how do you determine your ideal mix? It's deeply personal, but here are some guiding questions:
What are your current income needs versus future objectives?
Do you want passive cash flow that allows you to work less, travel more, or spend time with family?
How much monthly income would fulfill your definition of freedom?
And even if you don't need cash flow today, you can always reinvest those distributions. That's the beauty of cash flowing assets – they create "free" investments by generating capital without requiring your direct effort.
Your balance isn't a one-time decision either. As life circumstances and preferences evolve, you should regularly reassess your investment strategy.
Our Approach
At Big Spring Capital, we take a cash flow-first approach. We generally avoid deals that don't produce income, because we believe real freedom comes from owning assets that pay you to own them.
So if it’s been a while since you’ve done it, take time this next week to evaluate your current portfolio. Does it align with your true objectives? Are you balancing cash flow and growth in a way that serves your unique situation?
Remember – a portfolio that looks impressive on paper but doesn't serve your actual life goals is just a vanity metric. Real wealth isn't measured just by what you own, but by the freedom those assets provide you every single day.