Where Are Your Investments on the Cash Flow Spectrum?
Real estate investments can be placed on a spectrum ranging from “pure development” projects with no cash flow to “pure cash flow” investments, such as conventional mortgages. The position of an investment formula on the spectrum corresponds approximately to both nearness in time to high cash flow and to the consistency and stability of the cash flow.
The left end of the spectrum reflects deals that do not produce any cash flow at all, while the further to the right on the spectrum, the quicker time to money and the more stable the cash flow.
As an example, here is a range of investment strategies involving a shopping centre, relatively placed on the cash flow spectrum:
Cash Flow Spectrum
Spectrum of Overall Return on Investment:
A pure cash flow strategy, with all its benefits, tends not to pay the highest overall return on investment. Example: most mortgages are set up for monthly payments of principle and interest - very steady cash flow - but the rate of return on a conventional first mortgage today might only be 5-6 %.
Strategies where the owner/developer adds value to the property through some combination of development, construction and lease-up provide the highest returns because of the lift gained from the added value.
Let’s place the same shopping centre investment strategies on a spectrum of overall returns.
Overall Return on Investment
Optimal Returns and Cash Flow:
Strategies with the highest overall return on investment often tend to entail the longest lags until cash flow. For example, in the case of development of raw, unzoned land, that lag can last years.
The strategy that frequently shows the optimal blend of quick and steady cash flow and highest overall returns is the one where an existing shopping centre is purchased, then refurbished or expanded. It is rarely necessary to shut down the entire shopping centre in order to carry out the reconstruction work. The new retail space is leased out and the owner retains ownership until a higher level of stabilized cash flow is reached. Based on this higher cash flow, the property is now worth much more to investors, including straight cash flow buyers. The property can be listed and sold. Even better, it can be refinanced with a new mortgage at a higher value, enabling a return of capital to investors without dilution of ownership. The returned capital can be reinvested in another project, while the steady cash flow from the shopping centre gives a high return on equity still invested.
Refurbishment projects, like Pacrim Super 8 Motels in Campbellton and Dartmouth, score well on the cash flow spectrum and score very highly in terms of overall returns.
To see investment opportunities mapped on the Cash Flow & Returns Quadrants, Click the Cow
or, 
Jump to listing of Real Property Investment Opportunities currently available from London Pier Properties.
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CASHFLOW 101 teaches you the basics of fundamental investing and how to take control of your personal finances, build a business through proper cash flow management, and learn how to invest with greater confidence in real estate and other businesses.