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How important is cash flow when considering a property ?

Posted Jan 15 2022, 10:47

Hello everyone! I am newbie to real estate investing and just started researching it. I have seen videos and blog posts discuss cash flow and the importance of 1% rule when analyzing a rental property. My question is if the analysis shows a small negative cash flow for e.g. 100-200$, should we be considering the fact that overtime, the loan is being paid off and my initial 20% investment is providing non-liquid returns in the form of building the asset (i.e. loan on the property is being paid off and i am increasing my "ownership" in the property ? Should we use that to pursue on for a property that might have a negative cash flow ?

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Carini Rochester
  • Investor
  • Rochester, NY
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Carini Rochester
  • Investor
  • Rochester, NY
Replied Jan 15 2022, 12:17

Ideally you want both those other wealth building streams AND also cash flow. With persistence in searching and making offers you can get both. If you want the property because you foresee big rewards in those other areas and you can afford to put money into it each month, that's up to you. It certainly happens.

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Cameron Tope
  • Property Manager
  • Katy, TX
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Cameron Tope
  • Property Manager
  • Katy, TX
Replied Jan 15 2022, 12:26

Hey Carini,

I used to think each property was all about cash flow but after owning property for almost a decade, I now realize that's maybe the smallest contribution to your overall return. 

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Joe Villeneuve#5 Starting Out Contributor
  • Plymouth, MI
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Joe Villeneuve#5 Starting Out Contributor
  • Plymouth, MI
Replied Jan 15 2022, 13:52

No.

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Carini Rochester
  • Investor
  • Rochester, NY
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Carini Rochester
  • Investor
  • Rochester, NY
Replied Jan 15 2022, 14:22

Understood. Depending on an investor's cash position,  going with no cash flow may not be an option. Notice I said that if he sees a good upside in those other areas, he could go for it. Only he knows his financial position. He's got to make the decision. 

I would look for both. 

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Jon K.
  • Rental Property Investor
  • Perry Hall, MD
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Jon K.
  • Rental Property Investor
  • Perry Hall, MD
Replied Jan 15 2022, 14:43
Originally posted by @Joe Villeneuve:

No.

 I wish I could vote for this answer more than once in the hopes that they'll listen to you.

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Eric Janson
  • Real Estate Agent
  • Minneapolis, MN
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Eric Janson
  • Real Estate Agent
  • Minneapolis, MN
Replied Jan 15 2022, 19:04

 I think it is a bad idea to buy a property with negative cash flow.  If values go down, then you can really get in trouble because you wouldn't even be able to sell it if it became a money pit.  I would say to be patience and keep looking for a deal where the numbers do work and where you have cash flow.