Buy for equity or cash flow?

Question

I’m trying to figure out where to put 25k of Savings that did not come easy.

1. buy a property for like 15k cash in an area that would bring good cash flow but would likely not appreciate much over the years

1. Use the money as a down payment on a property in a neighborhood on the rise and have a mortgage and less cash flow.

What would you do?

Rebecca Knox · Answer

If you are investing from out of state, I would select the second option.

Not sure how long ago the video from WI was from, but inventory is low and it sounds like those numbers were 4-5 yrs ago or you are buying in rougher areas with way more tenant issues and these are old houses in Milwaukee, so more maintenance issues....but then again, what do I know...I just wholesaled a three family for $22k on the Southside to an OOS investor-- squatter in one unit, another tenant with pitbull paying $250 and the other unit vacant. He listed it shortly after at $52k and an offer is pending?!?! It does look like he cleaned out the units but did nothing else....many strategies one can do with $25k.

JC Castillo · Answer

@Dawn A.

Hi Dawn,

Yes, it was your podcast that one that I listened too. I really enjoyed it. I think your strategy was great and is too bad you can't find deals like that anymore (maybe you took them all LOL).

All the best to you and thank you for message.

Dawn Anastasi · Answer

You were thinking of my podcast, which was from August of 2013. It's 2019 now. The landscape has changed in Milwaukee. It's very difficult to find properties between $20-$25k even if you're local. The last property I bid on, was listed for around $40k and needed about $30k worth of work. It got 7 bids within 48 hours.

Rebecca Knox · Answer

Hahahaha Marcus!!! No actually the prairie dogger photo was taken at another triplex in 53215 but that's selling at 43k. The other one was in 53204.

Marcus Auerbach · Answer

Interesting deal @Rebecca Knox! Is that the one with the front lawn bathroom?? It does not seize to amaze me, but it is true, you will find deals where you look!

@Ebony Johnson I have always been looking to find a balance between the 3 sources of income.

• Cash Flow
• Equity / Principal pay down
• Appreciation (forced & natural)

The interesting thing is that the three are usually connected, so if you push one up, the other two will come down. The nice thing is you can adjust your profile the way you want it and then find a property that fits that profile. Cash Flow is always important, but especially if you are starting out, because it's the fuel that moves you forward. So you have to focus on cash flow. Forced appreciation (remodeling / BRRR) is your second best friend - it's the much bigger brother of cash flow, and this is where wealth comes from, or the down payment for your next buy & hold. Natural appreciation happens over time as the market moves up (and sometimes it doesn't). As you (your tenants) are paying down your mortgage, your equity share increases. You are de-leveraging your loan. All three will add to your net worth over time, but you can choose which ones you want to focus on.

JC Castillo · Answer

@Kyle Southard

It sounds crazy but you can definitely find properties around that price in MGM.  Maybe they are not move-in ready but they are not completely trash.

I was listening to an old podcast about this girl in Wisconsin that buy property between $20K and $25K and rent them between $750 and $850 if I am not wrong. I am definitely going to start looking into that market as I have never seen that kind of returns.

Kyle Southard · Answer

@Ebony Johnson that’s a great question. Of course, “It depends” is a simple answer, but I think it’s important to decide WHY you’re investing: to build wealth long-term through appreciation (decades) or establish financial freedom ASAP with cash flow (years).

I think I’d won the lottery if I were able to invest $15K in a property that averaged a cash flow of, say, $100/mo after expenses, as I’d get appreciation AND cash flow. What stock or certificate of deposit could spit out that much of a dividend so consistently?

But for real, where can one find a rentable house for $15K?

JC Castillo · Answer

@Ebony Johnson

I think you need to start and learn along the way. I believe everyone feels like that at the beginning but once you start investing, and learning by taking action, you will start figuring out your goals.

If you are limited only to the money you have right now then just buy cash and start getting your cash flow so you can start buying more.

Montgomery is great for cash flow if you know where to buy.

Anyways, I am always happy to help.

Ebony Johnson · Answer

@JC Castillo I’ve got really good credit. I’m just limited on actual cash to go towards down payment and closing costs. I feel like I’m having the most trouble narrowing down my initial goal.

Ebony Johnson · Answer

@Melissa Nash I’ll send you a message!

Buy for equity or cash flow?

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