Would you purchase strictly for cash flow?

Upstate New York, New York
Buying & Selling Real Estate
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Would you purchase strictly for cash flow?

Erika Geoffrey
Member since 2022 · 19 posts · 4 votes

Hi all,

I've been finding really good deals for cash flow in some of the smaller towns. However I'm a bit nervous about purchasing in a town where there's not much going on.

We are foreign investors, strictly purchasing for cash flow - however there's always that lingering thought of non paying tenants, etc. etc. 

Does anyone purchase strictly for cash flow? Knowing that the property itself likely won't appreciate much or at all over time?

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Kwame Amoako
Real Estate Agent · Columbus, OH · Member since 2019 · 82 posts · 133 votes
4y

I liken the cash flow approach in real estate to the value approach in stocks. To me, as Bill Ackman says, free cash flow is the most important thing in business. When purchasing a property I imagine I am purchasing a business or a farm. You wouldn't purchase a business that didn't have any returns without a path to profitability. But you also wouldn't purchase a business that is in a dying industry. My rule of thumb for analyzing markets is population growth. The economic basis of growth is supply and demand, if you buy in a place where the population is trending down it's likely that you will not see any intrinsic growth in that area. If you can find an area like some cities in the midwest like Indianapolis, Dayton, Cincinnati, etc where the population is increasing and you can still get good cash flow then in my opinion it makes for a sound investment. 

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    4y

    I like to have a mix of unit types. I consider some mostly for cash flow (you'll still get some appreciation), some that are a bit of cash flow and appreciation potential and some nicer that barely cash flow or even have a little negative cash flow. So in short, yes I would buy strictly for cash flow, but those wouldn't be the only ones I would buy. 

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  • Kwame Amoako
    Real Estate Agent · Columbus, OH · Member since 2019 · 82 posts · 133 votes
    4y

    I liken the cash flow approach in real estate to the value approach in stocks. To me, as Bill Ackman says, free cash flow is the most important thing in business. When purchasing a property I imagine I am purchasing a business or a farm. You wouldn't purchase a business that didn't have any returns without a path to profitability. But you also wouldn't purchase a business that is in a dying industry. My rule of thumb for analyzing markets is population growth. The economic basis of growth is supply and demand, if you buy in a place where the population is trending down it's likely that you will not see any intrinsic growth in that area. If you can find an area like some cities in the midwest like Indianapolis, Dayton, Cincinnati, etc where the population is increasing and you can still get good cash flow then in my opinion it makes for a sound investment. 

    8Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    Thanks for your input! Here in Canada we have nice properties that essentially just break even. Appreciation has been great, but we won’t see any benefit until we sell. So we are hoping to find cash flow to balance. 

    I like your views. 

    0Reply
  • Robert Ruschak
    Real Estate Broker · IN · Member since 2017 · 65 posts · 12 votes
    4y

    It really depends on your investment objective and risk tolerance.   The small towns may not have any property management companies and may have to manage the property yourself!
    You can get guaranteed income from section 8 tenants.  

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Be careful buying for cashflow in small towns,  especially remotely. It can be like buying a stock for cashflow like Kodak or Nokia. They’re dead, they just don’t know it yet. By BIL live in a town where the population is smaller than it was 40 years ago and you can rent a farmhouse for $250/mo. It might sell for $50-$100k.

    3Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    I like to have both. Cashflow is important, but depending on the area, you can get a lot of appreciation as well. Why not just be selective and go for both?

    0Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    We currently have a few that have appreciated over 50% in the last 2 years. However they don’t cash flow at all. We’ve been looking for deals strictly for cash flow, however I wanted other investors opinions and experiences on this approach. 

    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    Investing from a foreign country (even Canada) I would be most concerned with stability and equity. Can you sell/exchange and do a cash flow property closer to home? 

    Know a triple decker in Cambridge purchased for 2 Million, kept empty for two years and sold for close to 4 million to a chinese investor who was mostly concerned with keeping money out of China and safely invested in the US. 

    YMMV of course, but high cash flow/low appreciation assets are pretty management intensive.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Erika Geoffrey:

    We currently have a few that have appreciated over 50% in the last 2 years. However they don’t cash flow at all. We’ve been looking for deals strictly for cash flow, however I wanted other investors opinions and experiences on this approach. 


    Where else are you going to be able to park your money and get anywhere near that kind of return? Aren't you in this to make money?

    0Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    Correct. However I’d also like to get some cash flow as well. Not just appreciated value that I won’t see until I sell 30 years from now

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Erika Geoffrey:

    Correct. However I’d also like to get some cash flow as well. Not just appreciated value that I won’t see until I sell 30 years from now


    You don't have to wait 30 years. When you get an incredible gain like 50%, you have the option to sell and buy more. 

    1Reply
  • Tom O.
    Chicago · Member since 2018 · 214 posts · 165 votes
    4y

    I always buy for cash flow and am shocked at the appreciation. These are multi-unit buildings and I am pushing up the rents by fixing up the units and making them better. I really like rural areas near urban areas. 

    1Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    problem is the Canadian market is impossible to buy in. So we sell, but then can’t get back into the market. So we’d have to branch elsewhere - which is what we’re looking at. But still would like to keep our few in our home town 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    It depends on your market.  You can't be guaranteed appreciation.  I have places in one area, where I doubt the prices will go up a lot (stay with inflation), but the tenants are also paying down my mortgage and I get cash flow.  Another market, the prices have sky rocketed and cash flow is a lot lower.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y
    Quote from @Erika Geoffrey:

    problem is the Canadian market is impossible to buy in. So we sell, but then can’t get back into the market. So we’d have to branch elsewhere - which is what we’re looking at. But still would like to keep our few in our home town 


     It depends where you are.  If you are willing to buy in another city, then you can easily get into the market elsewhere in Canada.

    0Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    Nice! Sounds awesome 

    0Reply
  • Paul Britton
    Rental Property Investor · Canada · Member since 2021 · 46 posts · 24 votes
    4y
    Quote from @Jonathan R McLaughlin:

    Investing from a foreign country (even Canada) I would be most concerned with stability and equity. Can you sell/exchange and do a cash flow property closer to home? 

    Know a triple decker in Cambridge purchased for 2 Million, kept empty for two years and sold for close to 4 million to a chinese investor who was mostly concerned with keeping money out of China and safely invested in the US. 

    YMMV of course, but high cash flow/low appreciation assets are pretty management intensive.


     Extremely hard to find a cashflowing property in Canada under eight units. I looked for a year to find a market that worked. I moved my focus south to Ohio. 

    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

     Seriously? No SFRs will cash flow? Why is that?

    0Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    4y

    @Erika Geoffrey

    It depends on your investment goals.

    You can get in touch with agents and inventors in that area to understand the local market.

    Also get more data about the property and analyze the deals to make sure it meets your investment goals.

    All the best!

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  • Paul Britton
    Rental Property Investor · Canada · Member since 2021 · 46 posts · 24 votes
    4y
    Quote from @Bruce Woodruff:

     Seriously? No SFRs will cash flow? Why is that?

    Houses in good areas in Canada have appreciated so much and rent has not caught up. Also most provinces have very strict rent control that wont allow for rent increases. Investing with less than eight units in Canada is most likely always an appreciation equity play. If you break even you're doing very well. 


    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Erika Geoffrey:

    Hi all,

    I've been finding really good deals for cash flow in some of the smaller towns. However I'm a bit nervous about purchasing in a town where there's not much going on.

    We are foreign investors, strictly purchasing for cash flow - however there's always that lingering thought of non paying tenants, etc. etc. 

    Does anyone purchase strictly for cash flow? Knowing that the property itself likely won't appreciate much or at all over time?


     Of course, I bough some for cash flow only. For sure you will get problems like non-paying,repair bill,etc,etc. Just be prepared for that and have reserves.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Erika Geoffrey

    It would depend on your investment strategy and goals.  I wouldn't as I go for the appreciation.  I don't believe you can cash flow enough to exceed what even modest appreciation can provide especially at a better tax rate.

    (I think there was a post comparing this to stocks:  in my opinion, real estate appreciation is analogous to equity stocks and real estate cash flow is analogous to income / dividend stocks, especially the higher yield securities that spit out aroudn double digit yields but don't increase in value and normally decrease over time).

    It sounds like you have the usual "high risk, high reward" scenario.  Perhaps think of it this way:  what/who are your customers?  In a small town, you have a much smaller client pool.  Especially if the major industry in that town slows down or goes under.

    Hope this helps.  Good luck.

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

    Also, the very reason why a region COULD cash flowing from 10 years ago until today is that the region is laggard in economic development so the home stays at a lower price.

    Tips: for those CF-area to "grow", that city needs the positive economic events,for example, if Amazon is opening a warehouse there and creating 50k new jobs.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Erika Geoffrey

    Plus, you never know what happens in the future...  20 years ago my properties didn't cash flow... Now they do... (and they appreciated...)

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y

    I like a mix of cash flow and appreciation. Secondary and tertiary markets really hit home for me. Close enough to a big city to appreciate and far enough to be cheap 

    0Reply
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