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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  • Sam Albury
    Member since 2020 · 45 posts · 24 votes
    4y

    @Erika Geoffrey I'm looking at Stryker, OH and noticed doing my research there arent any listings for rentals. As a result, I am looking at Toledo, OH.

    1Reply
  • Dave PoeppelmeierBusiness Member
    Realtor · Maumee, OH · Member since 2015 · 491 posts · 722 votes
    4y

    @Erika Geoffrey if you are not local, let alone international, then buying in small towns is tough. The biggest issue is Property Management. IF there are any legit property managers there, it's usually only one person/company, and you are at their mercy for literally everything. Regarding purchasing for cash flow, many people do that, but it depends on your investment goals. Some people want the boring check in the mailbox every month, others want to buy in a hot area, wait 10 years, then cash the big check. Totally up to you. 

    @Sam Albury Stryker is a perfect example. Cute little rural town in NW Ohio, but limited renter pool for sure, and management is going to be the issue. For rentals in towns like this, word of mouth and a sign in the front yard is usually what's needed. Toledo has many more options for PM, available listings, etc. Let me know if you have any more questions about Toledo and the surrounding areas. 

    Podcast Guest on Show #380
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    3Reply
  • Austin McClainBusiness Member
    Real Estate Agent · OH · Member since 2021 · 347 posts · 602 votes
    4y

    It's a good strategy for cash flow. The risk is if the small town population vanishes (like what is happening to some coal mining towns) your investment is worth nothing. Look for an area that has an economy not based on only one industry. 

    [email protected]614-710-4827
    1Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Paul Britton:

    Ah, good old Rent Control. Of course. Makes sense......


    0Reply
  • Stephen Brown
    Real Estate Broker · Huntsville, AL · Member since 2019 · 1k+ posts · 872 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?

     I would strongly recommend looking at Toledo, Ohio. As mentioned by @Dave Poeppelmeier you will need an excellent property management company. This city cash flows very well though if you have the right team in place. Some of my clients have been able to scale very quickly.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    4y
    Quote from @Stephen Brown:
    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?

     I would strongly recommend looking at Toledo, Ohio. As mentioned by @Dave Poeppelmeier you will need an excellent property management company. This city cash flows very well though if you have the right team in place. Some of my clients have been able to scale very quickly.


    I purchased strictly for cashflow, however all my 80K properties in Toledo appreciated to 120K.

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

    @Account Closed How long have you had the properties?  Was the appreciation in the past couple of years?

    0Reply
  • Nicholas DeCespedes
    Real Estate Agent · Orlando FL, USA · Member since 2019 · 29 posts · 28 votes
    4y

    It all for me ideally depends on how big are you going in on cash flow and what are you doing with the cash flow. If you are saving up and building a large port. of cash-flowing properties, it sounds good because you can buy more and grow your business. EX: If I had a stock port. of just dividends stocks of around 100K it would produce me around 7-10k per year depending on the stock. But a larger port of 1M would be 70-100k a year which I would take the dividends and put in more stock if it drops to lower my cost basis and increase my dividends amount. I like the idea of cash-flowing properties but if you are starting with one it would take a while to grow. It would be ideal to start with multifamily of some kind IMO. Also it depends on market because if you are in a market like Miami I would buy for appreciation vs what MID-West cities usually are purchased for cash flow. It also to me depends on how much the cash flow is. To me, it all depends on how much you plan on prioritizing cash flow. Appreciation is also good for forced appreciation using BRRRR.

    1Reply
  • Sam Albury
    Member since 2020 · 45 posts · 24 votes
    4y

    @Dave Poeppelmeier Thank you.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    4y
    Quote from @David M.:

    @Account Closed How long have you had the properties?  Was the appreciation in the past couple of years?


     Started buying 2019

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    4y
    Quote from @Erika Geoffrey:

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


     Yes, it's called Sec8 Investing. 

    0Reply
  • Tasha Barnes
    Rental Property Investor · Charlotte, NC · Member since 2016 · 47 posts · 16 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?

    Hllo 

     Hello All, 

    Yes, that's my strategy - to look for cash flowing properties.

    Tasha 

    0Reply
  • Matt Lyons
    Rental Property Investor · Chicago, IL · Member since 2019 · 109 posts · 443 votes
    4y

    @Erika Geoffrey

    I LOVE SMALL TOWNS FOR CASH FLOW! I own over 70 rental doors all in small towns in IL, IA and MO.

    Other than cash flow here are benefits to small town tenants:

    Covid proof: I had not one tenant fall behind during Covid because those small towns kept humming along.

    Recession proof: these small towns do not go the way of Wall Street or even the country as a whole, they are insulated from much of the ups and down

    Better tenants: small town tenants don’t expect a lot, they seem to be happy with a decent place to live. In addition they can do MANY repairs on their own saving a landlord time and money

    Lending: find a small town bank and they will likely invest in their area with better rates and programs to invest in these communities.

    Competition: almost no one looks in small towns so less multiple offers

    Better sellers: many sellers are families that inherited mom and dads home and just need to sell it. Often it is owned outright and more potential for owner held deals

    ONLY NEGATIVE: appreciation is very minimal

    Don’t delay but in small towns… just don’t tell anyone!

    3Reply
  • Erika Geoffrey
    OP
    Member since 2022 · 19 posts · 4 votes
    4y

    Thanks for your input!

    We are getting a lot of appreciation on our other properties. But 0 cash flow, so I think we are close to taking that leap of faith!

    0Reply
  • Nate R.
    Real Estate Investor · Austin, TX · Member since 2015 · 214 posts · 234 votes
    4y

    I think it depends on your goals. For example, if you have enough equity to create significant enough cash flow to meet spending needs, then buying for cash flow makes sense. 

    If the goal is to increase equity, then it makes sense to trade high cash-on-cash returns in favor of appreciation.

    0Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    4y

    For me.....no.

    I have to have at least decent chance of some appreciation... not just cash flow.

    Those years of "cash flow" disappear REAL quick when you go to sell it and have to put decent $$ into it to get it sell ready condition... pay RE agents and fees, recapture depreciation etc etc etc. All those years of glorious cash flow just vanished if you didn't have a unit that appreciated at least a reasonable amount. It wasn't high cash flow... it was delayed costs that are now due. May still be profitable for sure... but not nearly what you think it is if you just look at the cash flow as the "profit"

    2Reply
  • Alexander Catera
    Member since 2020 · 5 posts · 0 votes
    4y

    @Erika Geoffrey, I am a local agent and investor in Utica new york. we are a small but growing citie of about 80k people with lots of new economice development ($500M Hospital, $500M auto chip manufacturing plant, as well as over 2M sqft of new WH and distribution space.

    I would love to talk to anyone more and discuss the opportunities here.  

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

    For me.....no.

    I have to have at least decent chance of some appreciation... not just cash flow.

    Those years of "cash flow" disappear REAL quick when you go to sell it and have to put decent $$ into it to get it sell ready condition... pay RE agents and fees, recapture depreciation etc etc etc. All those years of glorious cash flow just vanished if you didn't have a unit that appreciated at least a reasonable amount. It wasn't high cash flow... it was delayed costs that are now due. May still be profitable for sure... but not nearly what you think it is if you just look at the cash flow as the "profit"


     This ^^^, well said Ned. Appreciation is far better than cash flow, unless you are flowing huge....but few hundred a month cash flow is really nothing compared to any decent appreciation. I've always made the big bucks from appreciation. But I'm not holding long-term either.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    4y

    @Erika Geoffrey No. I wouldn't ever buy stricly for cash flow just as I wouldn't buy for appreciation a lone. On a typical $150,000 investment, cash flow will only represent about 1/3 of total returns. The other 2/3rds will come from appreciation and equity through mortgage paydown. You're never going to get wealthy from $200-$300/mth in cash flow. Real wealth comes from all sources of returns and comes over time. 

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

    @Mike D'Arrigo the properties I’m finding are over 1000$ a month cash flow. I’m currently looking at a two property package for 146,000 that cash flows 1800$ after reserves. 

    I agree buying for cash flow at 200$ isn’t worth it. But over 1000 I might be convinced 😃(again though, the property would be worth nothing more than I paid)

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    4y

    @Erika Geoffrey that might change the picture a littl but I would sure do my due diligence on those numbers. They don't look realistic to me. 

    0Reply
  • Alexander Catera
    Member since 2020 · 5 posts · 0 votes
    4y
    Quote from @Mike D'Arrigo:

    @Erika Geoffrey that might change the picture a littl but I would sure do my due diligence on those numbers. They don't look realistic to me. 


     I would love to talk to you more about my local markent.  I see deals similar to this every month or so.  

    Utica, NY

    0Reply
  • Ned J.Pro Member
    Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
    4y

    $1000/month cash flow.... on a property that doesn't appreciate? 146k property that cash flows $1800/month...... I'd like to see how you are calculating that.....

    If that's real, you are killing it.... but that is far from the "norm"

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

    @Ned J. I’m aware these aren’t the norm. If you check out some of the smaller towns in NY you would see some of these deals. 

    The houses themselves are cheap and don’t appreciate, but rent prices are still pretty decent. 

    The deal I found is two properties for a total of 5 units, 146,000. Total rent is 3850$ plus utilities, water, etc. 

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

    Ah, good old Rent Control. Of course. Makes sense......



     In most provinces you can only increase rent a small percentage. Generally just keeping up with inflation (until recently). So RE investing is generally a equity appreciation play. 

    0Reply
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