Investments with no cash flow

[Keegan Darby]

Hello BP - 

Turned down the purchase of a home today with the following details: 

$220k purchase price 
$270k ARV (built in 2008, just needed to be cleaned)

Needs ~$20k in light work (paint, faucets, yard cleaned) 

Market rent is $1,850/month 

Why I turned it down… 

I’ve been lending hard money at 10%. It’s passive and relatively risk free.

So, my question is: 

When is it ok to purchase an investment single family home with no cash flow, but 20% equity?

Or, would you rather just lend that cash , that you’d tie up in the home, at 10% and have more liquidity (6 month terms)? 

[Corby Goade]

Quote from @Keegan Darby:

Hello BP - 

Turned down the purchase of a home today with the following details: 

$220k purchase price 
$270k ARV (built in 2008, just needed to be cleaned)

Needs ~$20k in light work (paint, faucets, yard cleaned) 

Market rent is $1,850/month 

Why I turned it down… 

I’ve been lending hard money at 10%. It’s passive and relatively risk free.

So, my question is: 

When is it ok to purchase an investment single family home with no cash flow, but 20% equity?

Or, would you rather just lend that cash , that you’d tie up in the home, at 10% and have more liquidity (6 month terms)? 

It really depends on where you are in life financially and what your risk tolerance is. Honestly, I've done this several times, but I invest in a heavily appreciating market and I'm more concerned with limiting my tax liabilities than putting food on the table. It's not for everyone, and I'm willing to take a little more risk today for a larger payoff in 15 years. 

If you are still building up your financial bunker and in the beginning of your investing journey, I'd steer clear of anything that doesn't at least pay for itself. 

I'm not one of those "cash flow is king" investors, probably goes without saying, but as you begin investing, you'll need SOME cash flow to grease the wheels as you move forward. A good mix of equity and cash flow will give you experience and perspective that will help you form a strategy in the future, but if you start with too much leverage and not enough cash flow, you'll be handicapping yourself from the get go. 

Best of luck!