Next Property - Appreciation ($650K) or Cash Flow ($170K)?

Buying & Selling Real Estate
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Next Property - Appreciation ($650K) or Cash Flow ($170K)?

Einar Mykletun
Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes

Hello fellow BP members!

I wanted to ask for your advice regarding a decision I’m putting in front of myself: I’m trying to decide if my next investment property should be a play for appreciation or cash flow

I’ll try to give enough numbers and information to hopefully provide you with the ability to help provide your guidance.

My Current Portfolio

- 7 “cheaper” cash flowing properties (values ranging between $140-$210K) in Las Vegas, NV
- 2 “expensive” appreciation properties (values ranging between $650K-$820K) in Orange County, CA
- Monthly cash flow (for all 9 properties): $2,600

Other Relevant Information
- I’m currently working full time
- I have enough savings to last me more than 2 years (without a salary)

The Investments I’m Considering

Option 1
- SFH in Orange County, CA, for $650K with negative monthly cash flow of $300
- 30 year loan with 25% down payment of $187,500

Option 2
- SFH in Orlando, FL, for $170K with positive monthly cash flow of $270
- 30 year loan with 25% down payment of $42,500

Pros and Cons

Option 1

CONS:
(a) Negative monthly cash flow
(b) Large down payment
(c) Even larger exposure to market in Orange County, CA (would be 3 properties)
(d) I would likely have to sell one of my existing Las Vegas homes to come up with down payment (otherwise I’ll have too many mortgages to qualify for a new one)

PROS:

(a) Potential for larger appreciation (10% potential appreciation in 5 years of $650K vs. 10% appreciation of $170K), so I feel it is a better long term play
(b) I’m not sure if you guys typically give this much weight, but when I include the larger principle payment that would be made every month (e.g. around $800), it changes the monthly cash flow equation if one chooses to consider it, making it more attractive (long term)

Option 2

CONS:
(a) I feel it’s a weaker long term play (less appreciation potential)

PROS:
(a) Positive monthly cash flow out of the gates

General Notes
- I feel I can sustain the monthly cash flow in both cases
- I am only considering taking on the larger property (Option 1) because my other cash flowing properties provide me some buffer.
- However, I’m wary of pushing the limits too far and exposing myself to too much risk (debatable what is “too much”)


Conclusion
I'm looking for your advice/guidance about my above decision. I realize I can look at other opportunities than then two I have listed, but I feel I'll still come back to the debate about whether I want to go for a more expensive property with negative/less cash flow but better future appreciation possibilities, vs. a cheaper property with positive cash flow but less appreciation potential.

Thanks in advance and I'll try to fill in any missing info based on your feedback and questions.

Einar

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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y

Based on the fact that your existing 9 properties are valued at $3.7M and your positive cash flow is only $2600 I am guessing that you are primarily a speculator as opposed to a income investor. For that reason alone, since you provide no specifics on individual properties, I would say by all means continue to speculate on appreciation. But beware the time may be approaching soon to liquidate as they are most likely not self supporting investments regardless of your present perceived "positive cash flow".

You will get two answers to your question, those that rely on cash flow will advise buy the cash flow property, those that speculate will advise buy the speculative property. In other words no answer you get will be of much value.

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  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Brent Coombs - thanks again for your continued replies. I won't take up more of your time but I'll answer some of your questions.

    Yes, by 2008 the panic had set in. I had never purchased any real estate at that time, and wanted to get into a market. I evaluated Phoenix, Vegas, California, Minnesota and Rochester (NY), and ended up with Vegas. I did not believe I could time the market, and instead chose to try to buy (every 6 months) along a bell curve. My first two purchases were a bit too early while the others I was quite fortunate with. All the properties I purchased have at least doubled in value - but again, that was just dumb luck. Could one have done better? Of course one could have.

    Did I go too cheap? Yes, with my first two properties I did, and I have since sold them. Those were the ones in bad neighborhoods with frequent tenant turnover.

    Why didn't I look in CA at that time when I started? Because I was not comfortable looking outside of Orange County yet, and Orange County was too expensive for me. I did establish real estate contacts in Vegas which made it easier for me to get started there.

    And yes, I need to re-evaluate and establish my goals for real estate investing. I have a fair amount of capital available to me at this time, and will get my goals straight before making any further moves (buying or selling).

    Thanks again and all the best to you too.

    2Reply
  • Dan D.
    Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
    9y

    Hi,

    Can you tell me what your current loan to value is across all of the properties?

    You are working right now.  Is your goal to get enough cash flow to not work, or do you plan to work, and your goal is to gain total net worth?

    If  you want to quit your job, how much cashflow do you need for your lifestyle?

    Cashflow will help you quit a job.

    Making a play on total net worth is more about buying properties that will increase in value, and leveraging large mortgages which will get paid down overtime.

    I know cashflow is king, but certain people would be happy with properties that would appreciate at or above market rates (which is speculative) but can help you buy more properties than a smaller property that may cashflow better but never appraise for enough for a much large mortgage.

    0Reply
  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Dan D. - thank you for your reply.

    Regarding my LTV across all properties:

    Total Loans: $1.4M and Total Value: $2.8M, so 50% LTV across.

    I do want to get to a point where I don't have to work if I don't want to. To sustain my current lifestyle, I'd need about $6K/month, but that would not be enough to let me build up additional funds to pay off more debt or acquire more properties (with my own funds), so I'd like to aim for higher.

    At the same time, I do also want to build for potential of increasing net worth, which is why I started acquiring the Orange County properties (whether those were good or bad moves...). 

    So, my thinking was: (1) build up cash flow with my Vegas properties and then (2) once I have enough cash flow to help buffer me a bit, while I'm still working, take on additional properties that can help grown my net worth.

    I look forward to hearing back from you.

    Thanks,

    0Reply
  • Dan D.
    Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
    9y

    I'm not an expert, but I play around with numbers a lot.   :-) 

    With the equity you have and the debt you have you have the two options of either buying property, or creating cash flow by paying off some of the debts. You might have smaller mortgages on some of those smaller properties that you could pay off with a new refinanced mortgage at 75% LTV on a big property. (Or with cash you have on hand for that next down payment).

    Juggling or managing your debt can help you achieve that.  

    That's where the appreciation on those big properties can help (if you can get it).  You might not have cashflow now, but in a few years, you might find you have a $1,000,000 house due to appreciation that has a mortgage from 10 years ago that's down to $500k.  All of a sudden, you can refinance the $1,000,000 property for $750,000 then use the spare $250k to pay off a couple of those smaller mortgages. 

    Your monthly payment goes up some for the one house by maybe $300-400, but you've just eliminated one, or maybe a couple monthly payments on smaller mortgages you had of $550 - $900 each. Just like that you've created more cashflow and your overall LTV is about the same.

    How many of those properties do you need to own outright before you hit your goal cash flow?

    Do you have enough already?

    If not, you need to play the leverage game.

    0Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    9y

    @Einar Mykletun  I think what you are really looking for is to grow the value of your portfolio.  Does it really matter if you do that by increasing values of the properties or by increasing the number of properties?

    The way I read this is your have 180K + to use for down payments.  In some of our Midwestern markets you could buy 3   60k properties renting for $775 each.  If you did this you would have no debt, and numbers would track something like this (Using the 50% rule):

    Start gross rent $2,325      Income    $1,162.5

    Month 52 

    add a 4th Property  Gross rents now $3,100    Income  $1,550

    Month 91 (39 month latter- our 1st addition....

    add a 5th property Gross Rent now $3,875    Income  $$1,937.50

    Month 122    Add a 6th Property (only 31 months since the last purchase and - Hey your portfolio doubled!)

    New Gross Rent $4,650  Income $ $2,325  (Next purchase in just over 2 years).  The compounding effect of reinvesting your RE income really starts to kick in.

    1Reply
  • Tim Ball
    Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes
    9y

    @Einar Mykletun Cash flow is king!!! Look at it this way.  Can you pay bills right now on speculation?  If you got into a horrible accident, God forbid, and you could never work again, what will be better for you?  Would it be income coming in every month or the hope for appreciation?  I understand that money is not an issue for you, but it could become an issue if something happened that you couldn't work anymore.  I imagine when senior citizens are retired, they care more about what is for sure coming in every month compared to how much money is sitting in the bank.  Hope this made sense.  Good luck with your endeavors!!

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Einar Mykletun, it's already been mentioned several times, but I reckon bears repeating:- $2,600 per month return on your EQUITY of $1,400,000 is absolutely WOEFUL! (That's just 0.1857%/m!)

    You should ALREADY be getting your desired $6,000/m out of that much investment - and MORE!

    I don't know how to be any clearer than that! Cheers...

    0Reply
  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    9y

    I'll bite on the math and leave everything else out. 10% appreciation in five years. I assume you mean you think the properties under consideration will appreciate at 10% a year for five years. Don't know if that's possible, but whatever.

    Option 1: Negative cash flow of $3,600 a year. Sell at end of five years. Total profit (w/o closing costs) = $378K, a 102% ROI.

    Option 2: Positive cash flow of $3240/yr. Total profit (w/o closing costs) = $120K, a 182% ROI.

    My answer is option 2.

    Let's do the math a different way. Option 1 appreciates at 10% a year for five years (speculative) while option 2 appreciates at 3% a year for five years (more reasonable). In that scenario, Option 1 is your best ROI at 102% versus 1.83%.

    The break even on appreciation under this scenario is where Option 1 is 10%/yr and Option 2 is at 7%/yr. Both are pretty speculative in my eyes, but that's what the math says.

    Option 3: Buy four homes at $162,500, each cash flowing $225/mo. They appreciate at 5% a year. That's the break-even point. Your return is about the same but you are taking significantly less risk at exit.

    Let's go to Option 4: 16 unit Multi-family with 2.5% appreciation per year and $2400/mo in cash flow. That's the break-even point. For significantly less risk, you could buy a 16 unit building with positive cash-flow and make the same amount of cash as a single property that has to appreciate at 10% per year.

    Your comment about a larger principle payment is misleading. If you get the same terms on the loan, your ROI is not impacted at all. Just the amount of money in play. Think about it like this. If you bought four homes at $162.5K instead of one $650K home, your principle pay-down is the same.

    To your investing success,

    Ron

    P.S., please correct my math if I am wrong. I just woke up :)

    0Reply
  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Brent Coombs - I think I hear you loud and clear. I also see that I have not used the terminology correctly to describe my numbers (based on feedback). I have been quoting my income numbers after I remove mortgage expenses, etc, which of course then pencils in a horrible percentages. So let me try to clarify one aspect, as I still don't feel bad about my Vegas holdings, but again, I may be off:

    Return based on initial purchase numbers
    Initial purchase price of my 7 Vegas properties: $601K
    Monthly income for all 7 properties: $7,400
    Percentage return (per month): 1.23%


    Return based on appreciated numbers

    Initial purchase price of my 7 Vegas properties: $1.4M
    Monthly income for all 7 properties: $7,400
    Percentage return (per month): 0.53%

    Should I be getting more than 0.53% return? Yes of course. But that's why I've joined these forums, to learn more and understand what I can possibly do now that I'm fortunate enough to have had my Vegas portfolio appreciated. Hope it helps clarify things now that I've laid out the numbers in line with how I think forum members typically discuss them.

    Thanks again for the feedback.

    0Reply
  • Michael Le
    Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    You can try for the best of both worlds. And I believe Brent already mentioned it too. But make sure you buy it right on the front end. If you're buying a cash flowing property cheaply then you'll get instant equity and the cash flow too. That will take more work as you'll have to either do direct mail marketing to find the deals yourself or work with wholesalers and give up a bit of that equity.

    Conversely, if you're open to different venues totally, you have enough equity to invest into commercial properties like multifamily or NNN as someone else mentioned. With multifamily you can do passive investing and get double digit returns with not much work other than vetting the sponsor and the deal.

    0Reply
  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Dan D. - I like your suggestions for reducing debts via "juggling". However, I am not sure I quite follow the logic in your example. Can you please help clarify?

    Say I were to refinance the quoted $1,000,000 property for $750K and use the spare $250K to pay off two small mortgages. I would basically be taking on $250K more in debt (replacing the $500K mortgage with a $750K mortgage), while also removing the same $250K in debt (by paying off two smaller properties). To me it seems like a wash in terms of cash flow, as I’ll still have the same amount of financed debt (monthly mortgage numbers) before and after. Am I missing something?

    @Bob E. – Yes, I ultimately want to grow my portfolio, but only taking on reasonable risk via well thought out future investment decisions. The compounding effect is very attractive. One of my tasks right now is to find another market in which I can find properties that cash flow along with a trusted setup (vetted property management). I will try to reach out to you directly to learn more about the properties you are investing in, in the Midwest. Thank you again for taking the time to reply.


    @Tim Ball – Thank for your feedback and for pointing out other aspects to consider. And just to be clear, money is very much an issue to me. I have diversified my financial life in several aspects, and real estate investing is one of them, with a goal being of not running into financial hardship should terrible circumstances come about. Thanks again and best of luck to you too!

    @Ronald Perich – Thank you for replying (just after waking up ). I do appreciate you taking the time to provide the feedback you did! Let me chime in a bit.

    What I meant by “10% appreciation” was 10% total appreciation after 5 years (not 10% every year). I like both options 3 and 4 (with conservative appreciation numbers). One area I have no exposure to and know very little about is Multi Family homes. Over the coming days, I’m going to read up and learn more about this area, and hope to then be able to identify markets in which I could potentially find such investment opportunities (e.g. 16 unit).


    Thanks everyone! All your comments and feedback are though provoking and I’m learning and realizing several things along the way.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Einar Mykletun, I agree with you regarding borrowing more, er, to pay off loans(?): ie. it's "a wash in terms of cash flow" - UNLESS, you can borrow now at a significantly reduced interest rate than any loans you decide to clear. But, there's that other option:- "buying property"!

    As far as I know, I wasn't misinterpreting your numbers. After all, those "horrible percentages" MUST take into account all your expenses including your mortgage! If I were to include the total value of your holdings including the leveraged portion - those percentages look even WORSE!

    ie. $2,600 monthly cash flow, on investment properties worth $2,800,000??? 

    That's less that 0.1%/m! Or just 1.11% per YEAR! (See what I mean?)*

    * Do you realize that to get your $6k/m, you only need a $2.8M portfolio to net 2.57% per year?...

    1Reply
  • Dan D.
    Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
    9y

    @Einar Mykletun  Attached is an example of what you might have for current mortgages on each property.  What you could do if you want to increase cashflow is just pay off the properties and the corresponding mortgages for the ones highlighted in gold.

    Also, should your properties appreciate (the two big ones), you could refinance to pull out some money.  Say the big property 9 increases to a value of $1,000,000, and you refinance at 75% for $750,000.  That would allow you to pocked he difference of the $750k and the current mortgage balance which could be in the $550k area depending on how many years from now you do it.  Your mortgage would increase from the current level of $3,025 to $3690 or so.  An increase of $700, but in turn you might be able to pay off four or more mortgages.  That would eliminate payments of $1200 a month in this example for a net cash flow increase of $500.

    Of course, over time, those mortgage balances are decreasing, and your rent should be going up.

    Overall, I think your doing great.  The cash flow isn't always king when you can have properties of $700k increasing in value at 3% a year.  

    My strategy is similar to what you're doing.  I don't want to be cash flow negative, but I'd sooner build equity through rehabbing, then holding them over time.  I need to cashflow after the rehab, but knowing you have 50% equity across all of those properties is a great place to be.

    You're probably gaining $30-40k a year in debt paydown a year, and if you're averaging appreciation of 2.5% a year across all properties, you're gaining 70k a year there.

    You don't have cashflow, but your printing money through equity at a great rate.

    Yes, some would call in speculation, but if you are buying and holding for 15-30 years, that's a long time for appreciation (or even inflation) to not help you out at 2.5-3.0 a year.

    0Reply
  • Dan D.
    Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
    9y

    @Brent Coombs You're not including his total returns on his equity of $1,400,000.  The fact he has that much equity should not be used against him as a metric for return.

    His return on investment is the more important number, and to calculate that an increasing equity would aid his return, not hinder it as it does in your calculation (especially if you are not including equity increases into the formula as part of the return).

    0Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    You are speculating on appreciation, and as others have noted, your cash flow is honestly mediocre for the amount of assets and risk you hold. I make more cash flow just from four rentals worth a fraction of what your portfolio is worth. 

    The only way I'd speculate on appreciation is years after a market crash. Not immediately after, but years after because it takes years to bottom out. In your shoes, I'd sell the rentals in Vegas and reinvest the cash into higher flowing MF apartments or put some of the cash into your highly leveraged California properties so that they cash flow AND gain appreciation.

    Personally I'm not taking on more debt right now. I was tempted but ran the numbers and it's too risky to. Properties at these prices don't cash flow worth a damn right now and gambling on appreciation is exactly that. At least my properties rent for well above the expenses so I can hold them for a long time if the market did tank plus I could always begin dumping them and still make money from their years of appreciation, as they don't instantly drop by 50% in value overnight. 

    I think the play right now is to stack money for when there's another market bust. In your case, I'd also rebalance the portfolio to have cash flow positive properties in California that also appreciate. Much less risk. The first rule of invest: don't LOSE money...

    1Reply
  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    9y

    Wish the @ sign worked on Android. If you plan in them appreciating at the same rate, then you can take appreciation off the factors to consider. Whatever cash you're using will have the same return from your original investment. Then it's about which will cash flow better.

    0Reply
  • Sunny D.
    Pleasanton, CA · Member since 2015 · 246 posts · 115 votes
    9y

    I have a investment property in Folsom. It rents for 2000 after PM fees.

    I pay 1764 every month on the loan. Out of which $1073 is principal, $311 is interest and $380 is escrow. 

    Cash flow wise I have made $150 PM on avg over last 4 years as my maintenance costs are almost zero as its a new home in a A neighborhood. For those focused on only cash flow, the metrics say my returns are bad. However, I consider my returns to include the principal I pay off + cash flow = $1384 PM.

    I had a down payment of 55K when I bought the home and I am building 15K+ wealth every year plus the appreciation I get.

    For those who feel I should buy 3-4 mid west properties, I do have 3 of them but fact is the returns can never match my CA home.

    To illustrate:

    1 duplex in Cleveland, each unit rents for 650 PM.

    When tenant leaves, my PM charged me around $2000 avg to fix place (paint and other stuff to get it back to rent ready state). 1 month charge to find tenant and takes 1-2 month time from time it goes vacant to getting a tenant to move in. If my tenant leaves after a year, frankly my returns suck. More units means more maintenance costs , more big ticket items that need fixing and turnover costs. I would value a quality property with min maintenance, min turnover, some appreciation , rent that pays off a 15 yr mortgage with some +ve cash flow. 

    I am now in the middle of 3 flips in IL. I wont buy in CA now but want to have enough cash for the next dip to buy in CA. 

    So for my advice to Einar, stay put , wait for the dip , it will eventually happen and buy properties on the cheap. In mean while only cash out if you find a solid large sized MFH in CA or spread your money on crowd funding sites (my avg returns are 12%)

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y
    Originally posted by @Dan D.:

    @Brent Coombs You're not including his total returns on his equity of $1,400,000.  The fact he has that much equity should not be used against him as a metric for return.

    His return on investment is the more important number, and to calculate that an increasing equity would aid his return, not hinder it as it does in your calculation (especially if you are not including equity increases into the formula as part of the return).

    Nope. Einar's stated goal is $6k/m. Cash! Sure, it would be a nice bonus to be getting that out of property that is also likely to appreciate at the same rate CA has seen over the last 5 years.

    But that's why Einar is going back to the drawing board and asking the question.

    ie. it's too darned hard to get BOTH happening with the same investment, from day one!

    You must agree Dan, your equity doesn't buy your groceries for you. Cash does. Cheers...

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Sunny D., are you sure about the split-up of those loan repayments? I'd double check!

    Also, have you put its CURRENT market value into your equation? What if it's less than PP?...

    0Reply
  • Sunny D.
    Pleasanton, CA · Member since 2015 · 246 posts · 115 votes
    9y

    @Brent Coombs   I checked the statement before posting.

    Its a 15 year loan, the rate is super cheap 2.75 fixed as I paid up a few upfront points (seller gave closing credits which I wanted to use up) 

    Original principal balance:

    $204,000.00

    Current principal balance:

    $134,714.49

    Current interest rate:

    2.750%

    Amortizing schedule from BOA, another 6 years i only will have 50K left on a home that would be worth around 500k . Current market value : 430-450K

    YearMonthPaymentPrincipalInterestBalance
    2016December$1,384.39$1,075.67$308.72$133,638.82
    2016Yearly Total$1,384.39$1,075.67$308.72$133,638.82
    2017Yearly Total$16,612.68$13,101.93$3,510.75$120,536.89
    2018Yearly Total$16,612.68$13,466.82$3,145.86$107,070.07
    2019Yearly Total$16,612.68$13,841.85$2,770.83$93,228.22
    2020Yearly Total$16,612.68$14,227.32$2,385.36$79,000.90
    2021Yearly Total$16,612.68$14,623.56$1,989.12$64,377.34
    2022Yearly Total$16,612.68$15,030.82$1,581.86$49,346.52
    2023Yearly Total$16,612.68$15,449.42$1,163.26$33,897.10
    2024Yearly Total$16,612.68$15,879.68$733.00$18,017.42
    2025Yearly Total$16,612.68$16,321.90$290.78$1,695.52
    2026Yearly Total$1,700.13$1,695.52$4.61$0.00
    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Sunny D. wow! I take it that's some sort of incentive to get people to invest in new-builds?

    ie. Not available for the general riff-raff who come in wanting to borrow to buy old buildings?

    I still reckon it mainly makes sense IF such investment is located in appreciating areas (ie. the land is appreciating at a faster rate that the new building is depreciating).

    ie. You've likely "got away" with it - so far...

    0Reply
  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Dan D. - Thank you for multiple replies and for reaffirming that we all have different investment goals. I would prefer to not have any negative cash flowing properties of course. I’m also happy about the monthly principal reduction I’m realizing across all my properties, and do feel that I’m in a solid position with regards to the amount of equity I have at this point. Could my returns be better? Of course – but my potential for appreciation may then take a back seat as well.

    Thank you for taking the time to put together the sample spreadsheet! One question I still have, and I apologize if I'm missing something that's very obvious… Regarding the possibility of refinancing at 75% LTV should the big property get to $1M: you mentioned that the mortgage would increase from $3,025 to $3,690 (about $700 increase). However, when I plug $500K and $750K as the loans (30 year loan at 4%), I see a difference of about $1,200. I'm not so concerned about the numbers matching up, but I still see it as a wash, if I increase my mortgage one property (by $250K) and pay off two smaller ones (each $125K).

    However, the concept of paying off some of my small Vegas mortgages, in general, certainly would open up more cash flow, and I would actually be getting close to my passive income goal of $6K if I paid them all of.

    Thanks again for taking the time it took you to reply in such detail.

    0Reply
  • Einar Mykletun
    OP
    Investor · Irvine, CA · Member since 2016 · 18 posts · 3 votes
    9y

    @Sunny D. - It was refreshing to read your post, as I feel similar about my California investments as how you described them. I also value the monthly principle reduction on my larger properties, and that combined with the cash flow (whether negative $100 or positive $100) gives me a better monthly yield than some of my Vegas properties that have higher positive cash flows (but much less monthly principle reduction). The potential appreciation is a bonus so far, and I am lucky in that I would be sitting on a fair amount of equity if I were to sell my first California home.

    Thank you for providing numbers to give a comparison of your returns (Folsom, CA vs. duplex in Cleveland).

    I will be patient with the cash I have ready for investments. I’d like to learn more about crowd funding opportunities, as 12% is an attractive return and I’d like to evaluate placing some funds into such an investment.

    @Jack B. - Thank you for your analysis and advice, and for explaining your own thinking. I feel a bit conflicted about the advice about selling the Vegas rentals, as they are cash flowing nicely and they can withstand market corrections, both in terms of cash flow and in that I have large amounts of equity in them (could sell if needed). However, I do see the value in gaining more equity in my California homes too. Food for thought. Thank you.

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  • Sunny D.
    Pleasanton, CA · Member since 2015 · 246 posts · 115 votes
    9y

    btw as a rule i only take 15 year mortgages for investment properties (5 so far). My primary home its a 30yr one (tax benefit for interest and more flexibility with heloc etc.). My 3 flips in IL i am using cash from my HELOC

    0Reply
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