When to Use an Equity or Cash Flow Strategy

Question

Hi Everybody,

I am doing some homework and wanted to hear what everyone thought about when it makes the most sense to do a Cash Flow play vs an Equity play in relation to market cycles. What are the best practices you'd recommend when exploring the variety of different strategies?

J Scott said in a Podcast "You have to take what the Market is giving you", was wondering what strategies you all like best at different stages in the market and with where we are today. I understand the approach you take is likely contingent on your local market but when we look at the macro view what is your thought process?

Looking forward to hearing your thoughts.

Joey

Bill Goodland · Answer

I think market cycles matter a whole heck of a lot more on the coasts, or in cities that see a lot more price swings. Chances are that those markets aren't the best buy and hold markets to begin with as it is difficult to get a property there that cash flows. So if I was a homebuyer with an adjustable-rate mortgage in San Francisco or NYC, yes I would be concerned about where we are in the market cycle. But if I'm buying in stable, cash flowing markets with a fixed-rate mortgage, I don't really need to worry about a potential dip in values because my monthly PITI isn't going to change, rents usually don't dip much in a recession, and especially in relatively stable markets such as the mid-west.

As far as investing for equity is concerned, I think you should always be looking to create equity whether it's by buying below market, or adding value through a rehab or by other means. Unless the market crashes during your rehab, that also really shouldn't affect your investment strategy.