Cash flow is NOT king!

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

“Cash flow is king” is a mantra to many.

It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.

I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.

One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.

I’d submit investing for capital growth is by far the better option for many.

Aim to hit line drive base hits not grand slams.

[email protected]650-575-6114

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.

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Logan M.
Investor · Provo, UT · Member since 2016 · 759 posts · 626 votes
3y
I love cash flow and the ability to roll that into additional purchases for more cash flow.
With that said they are all value add opportunities, I won't waste my money on properties that don't have the ability to force appreciation and increase cash flow.
This may seem oversimplified but we often over complicate real estate investing.
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

You are good with the way how you rephrase it, I can't put it better than you
2 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Carlos Ptriawan:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

You are good with the way how you rephrase it, I can't put it better than you

A property is a "Chicken", which plops out rents("eggs").
Way too many have a FILED logic of being hyper-focused on how to get "A" chicken that makes way more "egg's" than the egg's it costs to get that chicken.
NO. The CORRECT way is the Sam Walton way, it is.
It's about VOLUME. VOLUME is the key, not the individual profit size.
The magic is in a solid, repeatable profit, done many times over. VOLUME of reliability.
Cash-flows are BUILT, not bought. Way too many going off HORRIBLE "guru" direction of BUY cash-flow, NO, that was a decade ago, just as useful as a book on dancing from '79', good luck with those jazzy disco-moves.
The FUNDAMENTAL profit and wealth creating "Fairy Dust" of REI is LEVERAGED FUNDS. Making $ on OPM. You get to gain control of something you don't own. So, done small, means profit small. Done on VOLUME, it is profits on VOLUME. Profit margin GROWS as volume grows. I know, this is into advanced level mathematics but follow-the-bouncing-ball.
Remember, the fundamental rule is making $ on OPM, yes? As scale grows, so does returns rate because your making ACTIVE and APPRECIABLE gains on that OPM. The rate of return is a compounding return factor, yes, INFINATE returns on certain scales of volume and reinvestment.
It's an absolute NO BRAINER that REI operates in 2 phases; GROWTH and CONSOLIDATION. You can't do 1 well while doing the other. Try it, try going left while going right.
3 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 583 posts · 738 votes
3y
@James Hamling
Agreed.
0 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 583 posts · 738 votes
3y
@John V.
Awesome stuff! I have been laboring to do the same with my kids. They are quite a bit younger. Got my youngest started at 9 years old. I gave her a laundry room to manage at one of the apts. My boys were a few years older but passed on it. As they saw her account grow $500/m, they got jealous. They fought for the other laundry rooms but I made them all share it as punishment for not taking on the first offer.🤣😎
Part of it was to get them to manage money. It's been almost 2 years and they are on their way. I push more financial intelligence down their throat everyday. The baby girl will be 11 yr old next week and has enough to begin hunting for a small investment of her own. She may be the first to buy a small property.
I'm hoping at least one of the three will want to take on the portfolio when I want to step aside.
Your boys sound like they absorbed all that you guys taught. They sound like they will make their fortunes much more wisely than their peers vs slaving away to live pay check to paycheck. That's all I really hope for as a father.
You bring me hope and reinvigorate me with your story. I hope to hit 15M in 2024. I wont wait until 20M to splurged. I have not splurged any profits and have only reinvested. I plan to buy myself something nice next year... looking for a 2006 to early 2007 Cummins Ram 3500 manual shift with 4x4 that is under 200K miles on the odometer. We all have dreams, that's been mine. We been driving our car for almost 20 years and its almost time for another vehicle. I'll pass the old car to my oldest son when he gets his permit next year.
Thanks for the awesome thread. So many golden nuggets.
2 Reply
Account Closed
Developer · Austin, TX · Member since 2018 · 23 posts · 15 votes
3y
Quote from @Sam Yin:

@John V.
Awesome stuff! I have been laboring to do the same with my kids. They are quite a bit younger. Got my youngest started at 9 years old. I gave her a laundry room to manage at one of the apts. My boys were a few years older but passed on it. As they saw her account grow $500/m, they got jealous. They fought for the other laundry rooms but I made them all share it as punishment for not taking on the first offer.🤣😎
Part of it was to get them to manage money. It's been almost 2 years and they are on their way. I push more financial intelligence down their throat everyday. The baby girl will be 11 yr old next week and has enough to begin hunting for a small investment of her own. She may be the first to buy a small property.
I'm hoping at least one of the three will want to take on the portfolio when I want to step aside.
Your boys sound like they absorbed all that you guys taught. They sound like they will make their fortunes much more wisely than their peers vs slaving away to live pay check to paycheck. That's all I really hope for as a father.
You bring me hope and reinvigorate me with your story. I hope to hit 15M in 2024. I wont wait until 20M to splurged. I have not splurged any profits and have only reinvested. I plan to buy myself something nice next year... looking for a 2006 to early 2007 Cummins Ram 3500 manual shift with 4x4 that is under 200K miles on the odometer. We all have dreams, that's been mine. We been driving our car for almost 20 years and its almost time for another vehicle. I'll pass the old car to my oldest son when he gets his permit next year.
Thanks for the awesome thread. So many golden nuggets.

You know, it's kind of weird. Making money is not hard in the sense of "how" it is only hard in the sense of delayed gratification. Making money is quite simple, you can go get a job and presto, you have money. Working two jobs, presto double the money. Live cheap, presto more to save. Look cool while doing this, not so much. Look cool later after doing this, ABSOLUTELY lol.
I wish you and your kiddos the best! Sounds like they are on the right track for sure.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Quote from @Account Closed:

Quote from @Sam Yin:

@John V.
Awesome stuff! I have been laboring to do the same with my kids. They are quite a bit younger. Got my youngest started at 9 years old. I gave her a laundry room to manage at one of the apts. My boys were a few years older but passed on it. As they saw her account grow $500/m, they got jealous. They fought for the other laundry rooms but I made them all share it as punishment for not taking on the first offer.🤣😎
Part of it was to get them to manage money. It's been almost 2 years and they are on their way. I push more financial intelligence down their throat everyday. The baby girl will be 11 yr old next week and has enough to begin hunting for a small investment of her own. She may be the first to buy a small property.
I'm hoping at least one of the three will want to take on the portfolio when I want to step aside.
Your boys sound like they absorbed all that you guys taught. They sound like they will make their fortunes much more wisely than their peers vs slaving away to live pay check to paycheck. That's all I really hope for as a father.
You bring me hope and reinvigorate me with your story. I hope to hit 15M in 2024. I wont wait until 20M to splurged. I have not splurged any profits and have only reinvested. I plan to buy myself something nice next year... looking for a 2006 to early 2007 Cummins Ram 3500 manual shift with 4x4 that is under 200K miles on the odometer. We all have dreams, that's been mine. We been driving our car for almost 20 years and its almost time for another vehicle. I'll pass the old car to my oldest son when he gets his permit next year.
Thanks for the awesome thread. So many golden nuggets.

You know, it's kind of weird. Making money is not hard in the sense of "how" it is only hard in the sense of delayed gratification. Making money is quite simple, you can go get a job and presto, you have money. Working two jobs, presto double the money. Live cheap, presto more to save. Look cool while doing this, not so much. Look cool later after doing this, ABSOLUTELY lol.
I wish you and your kiddos the best! Sounds like they are on the right track for sure.
Why can't you "look cool doing it"?
1 Reply
Account Closed
Developer · Austin, TX · Member since 2018 · 23 posts · 15 votes
3y
Quote from @Joe Villeneuve:

Quote from @Account Closed:

Quote from @Sam Yin:

@John V.
Awesome stuff! I have been laboring to do the same with my kids. They are quite a bit younger. Got my youngest started at 9 years old. I gave her a laundry room to manage at one of the apts. My boys were a few years older but passed on it. As they saw her account grow $500/m, they got jealous. They fought for the other laundry rooms but I made them all share it as punishment for not taking on the first offer.🤣😎
Part of it was to get them to manage money. It's been almost 2 years and they are on their way. I push more financial intelligence down their throat everyday. The baby girl will be 11 yr old next week and has enough to begin hunting for a small investment of her own. She may be the first to buy a small property.
I'm hoping at least one of the three will want to take on the portfolio when I want to step aside.
Your boys sound like they absorbed all that you guys taught. They sound like they will make their fortunes much more wisely than their peers vs slaving away to live pay check to paycheck. That's all I really hope for as a father.
You bring me hope and reinvigorate me with your story. I hope to hit 15M in 2024. I wont wait until 20M to splurged. I have not splurged any profits and have only reinvested. I plan to buy myself something nice next year... looking for a 2006 to early 2007 Cummins Ram 3500 manual shift with 4x4 that is under 200K miles on the odometer. We all have dreams, that's been mine. We been driving our car for almost 20 years and its almost time for another vehicle. I'll pass the old car to my oldest son when he gets his permit next year.
Thanks for the awesome thread. So many golden nuggets.

You know, it's kind of weird. Making money is not hard in the sense of "how" it is only hard in the sense of delayed gratification. Making money is quite simple, you can go get a job and presto, you have money. Working two jobs, presto double the money. Live cheap, presto more to save. Look cool while doing this, not so much. Look cool later after doing this, ABSOLUTELY lol.
I wish you and your kiddos the best! Sounds like they are on the right track for sure.
Why can't you "look cool doing it"?

Truthfully, I always look cool doing whatever :) but in general looking cool while doing it is considered impossible or doing it wrong.
1 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 583 posts · 738 votes
3y
Quote from @Joe Villeneuve:

Quote from @Account Closed:

Quote from @Sam Yin:

@John V.
Awesome stuff! I have been laboring to do the same with my kids. They are quite a bit younger. Got my youngest started at 9 years old. I gave her a laundry room to manage at one of the apts. My boys were a few years older but passed on it. As they saw her account grow $500/m, they got jealous. They fought for the other laundry rooms but I made them all share it as punishment for not taking on the first offer.🤣😎
Part of it was to get them to manage money. It's been almost 2 years and they are on their way. I push more financial intelligence down their throat everyday. The baby girl will be 11 yr old next week and has enough to begin hunting for a small investment of her own. She may be the first to buy a small property.
I'm hoping at least one of the three will want to take on the portfolio when I want to step aside.
Your boys sound like they absorbed all that you guys taught. They sound like they will make their fortunes much more wisely than their peers vs slaving away to live pay check to paycheck. That's all I really hope for as a father.
You bring me hope and reinvigorate me with your story. I hope to hit 15M in 2024. I wont wait until 20M to splurged. I have not splurged any profits and have only reinvested. I plan to buy myself something nice next year... looking for a 2006 to early 2007 Cummins Ram 3500 manual shift with 4x4 that is under 200K miles on the odometer. We all have dreams, that's been mine. We been driving our car for almost 20 years and its almost time for another vehicle. I'll pass the old car to my oldest son when he gets his permit next year.
Thanks for the awesome thread. So many golden nuggets.

You know, it's kind of weird. Making money is not hard in the sense of "how" it is only hard in the sense of delayed gratification. Making money is quite simple, you can go get a job and presto, you have money. Working two jobs, presto double the money. Live cheap, presto more to save. Look cool while doing this, not so much. Look cool later after doing this, ABSOLUTELY lol.
I wish you and your kiddos the best! Sounds like they are on the right track for sure.
Why can't you "look cool doing it"?

With a little delay, I just want to come out looking super cool.
Seriously though, I think it's been cool knowing that the investing and reinvesting paid off. All the delayed gratification was way worth it. I never felt uncool doing it, I just had a goal in sight.
Funny thing, I found the dream truck back in March. Perfect everything, down to the color. Even struck and awesome deal with the seller. I backed out because I wanted the money to go into reinvesting. Ended up picking up an additional 6 units in April.

As much as I regret not grabbing that truck, I know I made a better choice with those funds. I experimented with the knowledge I picked up from BP. Raised $160K, put in a small bit of my own, and nabbed the apt. I retained 100% equity stake and still had enough for cashflow using 90% OPM.
1 Reply
Brandon Ly
Member since 2022 · 18 posts · 10 votes
3y
Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
1 Reply
Connor Mannion
Rental Property Investor · Member since 2023 · 1 post · 0 votes
3y
Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.
Yes of course you want both - cash flow and appreciation.

Then the question is: How does each investor weigh cash flow against appreciation?

in my 45 years of investing experience, I have noticed that more dramatic growth areas those that offer higher probabilities of significant appreciation comes at a cost in terms of reduced cash flow. Conversely I have found that areas that offer more predictable stable cash flow generally offer low appreciation.

Most knowledgeable investors understand investing in Boise or Austin or Phoenix or Nashville or Charlotte may provide less cash flow than investing in more stable markets like Tulsa or Indianapolis or Kansas City for example.

So for me I will choose investments that offer lower cash flow in exchange for higher rates of appreciation.

So I choose appreciation over cash flow but I still get both.

Other investors can choose how they want to invest. Hope there is no problem with that. 😀

That makes sense. Since you will build more wealth over time from investing in markets that have greater potential for appreciation, for a new investor with less capital to start out what do you recommend? A market like Charlotte for example has higher property prices and will require a larger down payment to produce cash flow. Is it worth to wait until more capital is available to invest in that type of market? Or choose a more linear market such as Indianapolis where you can still produce cash flow with less money down, and gain experience to be able to make better investments in the future.
0 Reply
Matt Greer
Real Estate Agent · Mesa, AZ · Member since 2017 · 230 posts · 169 votes
3y
I have to agree. I have worked in two different markets. One had a high cashflow rate with minimal appreciation and the other had minimal cashflow with higher appreciation. A lot of investors have been lured in by the high cashflow but the investors who purchased in the higher appreciating area have had much more of a gain so much so that it's offset the lower cashflow.
1 Reply
Christopher Mooney
Member since 2019 · 45 posts · 47 votes
3y
@Shiloh Lundahl that's a very awesome answer! Thanks for those insights!!!
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Quote from @Brandon Ly:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
"What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property."

If it took $100k to buy $1000/month in CF I wouldn't buy it either. That doesn't mean cash flow isn't King. It's just an example of why you wouldn't buy the property.
0 Reply
Charley Gates
Investor · Meadville, PA · Member since 2021 · 75 posts · 45 votes
3y
Quote from @Joe Villeneuve:

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.

I agree with Joe. A good investment has both positive cash flow and long-term appreciation. When I analyze a property, I do not factor in any appreciation. I also partition the IRR to understand how much of the return is coming from cash flow and how much is coming from the sale of the property. Positive cash flow reduces risk.

@@Arn Cenedella thank you for the thoughtful post to jump start this great conversation!

1 Reply
Account Closed
Helena, MT · Member since 2015 · 12 posts · 11 votes
3y
Quote from @David M.:

Quote from @Account Closed:

Arn,
Thanks for the response. To answer some questions..
It is a SFR in Park City, UT. My basis is around 12k "I used a VA loan". Value is around 1.5, the loan balance is 409k, my interest rate is 3%, and the purchase price was 525k in 2013.
I agree about the idle capital. The property has obviously exploded in value. The market will continue to gain value but there is a sealing " to a degree" on the rent. I just don't know if I should continue to ride the equity train or find a higher cash-flow property. Wether it be a few rentals paid outright, or a fourplex or something.

@Account Closed
So, what are your goals?
Its easy to use metrics/statistics to say "anything..."
Looks like you have ~1mil in equity that sounds like you say not doing anything for you... Its really just untapped appreciation. Your $12k "got you" $1mil !!! Holy. break out the crystal ball --- do you keep riding the appreciation? do you think the appreciation is done and "cash-in" and get more properties?
What if you just keep patient? Use the power of leverage to pay off the loan? If it doesn't appreciate you will have $1.5mil free and clear, and then look at your cash flow. What is that, 20 years (didn't pull out a table) and you'll have some cash flow to live off assumed closer to retirement. Or, take the $1.5mil and invest / live off it. by then it might be $3mil....
So, it goes back to your goal/strategy. No... saying that you just want checks in the mail or be rich isn't an answer. Is $1.5mil enough for you? Is $1mil enough for you? could you retire now? What about retire "later?" If one property won't get you enough, then you should probable scale and leverage some more to meet your goal.
In my opinion, the "good" investors / wealthy persons are not "one trick" wonders. They invest where the opportunities are and invest in a manner that meets their goals (for themselves and for their whole family). This includes different types of real estate investments and non-real estate investments. A rental isn't the end all.
Hope that helps. Good luck.

Hey David,

The matter of appreciation is tough. Logically, one would assume there is some cap to a degree. It is a SFR, 2400 sq/ft in a neighborhood. In terms of cash flow being enough is tough to say. Even if I paid off the loan, I would net 4k/mo. But... having 1.5m producing 4k is tough to swallow. My plan was originally to eventually pay it off and it would be a nice income check during retirement "I'm only 38" so I have a few years to go. Anyway, because I have so much equity in the property, I feel like doing a 1031 into a fourplex, or multiple for that matter might be a better long-term option. Obviously the market matters. I am strongly considering Boise, as I have family there and the town has exploded. In my mind, it's a matter of more units equals more profit. Obviously, there is way more that goes into it than that, but good properties, in good markets, can make good money.
I have also been involved in three syndicated apartment deals in TX. CoC is relatively low, they are value add deals so the refi/sale is most of the profit point. I say this because it seems like I have done better with a couple of SFR than apartment deals. Buying more expensive than the first-time investor, but less expensive than the multi-million dollar deals seems like a nice area of the market.
In all honesty, I feel a bit of imposter syndrome, I am making progress, but I think I could be making a lot more if I knew what I was doing.
0 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Connor Mannion:

Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.
Yes of course you want both - cash flow and appreciation.

Then the question is: How does each investor weigh cash flow against appreciation?

in my 45 years of investing experience, I have noticed that more dramatic growth areas those that offer higher probabilities of significant appreciation comes at a cost in terms of reduced cash flow. Conversely I have found that areas that offer more predictable stable cash flow generally offer low appreciation.

Most knowledgeable investors understand investing in Boise or Austin or Phoenix or Nashville or Charlotte may provide less cash flow than investing in more stable markets like Tulsa or Indianapolis or Kansas City for example.

So for me I will choose investments that offer lower cash flow in exchange for higher rates of appreciation.

So I choose appreciation over cash flow but I still get both.

Other investors can choose how they want to invest. Hope there is no problem with that. 😀

That makes sense. Since you will build more wealth over time from investing in markets that have greater potential for appreciation, for a new investor with less capital to start out what do you recommend? A market like Charlotte for example has higher property prices and will require a larger down payment to produce cash flow. Is it worth to wait until more capital is available to invest in that type of market? Or choose a more linear market such as Indianapolis where you can still produce cash flow with less money down, and gain experience to be able to make better investments in the future.
That’s a good question.

I guess my counsel would be to get in the game with a first acquisition, get your feet wet and learn. Getting into an actual deal is more important than “finding a great deal”. One could spend year looking for the perfect market or the perfect deal on a property.

I’ve never tried to be a “martlet timer”. I just invested as time and money allowed - over time and built and portfolio and gained experience as I went. Of course I tried to invest in growth market good markets.

But more than anything, the key to investing is local market knowledge. There are good deals in any market but the you can’t know a good deal from a bad deal unless one knows the market.

Yes the return metrics resulting from numbers entered into the spreadsheet are important but the expression GIGO garbage in garbage out applies. If one doesn’t know the market it is highly likely some of the numbers entered into excel are erroneous and therefore are erroneous. Lots of investors consider themselves spreadsheet ninjas but spreadsheet ninjas are synonymous with smart investors.

My sense is IF you live in a market with good growth potential, I’d start there. Find a couple of neighborhoods that are up and coming in the path of progress and really drill down into two or three neighborhoods get to know those sub markets know every house that comes on the market and sells. Contact brokers in those neighborhoods and let them know you are a buyer.

If where you live isn’t a good investment market, then pick one or two out of area markets, and do as above. Visit often see property track the market develop contacts with brokers and PMs and invest there.

Pick a market you can get too easily because you will need to go back and forth often. 3 or 4 hour drive maybe. One flight at the most two flights from home to the out of state market.
I guess what I am trying to say is don’t look for the perfect market look for one or two good markets and really drill down in those. Don’t spread yourself too thin. Don’t try to buy in 5 different markets. Drill down focus narrow the search.

If out of area as a newer investor I don’t think the hottest markets would be the place to start. DFW Austin Nashville Charlotte probably aren’t markets you could be competitive the competition is too fierce and the pricing really high.
I live in Greenville SC and also am looking to buy in NC. I’m looking in Greensboro and Winston-Salem. Charlotte and Raleigh is on the national radar for all investors. Greensboro not as much. So that might be a more fertile market for a newer investor.
All this being said, we are all unique with our strengths and weaknesses AND there are a Million ways to make money in RE. Each of us needs to find what suits us best and then drill down with those strengths and a plan. I suggest you do the same and honestly evaluate your situation and determine the best path for YOU.
I’d say start local if that at all makes sense. Get a couple properties under your belt, learn, evaluate what works and why doesn’t. Adjust your game plan accordingly.

I know people will object but my approach has been slow and steady. The finish line isn’t three years from now - for most of us it is 7 to 10 years. If your approach investing as a long term path you will make fewer mistakes along the way.
We all KNOW the cost of housing long term is NOT going down.
Good luck!
[email protected]650-575-6114
2 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Matt Greer:

I have to agree. I have worked in two different markets. One had a high cashflow rate with minimal appreciation and the other had minimal cashflow with higher appreciation. A lot of investors have been lured in by the high cashflow but the investors who purchased in the higher appreciating area have had much more of a gain so much so that it's offset the lower cashflow.

Good point.

Let’s assume a 5 year hold.

Investor A
8% average annual cash flow over 5 years
5% appreciation annually over 5 years
Investor B
2% average annual cash flow over 5 years
10% appreciation annually over 5 years.
Which investor has more money at the end of 5 years?
I believe the math will say Investor B. Plus more of the income for B will be taxed as long term capital gain.
And remember the annual cash flow rates are applied to the cash invested whereas the appreciation rates are applied to the total price of the investment. The power of leverage kicks butt. 👍
[email protected]650-575-6114
1 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

You are good with the way how you rephrase it, I can't put it better than you

A property is a "Chicken", which plops out rents("eggs").
Way too many have a FILED logic of being hyper-focused on how to get "A" chicken that makes way more "egg's" than the egg's it costs to get that chicken.
NO. The CORRECT way is the Sam Walton way, it is.
It's about VOLUME. VOLUME is the key, not the individual profit size.
The magic is in a solid, repeatable profit, done many times over. VOLUME of reliability.
Cash-flows are BUILT, not bought. Way too many going off HORRIBLE "guru" direction of BUY cash-flow, NO, that was a decade ago, just as useful as a book on dancing from '79', good luck with those jazzy disco-moves.
The FUNDAMENTAL profit and wealth creating "Fairy Dust" of REI is LEVERAGED FUNDS. Making $ on OPM. You get to gain control of something you don't own. So, done small, means profit small. Done on VOLUME, it is profits on VOLUME. Profit margin GROWS as volume grows. I know, this is into advanced level mathematics but follow-the-bouncing-ball.
Remember, the fundamental rule is making $ on OPM, yes? As scale grows, so does returns rate because your making ACTIVE and APPRECIABLE gains on that OPM. The rate of return is a compounding return factor, yes, INFINATE returns on certain scales of volume and reinvestment.
It's an absolute NO BRAINER that REI operates in 2 phases; GROWTH and CONSOLIDATION. You can't do 1 well while doing the other. Try it, try going left while going right.
Yea proper use of leverage with fixed rate debt is a key advantage of REI over other forms of investment.

💯
[email protected]650-575-6114
0 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Charley Gates:

Quote from @Joe Villeneuve:

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.

I agree with Joe. A good investment has both positive cash flow and long-term appreciation. When I analyze a property, I do not factor in any appreciation. I also partition the IRR to understand how much of the return is coming from cash flow and how much is coming from the sale of the property. Positive cash flow reduces risk.

@@Arn Cenedella thank you for the thoughtful post to jump start this great conversation!

The idea of partitioning the IRR is a good one. It shows the investor clearly where his projected gain is coming from.

And yes my post was intended to spark some spirited discussion which it appears it has.

Different strokes for different folks makes the world go round. If we all looked at deals the same way, where’s the fun?

The great thing about investing is each investor puts their money where their mouth is and then the live with the results. It’s not a theoretical exercise. It’s a real world challenge.
[email protected]650-575-6114
1 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Joe Villeneuve:

Quote from @Brandon Ly:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
"What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property."

If it took $100k to buy $1000/month in CF I wouldn't buy it either. That doesn't mean cash flow isn't King. It's just an example of why you wouldn't buy the property.
So $12,000 a year CFI (that’s $1,000 a month) is a 12% annual cash on cash return for $100,000 investment.

I don’t think you mean that do you?

I think even “cash flow is king” investors would be pleased with a 12% annual cash on cash return.
[email protected]650-575-6114
1 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Konstantin Ginzburg:

@Arn Cenedella
I think you do bring up some good points; however I believe this view is a bit overly simplified. I personally view any investment as a combination of opportunity cost and most efficient use of available capital. There are trade offs with any investment. Some markets offer higher appreciation over time but at the cost of minimal or no initial cash flow while other markets offer lower long term appreciation but higher cash flow. It is important to remember that in the latter market; the property appreciation is not 0; those properties will still offer long term appreciation returns simply at a slower rate than other markets. In my opinion, the trade off to foregoing cash flow though is that it limits your options and creates more risk exposure. If your cash flow is minimal initially; you may have enough built up reserves for smaller repairs such as a broken window but larger repairs such as roof repairs or HVAC might wind up coming out of pocket if there has not been enough cash accrued to pay for this cost.
Minimal cash flow also prevents other opportunities such as using this revenue source to fund additional real estate purchases which would allow you to scale your portfolio or put into other assets instead. From a non-financial standpoint; many people's ideal goal with real estate is to create a revenue source that would either supplement their lifestyle or provide the freedom to leave their W-2 jobs. This requires a focus on cash flow so that a revenue stream can be created that replaces their salary. While long-term wealth is a great goal; wealth for the sake of wealth that is locked up in properties does not hold the same appeal as a source of revenue that allows one to enjoy life in whatever means they want to; whether it be travel or more time with family.
I see nothing wrong with your mindset but I believe it comes down to what a person's goals actually are. A financial strategy can not be a "one size fits all" that is suited for everyone but instead different financial strategies should be employed by different people to fit what their actual goals are.
While it may be harder now to find cash flowing properties, it can certainly be accomplished; granted not in every market. This is another trade of example. Finding deals that are able to cash flow with a 20% deposit is still possible to do but will require far more time and effort sifting through many deals. I have personally been able to find such deals but doing so required sorting through dozens, if not 100s of deals to find those that met my criteria.
Can’t argue with you thoughts. Well reasoned and makes sense. Lots of paths available to RE investors. Each of us needs to find the right path.
[email protected]650-575-6114
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

Quote from @Brandon Ly:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
"What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property."

If it took $100k to buy $1000/month in CF I wouldn't buy it either. That doesn't mean cash flow isn't King. It's just an example of why you wouldn't buy the property.
So $12,000 a year CFI (that’s $1,000 a month) is a 12% annual cash on cash return for $100,000 investment.

I don’t think you mean that do you?

I think even “cash flow is king” investors would be pleased with a 12% annual cash on cash return.
...and it would take 8 years to recover the $100k, meaning 8 years before I recovered my cost. This doesn't include any other costs such as vacancy, rehab (out of pocket), etc..., that would extend that recovery period even longer.
Percentages lie.
0 Reply
Curtis Cecil
Involved In Real Estate · Chandler, AZ · Member since 2009 · 22 posts · 5 votes
3y
Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

Quote from @Brandon Ly:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
"What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property."

If it took $100k to buy $1000/month in CF I wouldn't buy it either. That doesn't mean cash flow isn't King. It's just an example of why you wouldn't buy the property.
So $12,000 a year CFI (that’s $1,000 a month) is a 12% annual cash on cash return for $100,000 investment.

I don’t think you mean that do you?

I think even “cash flow is king” investors would be pleased with a 12% annual cash on cash return.

Sorry, long time lurker but trying to get back into RE investing. I was lost on that comment about why someone wouldn't buy a $100k house if it was making $1k a month in rents...? Why not?
I'm about to buy a house from my father who had the house for about 13 years. He bought it for $27k from a sheriff auction and put about $24k in renovation dollars. He's selling it because he doesn't want it anymore and it's out of state for him. I offered to buy it since there were a lot of investors that were jumping on the deal so it must be good. From what I figured out, it's not the best neighborhood but it rents out for $1500/mo. Purchase price is $50k, rehab costs is around $15k.
My goal is replace my W2 income with real estate so why not BRRRR with the first house being this house. I understand interest rates are high but why do people think BRRRR is dead?
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Quote from @Curtis Cecil:

Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

Quote from @Brandon Ly:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.
It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.
I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.
One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.
I’d submit investing for capital growth is by far the better option for many.
Aim to hit line drive base hits not grand slams.

Agree 100%. Cash flow is nice but it isn't "King". What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property. It'll take you over 8 years to recoup your OOP costs. Value add is the best way to go and using the banks money to finance the projects. If you have an opportunity to add an additional unit or two so the rents cover the financing (like from a HELOC) and then profit from the positive cash flow, that's truly how it should be defined.
Personally, it doesn't truly count as cash flow until you've recouped your initial investment. Additionally, the appreciation in the property you can cash-out refi or take a HELOC against which is not taxed whereas cash flow is taxed.
"What's the use of cash flowing $1000 per month if if it cost you $100,000 out-of-pocket to secure the property."

If it took $100k to buy $1000/month in CF I wouldn't buy it either. That doesn't mean cash flow isn't King. It's just an example of why you wouldn't buy the property.
So $12,000 a year CFI (that’s $1,000 a month) is a 12% annual cash on cash return for $100,000 investment.

I don’t think you mean that do you?

I think even “cash flow is king” investors would be pleased with a 12% annual cash on cash return.

Sorry, long time lurker but trying to get back into RE investing. I was lost on that comment about why someone wouldn't buy a $100k house if it was making $1k a month in rents...? Why not?
I'm about to buy a house from my father who had the house for about 13 years. He bought it for $27k from a sheriff auction and put about $24k in renovation dollars. He's selling it because he doesn't want it anymore and it's out of state for him. I offered to buy it since there were a lot of investors that were jumping on the deal so it must be good. From what I figured out, it's not the best neighborhood but it rents out for $1500/mo. Purchase price is $50k, rehab costs is around $15k.
My goal is replace my W2 income with real estate so why not BRRRR with the first house being this house. I understand interest rates are high but why do people think BRRRR is dead?
It takes too long to recover your cost...which is the cash that comes out of your pocket.
As far as your father's house goes, you stated incomplete sets of numbers. Rent doesn't matter, cash flow does. What you payed for the house doesn't matter. What matters is the property value.
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