Equity vs Cash Flow

[AJ P.]

Hi everyone, I came across this internal debate when I compared a fixer I found that I could add a lot of equity to through rehab and another property that didn’t need as much rehab but had an opportunity to increase rents with a little bit of renovations and could have it cash flow nicely. I know in an ideal world having both would be the goal, but in this market its been tough to find either. I'm hoping that once I get my first property under contract the ball will start rolling for me and I'll have the opportunity to continue building my portfolio.

I was wondering if any of you had any insight as to if it’s more important to look for cash flow or equity in a deal? Or does it really depend? I certainly understand the significance of both and can see the strategies behind either, but I was wondering what your options are. Thank you all so much for the advice. I truly appreciate it!

[Shane Elias-Calles]

I would consider more than just the cash on cash return. When I bought my first property I was obsessed with hitting a cash flow number. Turns out that 4 years later the appreciation of the house is 10x what I have made in cashflow over those same 4 years after repairs and everything else that comes with a rental property.

As a result, I now look for properties that cash flow enough to make sure I can keep the house long term. Make sure I have some reserves for each property, and then zero in on properties in highly appreciating markets. It is my opinion that long term appreciation either market or forced is what makes you wealthy, not $200-$500 a month in cashflow.

Hope this helps!