Advice on building equity or cash flow

[Jessica Yuan]

Hello everyone,

I'm looking to buy my first rental property and when I was reading Dave Mayer's Start with Strategy book, he mentioned a very interesting point:

"one approach that I personally subscribe to is to focus on equity growth early in your career and then shift the balance of your portfolio towards cash flow later. The idea is not to completely ignore cash flow, but rather to seek deals for their potential for equity gains, even if that means a modest cash-on-cash return.

Due to the combined forces of value-add, market appreciation, amortization, and leverage, seeking deals that build equity can generate large amounts of capital with which you can reinvest. If you spend the early days amassing equity, getting cash flow later in your career is relatively easy, you can do it through rebalancing and deleveraging."

Is this the strategy that you guys are using? Any advice on focusing on equity or focusing on cash flow for my first rental property? This will really help with what deals I should look into. I'm currently researching long-distance investing since California is not affordable for me.

Thank you!

[Eric Fernwood]

Hello @Jessica Yuan,

You need both. Cash flow pays bills, and appreciation grows wealth.

If your goal is long-term financial independence, then you need a rental income that increases faster than inflation and will last throughout your lifetime. Also, you'll likely need more than one property to replace your current income so you need to acquire multiple properties with the least additional capital.

Rents follow property prices, with a 2 to 5 year lag. When prices are high, fewer people can't afford to purchase so they are forced to rent. The increased demand for rental properties increase rents. When prices are low, more people can afford to purchase and fewer people rent leading to static or declining rents.

The city requirement for rising prices and rents can be summarized as follows:

• Significant and sustained population growth. Population growth is the demand side of the supply and demand equation.

• Low crime. People move to a city for a job. They don't just randomly move. Companies hesitate to set up new operation in cities known for high crime.

• Low operating costs. Every dollar you lose to overhead is a dollar less for you to live on. Some states, like Texas and Florida, have very high operating costs. Nevada has relatively low operating cost. Here’s a comparison of average homeowners insurance costs and property tax rates in 2025 for Florida, Nevada, and Texas:

  State	Avg. Homeowners Insurance (Annual)	Avg. Property Tax Rate	Typical Annual Property Taxes
  Florida	$2,625 [per year]nerdwallet	0.80%	~$2,338 makefloridayourhome
  Nevada	$1,305 [per year]nerdwallet+1	0.50%	~$1,335 (on $267K median) worldpopulationreview+1
  Texas	$4,585 [per year]nerdwallet	1.60–2.50%	~$5,200–$7,500+ (on $325K) hometaxsolutions

Key points:

• Florida and Texas rates can be much higher in coastal or urban areas, and local tax rates vary. Nevada also offers some of the lowest property taxes nationwide.

Sources:

• Homeowners insurance: National/state averages for $300K dwelling coverage with typical deductible.nerdwallet+1
• Property tax: State/local government averages and example calculations.makefloridayourhome+3

1. https://www.nerdwallet.com/article/insurance/average-homeowners-insurance-cost
2. https://www.makefloridayourhome.com/florida/blog/property-tax-in-florida
3. https://www.nerdwallet.com/insurance/homeowners/nevada-home-insurance
4. https://worldpopulationreview.com/states/nevada/property-tax
5. https://smartasset.com/taxes/nevada-property-tax-calculator
6. https://www.hometaxsolutions.com/2025/06/how-property-taxes-are-determined/
7. https://www.nerdwallet.com/insurance/homeowners/florida-home-insurance
8. https://www.bankrate.com/insurance/homeowners-insurance/states/
9. https://www.axios.com/2025/08/26/home-insurance-premiums-cost-map
10. https://matic.com/cost-of-homeowners-insurance-guide/
11. https://www.moneygeek.com/insurance/homeowners/average-home-insurance-cost-calculator-texas/
12. https://www.greatflorida.com/blog/2025/how-much-is-home-insurance-in-florida/
13. https://www.kiplinger.com/taxes/floridians-vote-to-increase-property-tax-break
14. https://www.moneygeek.com/insurance/homeowners/average-cost-home-insurance-nevada/
15. https://states.aarp.org/texas/texas-homeowners-insurance-rates-rise
16. https://www.texastribune.org/2025/06/04/texas-legislature-property-tax-cuts-2025/
17. https://www.marketwatch.com/insurance-services/homeowners-insurance/average-home-insurance-cost/
18. https://www.rocketmortgage.com/learn/property-taxes-by-state
19. https://www.insurance.com/home-and-renters-insurance/home-insurance-basics/average-homeowners-insurance-rates-by-state
20. https://belonghome.com/blog/property-taxes-by-state-2025

I hope this helps.