Advice on building equity or cash flow

Real Estate Agent · NV · Member since 2023 · 1k+ posts · 713 votes

1y

This is the classic question. If you buy a property all cash, you’ll maximize cash flow—but most investors use financing, which means interest rates and down payment size will directly affect returns.

Cash flow can quickly turn negative with major repairs or long vacancies. Multifamily properties like duplexes, triplexes etc, can help by reducing vacancy risk and boosting income.

In markets with strong appreciation, true cash flow deals are rare. Despite what some say about the Midwest, those areas often lack long-term equity growth. There are multiple posts about this.

Buy in a market with consistent historical appreciation—typically where there’s limited housing supply, population growth, job creation, good weather, and proximity to a major airport. Aim to break even (or close), and look for value-add opportunities to build equity immediately and over time. Hold long enough, and paying down the loan builds both equity and future cash flow.

1 Reply

Eric FernwoodBusiness Member

Realtor · Las Vegas, NV · Member since 2014 · 995 posts · 1k+ votes

1y

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

I hope this helps.

[email protected]702-358-8884

FERNWOOD Team, KW VIP Realty520 Reviews

Website View Page

2 Reply

Jessica YuanPro Member

OP

New to Real Estate · San Francisco Bay Area, Columbus OH · Member since 2025 · 31 posts · 42 votes

1y

Quote from @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

I hope this helps.

very helpful, thanks for the thoughtful response!

0 Reply

Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

11mo

I aim for a property that will provide both cash flow and appreciation.

Some years, your cash-flow will be high and your appreciation will be low
Some years, cash flow will be low and appreciation will be high
Some years, both will be low
Some years, both will be high.

If your cash-flow is atleast positive, the property itself won't force you to sell the property.

[email protected]917-280-8544

Basit Siddiqi CPA4.979 Reviews

View Page

0 Reply

Deborah Wodell

Lender · Sanford, NC · Member since 2024 · 348 posts · 116 votes

10mo

Dave’s approach makes sense:
Equity-focused deals can grow your net worth faster through value-add, appreciation, and leverage. That gives you capital you can redeploy into stronger cash-flow deals later.

Cash-flow-focused deals are better if you want stability, lower risk, or income right away.

For a first rental, a balanced play usually works best:
A property with decent cash flow and a realistic value-add angle. That way you’re protected on the downside but still building equity.

Since you’re looking out of state, choose a market with strong comps, reliable property managers, and steady rental demand — it makes the strategy much easier to execute

0 Reply

Nadeem Alamgir

Real Estate Agent · Member since 2023 · 831 posts · 577 votes

10mo

@Jessica Yuan
Early on, most investors lean toward value add deals because that’s where you build equity fast, even if the cash flow is average. This strategy can generate a lot of capital to reinvest into stronger appreciation plays later, but it’s also the most time intensive.

In reality, you need both. Safe cash flow and some equity upside. That’s what keeps a portfolio healthy long term.

0 Reply

Aya Abdelraof

Member since 2026 · 1 post · 0 votes

7mo

Great points on the equity vs cash flow balance.

One thing I'd add for anyone looking at Texas markets specifically -

property taxes can swing your cash flow math significantly year to year.

I've seen 15-20% assessment jumps on investment properties with no

cap protection (unlike homesteads).

The good news: Texas has one of the highest protest success rates

in the country (~70-85% at informal hearings). I protest every year

and it's become part of my annual "cash flow maintenance" routine.

Quick tip: before you spend time gathering comps, check if you're

actually over-assessed first. I use texastaxsignal.com to compare my

properties against neighborhood values - takes 30 seconds and tells

you if it's worth protesting. Saved me from wasting time on one

that was already fairly assessed.

For Texas investors, building this into your annual workflow can

recover $500-1500/property/year - meaningful for cash flow.

0 Reply

Bo SmithPro Member

Hinton, WV · Member since 2026 · 1k+ posts · 373 votes

7mo

Honestly depends on your timeline and market. I've seen people chase cash flow in C neighborhoods and get crushed by repairs and vacancy. Meanwhile equity builds are boring but you sleep better at night. What's your risk tolerance looking like right now?

0 Reply

Jeff Roth

Real Estate Consultant · Ann Arbor, MI · Member since 2022 · 464 posts · 253 votes

7mo

Hi Jessica from the San Francisco Bay Area in California-

Great question! You are looking to buy your first rental property and wonder if you should invest for appreciation or cash flow. You are in an expensive area and looking to invest out-of-state.

Personally, having strong cash flow in a linear market that also has value-add potential is a great way to insulate yourself from the effects of more cyclical markets as equity can go up or down but you are always profitable with strong cash flow and forced appreciation with adding value.

A duplex is also better than single-family homes as you should always have a rent check coming in.

There are many markets in Michigan that offer this mix for investors and we help many clients from the Bay Area and California.

To Your Success!

0 Reply

Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

7mo

Quote from @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!

That approach is very similar to the advice most financnial professionals give their clients.

Invest in riskier stocks when you are younger as you have more time for your investsments to recover from mistakes.

During middle-age change to safer stocks.

Approaching retirement you want to invest to protect your wealth & cashflow.

Can do something similar with real estate, but real estate is different than stocks/bonds due to required mortgage payments.

[email protected]248-209-6824

Logical Property Management4.9458 Reviews

Website View Page

1 Reply

Advice on building equity or cash flow

Advice on building equity or cash flow

Most Popular Reply

10 Replies