Updated about 8 years ago on . Most recent reply
Buy and hold cash flow
I'm not sure if there is "one" answer to my question. However I'm not sure how one should determine cash flow on a SFR or small multi family Buy and Hold. Specifically in regards to the term of the mortgage. Is it common practice to amortize your loan over 30 years or something less? Because I am a bit older (late 50's) I was hoping to cash flow with a 15 to 20 year note so as to quicker build equity while still being profitable. Is it as simple as, "do you want cash flow?" or "do you want to build equity?" I'm just trying to determine what is the best business practice.
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#5 All Forums Contributor
- Plymouth, MI
You're not building equity when you make the payments shorter. All you're doing is reducing your cash flow (instant profit) and transferring your wealth from a liquid form (cash) to a solid object (reduced balance). It's the same money...just s different form.
When you let your tenant make the payments (rent) and keep more of the cash flow (profit) you are ahead.
Cash/money is a verb and built up equity is a noun. Cash as a verb, in motion, brings in a compounded return. Cash as a noun brings in no return. It's the same value going in as it is when it "dies" in the house.
When cash/money is a verb...you win.