I understand the math behind it, so I'm seeking opinions more than anything. I the general consensus in real estate investing is to leverage yourself into greater wealth. While I understand that, I would say it's definitely the long game... having 5 properties valued at 100k each instead of 1 at 100k with the same money in. You won't however, have the same time in. You'll be spending much more time keeping after 5 properties. And your monthly cash flow doesn't seem to be all that much better until you start paying then off. So using generalities let's say I can leverage myself to get 12 units at 100/door. Or I can buy a small multi outright for the same cash in, but net the same 1200. Who believes the risk of leveraging and the interest paid on the loan is worthwhile for the end result of a ton of equity in 25 to 30 years. Who thinks buying outright and gaining the immediate Cash flow is the way to go?

@Shane H. When buying a lesser valued property with cash, you lose 2 major things... 1) Depreciation. Because that value is less, you dont get the same tax savings 2) Interest income writeoff. With no mortgage, you lose the tax benefit of writing off mortgage interest. So even though the two properties "cashflow" the same, you keep significantly more money if you leverage multiple properties with the same cash.

You are over thinking this. Are you sure you want to be a real estate investor? Perhaps mutual funds or treasuries which are far "safer" is what you should be considering. Friendly advice. Real estate is risky. Period. ;-)

Taxes should be 1/3 of your investment strategy.

@Jason D. If you didn't have a loan, the loan payment would go in your pocket each month. Let's say the loan is 100k at 8 percent for 20 years. You've given up $836 of cash flow monthly. At the end of 20 years you will have received 200k less money. That may be an acceptable loss for other reasons such as inflation, increased property value, or simply the coat of money you otherwise didn't have, but it's a loss none the less.

I would go with cash flow at first only if one must due to temporary circumstances. Cash on Cash is clearly the best long term move. This is the only thing that I have relied on. More satisfying and forgiving. Now cash flow is hardly even a consideration.

It depends. I think each individual's situation will dictate what their priorities will be. If someone already has a full time job, then leveraging more to build longer term wealth may be more of a priority than generating immediate high cash flow compared to someone who will be needing that cash flow now as they are doing RE full time. So, the individual's situation will play a big part in this decision.

@Shane H. Investing in NYC in 2002 leverage would have been a great idea. Investing in Detroit in 2002 - not so much. Variables - Age of investor, quality of property, stability of cash flow, makeup of rest of portfolio, amount of cash reserves, attitude toward risk, goals and ambitions, etc. no set answer. 35 years ago I was all about leverage. Now, only use it when rates so low I can’t resist

Cash on Cash or Cash Flow?

Jason D.

Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes

7y

@Shane H. Yes cash on cash for me... if I have $100k, I want the highest return possible from that investment

Cash on Cash or Cash Flow?

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