Cashflow over equity

8 Replies

I am just getting into investing and am working on determining my niche, I know my current goal is cashflow over equity. Simply because my short term goal is to be able to quit my W2 job. Once I have reached that goal I plan to transition into a different area with a greater focus on equity. My question is: what is the best way to build cashflow, particularly when starting out? Should I focus on single family or multi-family? Or is there some third option that would work better? 

Notes!  All the cash flow, none of the tenant problems.  You have borrower problems, but if you're looking for cash flow, then those should be minor.

Taxes are different with notes than with traditional real estate, so that's something to keep in mind.

I think it depends somewhat on the market you are targeting. Single family and small multi is the most common place to start. I'd take a look at the location you plan to start. See what the numbers look like in the area and go from there. Our first two deals were a single family home and a duplex, both are working to help us achieve our goals. I think everyone's starting point is different, but location is a huge factor. 

Cash flow is always property specific so as mentioned your location is a huge factor. Focus on your big picture. Buy a multi family property in a good school neighborhood and owner occupy it. Buy it with an easily assumable loan like FHA. Then you can pass it on to the next start up investor when your goals develop. The rents on the other units will cover your mortgage/personal housing costs which is a big boost. Overall always live below your means. Limit your $$ in depreciating assets like cars. Take advantage of a self employed retirement plan as soon as you can.

@Andrew Sanders I have found that generally MF does cashflow better than SFH. Obviously a steal on a SFH could perform better.

One of the ways that I have really increased my monthly cashflow in Columbus is utilizing owner occupant products and then moving into the next one. 

On the first double I bought here I have a VA loan with 0% down and a 2.875% interest rate. This compared to the regular 25% down is great and hard to beat! With any owner occ loan you will be able to put little down thus increasing and amplifying your COC return. As long as you focus on your cash and treat it like the only rocket fuel you have, you'll be on the right bath.

Rocket fuel analogy is from Crushing It in Apartments and Commercial Real Estate by Brian Murray... have to give the man credit!

@Andrew Sanders I cash flow is your goal than go for the best cash on cash returns you can find. That could be notes, it could be small multi family, I could be larger multi-family or it could be single family homes.  Which is best will depend on your geographic area. In my area contrary to what was said above, single family homes outperform Multi-family. That is due to the high prices and low cap rates for multi-family here.

As @Glenna Wood said it is deal specific. A great deal on a single family home might be better than a multi, even if multi's tend to do better in your area. 

Thanks for all the responses! I completely missed all the notifications as they were posted (not sure why.....). Basically, what I'm reading is; learn my market. Which I feel should have been obvious to me lol. Again, thanks for all the advice, I'm super pumped to find my first property in the next couple months!

What are you good at and comfortable with doing? That is one thing to consider. Another is right now real estate is on fire in most of the country and where you will find cash flowing properties on paper may not truly cash flow based on true costs of ownership. I would recommend diversification and have both. If you ask most people, building equity is the long term play and can live more comfortably than buying cash flowing rentals that have very little appreciation. 

Just my 2 cents but there is not a one size fits all as geography, amount of $ you have, age, risk profile and replacement income trying to get to makes a huge difference. 

I like cash flowing investments as they have a better chance of surviving any downturns in the market.  With notes we focus on cash flow protected by equity in a property.