All Forum Posts by: Arn Cenedella

Love this post. Makes a lot of sense :)

Not talked about enough. 

I respect your opinion and I'm approaching my 50s and I have a growth mindset but I disagree with your statement about cashflow not being king. In residential real estate you are probably right because of the way properties are appraised for value. 

But if you are int he commercial space, multifamily 5+ units Cashflow is and will always be king. Without it you can't achieve growth not matter how hot the market is. I'm sure a hot market can drive cap rates down and sitting on a negative cashflow property might appreciate a bit over time but that runs contrary to your goal which is to grow fast. It also take your own decision making out of the equation you are left to the whims of the market. 

If I have a $2mil property, 20 units with an NOI of $216k and a cap rate of 10.8% and I replace appliances in all my unit ($2000/unit or $40k of rehab)) and raise rents by $100 dollars I increased the value of the property to $2.1mil. For a $40k investment I made $100k. All by increasing cashflow.

@Arn Cenedella I agree generally but everyone has different goals.

For you personally how long did you focus on growing your wealth before you pivoted to cashflow?

@Arn Cenedella

I think you do bring up some good points; however I believe this view is a bit overly simplified. I personally view any investment as a combination of opportunity cost and most efficient use of available capital. There are trade offs with any investment. Some markets offer higher appreciation over time but at the cost of minimal or no initial cash flow while other markets offer lower long term appreciation but higher cash flow. It is important to remember that in the latter market; the property appreciation is not 0; those properties will still offer long term appreciation returns simply at a slower rate than other markets. In my opinion, the trade off to foregoing cash flow though is that it limits your options and creates more risk exposure. If your cash flow is minimal initially; you may have enough built up reserves for smaller repairs such as a broken window but larger repairs such as roof repairs or HVAC might wind up coming out of pocket if there has not been enough cash accrued to pay for this cost. 

Minimal cash flow also prevents other opportunities such as using this revenue source to fund additional real estate purchases which would allow you to scale your portfolio or put into other assets instead. From a non-financial standpoint; many people's ideal goal with real estate is to create a revenue source that would either supplement their lifestyle or provide the freedom to leave their W-2 jobs. This requires a focus on cash flow so that a revenue stream can be created that replaces their salary. While long-term wealth is a great goal; wealth for the sake of wealth that is locked up in properties does not hold the same appeal as a source of revenue that allows one to enjoy life in whatever means they want to; whether it be travel or more time with family. 

I see nothing wrong with your mindset but I believe it comes down to what a person's goals actually are. A financial strategy can not be a "one size fits all" that is suited for everyone but instead different financial strategies should be employed by different people to fit what their actual goals are. 

While it may be harder now to find cash flowing properties, it can certainly be accomplished; granted not in every market. This is another trade of example. Finding deals that are able to cash flow with a 20% deposit is still possible to do but will require far more time and effort sifting through many deals. I have personally been able to find such deals but doing so required sorting through dozens, if not 100s of deals to find those that met my criteria. 

I agree with Joe. A good investment has both positive cash flow and long-term appreciation. When I analyze a property, I do not factor in any appreciation. I also partition the IRR to understand how much of the return is coming from cash flow and how much is coming from the sale of the property. Positive cash flow reduces risk.

@@Arn Cenedella  thank you for the thoughtful post to jump start this great conversation! 

A property is a "Chicken", which plops out rents("eggs"). 

Way too many have a FILED logic of being hyper-focused on how to get "A" chicken that makes way more "egg's" than the egg's it costs to get that chicken. 

NO. The CORRECT way is the Sam Walton way, it is. 

It's about VOLUME. VOLUME is the key, not the individual profit size. 

The magic is in a solid, repeatable profit, done many times over. VOLUME of reliability. 

Cash-flows are BUILT, not bought.    Way too many going off HORRIBLE "guru" direction of BUY cash-flow, NO, that was a decade ago, just as useful as a book on dancing from '79', good luck with those jazzy disco-moves. 

The FUNDAMENTAL profit and wealth creating "Fairy Dust" of REI is LEVERAGED FUNDS. Making $ on OPM. You get to gain control of something you don't own. So, done small, means profit small. Done on VOLUME, it is profits on VOLUME. Profit margin GROWS as volume grows. I know, this is into advanced level mathematics but follow-the-bouncing-ball.

Remember, the fundamental rule is making $ on OPM, yes? As scale grows, so does returns rate because your making ACTIVE and APPRECIABLE gains on that OPM. The rate of return is a compounding return factor, yes, INFINATE returns on certain scales of volume and reinvestment. 

It's an absolute NO BRAINER that REI operates in 2 phases; GROWTH and CONSOLIDATION. You can't do 1 well while doing the other. Try it, try going left while going right.

I have to agree. I have worked in two different markets. One had a high cashflow rate with minimal appreciation and the other had minimal cashflow with higher appreciation. A lot of investors have been lured in by the high cashflow but the investors who purchased in the higher appreciating area have had much more of a gain so much so that it's offset the lower cashflow. 

That makes sense. Since you will build more wealth over time from investing in markets that have greater potential for appreciation, for a new investor with less capital to start out what do you recommend? A market like Charlotte for example has higher property prices and will require a larger down payment to produce cash flow. Is it worth to wait until more capital is available to invest in that type of market? Or choose a more linear market such as Indianapolis where you can still produce cash flow with less money down, and gain experience to be able to make better investments in the future.