All Forum Posts by: Arn Cenedella

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.

I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow.

The “popular” opinion isn’t always the best opinion.

One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.

I’d submit investing for capital growth is by far the better option for many.

Aim to hit line drive base hits not grand slams.

Couldn't agree more- in many cases, I find the people who only talk about cash flow are those who have not yet experienced the true value of leverage.

I always like to say that cash flow pays for my kids' lunch. Equity pays for their college. Apples to oranges.

Love cash flow pays for lunch. Equity pays for college. And of course Boise is a growth market. I am a piece of a 200 unit property out in Nampa. Great market!

0 Votes

Quote from @Scott Johnson:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.

It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.

I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

The “popular” opinion isn’t always the best opinion.

One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.

I’d submit investing for capital growth is by far the better option for many.

Aim to hit line drive base hits not grand slams.

Boom! Nailed it on the head.

Minimize cash flow and maximize on loan paydown/tax incentives. Builds wealth, not taxable income. Being a full-time real estate professional adds icing to the cake.

Scott,
I’m in Greenville SC but the Greenville NC is if interest. Let’s connect.
Thanks
Arn

1 Vote

Quote from @Alecia Loveless:

@Arn Cenedella I buy for both CF and appreciation. My market provides both. Even before the pandemic there has been a steady appreciation of 7-10% per year here and while it was much higher during the pandemic it still remains strong.

Unfortunately there’s been lots of greedy sellers just throwing up astronomically high prices for rental properties that just don’t work for true investors. All of a sudden many out of the area people have come into our market as cash buyers thinking that these prices are 1/3 or less of their big city prices and have been buying these expensive properties anyway.

You can still find good deals, it’s just been harder as it has been everywhere. But there’s still good deals with both CF and appreciation. I’ve landed two inside of four months.

Yea of course it’s both. I didn’t say ignore cash flow. I just said got me cash flow isn’t the be all end all.

And when you come to think about it value and cash flow are connected.

Cash flow comes from rents - when home prices go up in an area - rents surely will too. If an area where the cost of housing is increasing - whether to Buy or to Rent - one increases cash flow and increases value.

When one buys a property with fixed rate debt in a good market, one can count on increasing cash flow over time and also increasing values. The two go hand in hand. They are not independent.

I’ve bought plenty of properties where cash flow was minimal year one or two but now in year five or 10 the cash flow is strong.

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Quote from @Sam Yin:

@Arn Cenedella

I'm going to have to disagree with your math a bit. Based on you assessment, you are assuming no movement/exchanges in the initial capital used. Whereas in reality, the strategy should be to continue to work thay capital to get to your FI number.

In your example, it would seem impossible to generate 120K of income without $1M+ in capital.

If you take a step back and consider all the facets of REI, and employ sweat equity, value add, 1031x, I will argue that you can easily cashflow $120K with a lot less money, AND leave a large portfolio for generational wealth in short order.

I have done this recently, with a start up capital of about $130k, initially spread between 3 SFRs. Using what I described above, it has grown close to 100 rental units, well beyond 120K of cash flow, over $10M in assets, and still growing. Children college is set, if they want to go, but I hope they do mot waste their time with the college scam. As the portfolio grows, I grow the reserves to at least 5% to 10% of the valuation... but I get caught up and reinvest when opportunities pop up and start the cycle over.

This is a great thread with good education. Like many on here, I am still new at this and learning all the time. But I wanted to present a different perspective so that cash flow is in the forefront. Remember, cash flow keeps you in business, not equity. If you have 10M in equity across a large portfolio, but the cash flow is minimal or none, a small emergency can wipe out your business. The unforeseen environmental costs can snowball and wipe out your assets.

If the model is to invest long term with partnerships or syndication or REITs, then that's a different story.

In the end, it does really depend on the goal of the individual.

In a way, we agree.
Your $10M in assets assuming 60% leverage is $4M.
One could say the $4M in equity is creating the cash flow.

As you noted, you started with little capital and thru investing multiplied that capital.

So you stated with $130,000 in capital and grew it to $4M let’s say.

That capital growth was actually the key to FI. If you only owned $2M assets I don’t think they would produce the income you now enjoy from $10M in assets.

My post was focus on capital growth and the cash flow will come. I believe that’s exactly what you have accomplished. Congrats!

Just another way to look at it.

1 Vote

Quote from @Nicholas L.:

@Arn Cenedella

good post and good discussion to have. David Greene has been pivoting to this message over the last few months, a little bit late in my opinion.

and it's going to be tougher or impossible for new investors that need cash flow to invest for capital growth.

Thank you.
My main point was to bring up the equity growth side of the equation when so much of the conversation is simply about cash flow. The focus on cash flow can lead to some missed opportunities.

Agreed on diversification. I’ve been in RE 45 years. I’d say 60% of my net worth is in RE 40% in stocks and mutual funds. I agree there is a place for lots of different investments.

PS I’m not doing crypto because I don’t understand it. I’ll stick with what I know. 😀

0 Votes

Quote from @John Kunick:

@Arn Cenedella, while the title of this thread is provocative, I honestly think it's misleading. Perhaps Cash Flow is King IF the goal of the investor is to build cash flow to replace W2 for whatever reason. In my case, Cash Flow was my #1 objective as I wanted to build up enough cash flow so I would have the choice to leave (or not) my W2 corporate gig.. Fortunately, after several years of buying cash flowing properties, I did get to point I could make that choice. I still kept working for a couple more years, but ultimately did retire and now spend my time managing my various real estate holdings.

I've had the honor of mentoring several others, several that I've met on BP, as they were getting started in their REI journey. I always tell them the #1 thing they need to define is "what are your goals".. Depending on your goals, your strategy will be different. To your point, those in their earlier years may decide capital appreciation is king. But, it all depends.

very true each investor is unique.

cash flow v appreciation is a BOTH AND not an EITHER OR question.

if I may ask a question, how much equity do you have in the properties that produce the cash flow that replaced your W2 income?

0 Votes

Quote from @Account Closed:

Quote from @Arn Cenedella:

“Cash flow is king” is a mantra to many.

It’s repeated over and over in forums and conferences.

I am not a “cash flow is king” investor

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.

I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

The “popular” opinion isn’t always the best opinion.

One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals.

I’d submit investing for capital growth is by far the better option for many.

Aim to hit line drive base hits not grand slams.

You would think this would be taught in school but it is not. I taught my boys about money and they are working very hard to accomplish their short and long term goals. My oldest works two jobs and invested in the ESPP at his job. He invested every penny allowed into the program and invested the rest in $SPY while living off his second income and driving a used Honda Civic. It has been 5 years and he just crossed $550,000 in cash (that is he continually reinvest in $SPY (plus the dividends). He will be a millionaire by 25 and never went to college. He plans to go to college once he hits the $1M and will drop one job while earning his degree in what ever he has decided to do for his career at that point. More than likely he will be an Architect. I am very proud that he listened to me about money and did the work early on. My younger son is well on his way as well to his first $100k at just 16! He runs an online store. Solid boys for sure. Building up capital is the key.

When me and the wife hit $10M a few years back we celebrated by purchasing a 2 year old Honda Passport with 25,000 miles. That is us splurging. We still rent as we have to be flexible to move where real estate is most lucrative, at least in the areas I am an expert in. I can do it all day, I have never lost money on a trade or real estate. I did break even a few times though. I have a system that is really good and only requires one person to operate. My plan is to create this system into program in the next 5 years to help others learn how to take cheap land and turn it into 300% profits in less than 12 months. The entry is affordable by almost anyone but it is not for everyone. Neither of my boys are interested in real estate investing and both have found other ways to build wealth. Real Estate is one way but you need to love doing it.

When we hit $20M (Estimated May 2025) we will slow down and buy a middle class home. I plan to splurge on a used Ferrari 458 and she plans to get a baby grand piano, those are things we have always wanted that are kind of dumb but whatever. After that we will travel and continue to refine my real estate system to perfection! In retirement I want to help others build wealth. I love how money works and I love helping others. If I can help anyone on here please feel free to message me.

Great example. Congrats!

You bring up a great point:

The key the first step is to live frugally- live below your means - and then the income you don’t spend can be invested. If one spends every dollar they make on lifestyle there is no cash left over to invest.

So the key is live off 80% or 90% of your income And invest the rest. And truth be told living below one’s means to generate investible cash is way more important that what you ultimately invest in. It’s the NOT spending that money and instead investing it that wins the day.

Great approach.

PS My car is a 2013 Acura with 120,000 miles on it. It runs great and I plan to have it another 10 years. I could buy a new car every two years if I wanted but that would be dumb. Rather keep my cash invested in RE.

2 Votes

Quote from @Joe Villeneuve:

Quote from @Arn Cenedella:

Quote from @Joe Villeneuve:

The problem with you conclusion is you are assuming the person buying CF properties is buying properties that won't appreciate. One without the other is a fools game. You have to have both, or don't buy.

Yes of course you want both - cash flow and appreciation.

Then the question is: How does each investor weigh cash flow against appreciation?

in my 45 years of investing experience, I have noticed that more dramatic growth areas those that offer higher probabilities of significant appreciation comes at a cost in terms of reduced cash flow. Conversely I have found that areas that offer more predictable stable cash flow generally offer low appreciation.

Most knowledgeable investors understand investing in Boise or Austin or Phoenix or Nashville or Charlotte may provide less cash flow than investing in more stable markets like Tulsa or Indianapolis or Kansas City for example.

So for me I will choose investments that offer lower cash flow in exchange for higher rates of appreciation.

So I choose appreciation over cash flow but I still get both.

Other investors can choose how they want to invest. Hope there is no problem with that. 😀

All that means is the areas you've investigated, don't work for both. What about the areas you haven't investigated?

True I’ve invested all over the country and typically have gone for strong growth markets - Austin TX and the Carolinas where I now live. I invested in the SF Bay Area starting in 1980 and did very well and trust me the SF Bay Area isn’t a cash flow market. Anyone on this thread would have loved to invest in the SF Bay Area in the 1980s and 1990s. When you get 15% to 20% a year appreciation or more and with the use of leverage which creates 50% to 100% annual returns on equity, 8% annual cash flow is pennys on the dollar - loose change. So yes my investing experience is based on where I’ve lived and where I’ve invested.

All this being said, real estate is local and the key for any investor is to know their market and then determine which strategies work best. Buying in the SF Bay Area and in Austin TX was not about cash flow. It was about equity growth. I’m happy with the choices I made and have continued to make.

2 Votes

Quote from @Account Closed:

What happens when you have about 1.1m in equity in a property and only a cash flow of 1,700/mo. What's the right answer?

That’s a good question.
Your cash on cash return is only about 2%.

The right answer of course is “depends”.

What kind of property is it? SFR, small multi, large multi?

You have a lot of “idle” equity that could be put to better use.

If you like the property and believe in its future potential, then I would consider a potential refinance to pull cash out so you can buy another investment. Based on the numbers you could pull out maybe $150,000 to $200,000 and still have a positive cash flow. Of course a lot of this depends on what your current loan rate is. If it is 3% it would be hard to refinance at 6%.

Depending on your goals, it might make sense to access this equity and do a 1031 exchange into a larger more leveraged property that should produce more cash flow for you.

Without knowing the specifics - ie your basis in the property etc etc, hard to provide specific advice.

But refi and buy with cash obtained in refi or 1031 into bigger property are probably two good places to start.

Happy to chat further.

Thank you,
Arn

0 Votes

Quote from @Austin Paige:

Quote from @Arn Cenedella:

@Austin Paige

💯. Each investor is different.

And so one’s investing strategy should align with their goals.

If leaving W2 is the goal, that might call for a different approach than say leaving a legacy or paying for your kid’s college education.

If for example one needs to replace one’s $120,000 a year W2 income, how much capital does an investor need?

Can one generate $120,000 a year cash glow with $200,000 in equity in “cash flow” real estate?

I’d say NO. For $200,000 in equity invested in real estate to generate $120,000 a year, one needs cash flow investments that generate a 60% annual cash on cash return.

Even $1M in real estate equity would need to produce a 12% annual cash on cash return to generate $120,000. Maybe that’s doable but is actually unusual.

So in my mind, the goal should be accumulate $1M to $2M in equity in capital to generate that $120,000 a year income.

Just my opinion, cash flow is great but I believe one needs to have a significant amount of capital to generate quit the W2.

You are probably correct I am new to REI.

In theory would it be possible to replace a 120k W2 with creative financing therefore not needing as much capital to obtain cash flow properties?
Also with the BRRRR method after your first down payment on your first property after the refi and reinvestment into a new property you are not using anymore of your own capital to grow your portfolio. With those models cash flow is still important and you can obtain a large portfolio without needing large capital. Or am I completely wrong on this?

This discussion is actually extremely helpful in how I am learning the different strategies.

@Austin Paige

BRRR is a great way to grow your capital quickly.

A clarification is in order perhaps and it involves active investing v passive investing

BRRR, flipping houses etc are more active ways to invest in Real Estate - self managing your rental properties is more active too

My comments about growing one’s capital or equity are about being to buy enough real estate to generate sufficient income passively without your daily involvement - ie your capital does the work and generate the income rather than you doing the work.

My main comment is early on I believe new and younger investors should focus on growing their capital. With greater capital one can then buy into real estate to live off of.

So by all means BRRR as many houses as you can as quick as you, grow your capital on each deal and then you might reach a point where you can buy a larger MF property which passively will generate the income you want.

Doing BRRR is not about cash flow it's about growing your equity which was the point of my original post.

Hope this makes sense.

New investor get active generate capital and then at some point you can kick back and let that pile of capital generate the income you want.

1 Vote

All Forum Posts by: Arn Cenedella

Arn Cenedella has started 28 posts and replied 722 times.

Post: Cash flow is NOT king!

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Arn Cenedella has started 28 posts and replied 722 times.

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

Biggerpockets Logo Post: Cash flow is NOT king!

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