Cash Flow, Cash Flow---Wherefore Art Thou Cash Flow?

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Real Estate Agent with Hogue and Belong Bankers Hill- San Diego, CA

Cash Flow----Cash Flow----Wherefore Art Thou Cash Flow?

 

Most of my clients are investors, and I specialize in small to mid-sized income producing properties. When I have that first conversation with my client, invariably they will say “cash flow” is the most important thing and they will not look at any property that doesn't “cash flow” from Day 1. Well, if you put enough money down, any property will cash flow, but that doesn't mean it's a good investment! There are other considerations when purchasing an income producing property for your portfolio:




 

  1. What's your style? Do you want to self-manage or are you planning on hiring management? Self-managing will always save you money BUT you have to know what you are doing.

  2. What is your full time job? Do you have a high income? If so, cash flow may put you seriously behind the “8 ball”. More cash is not going to make you richer, it will only make you fork over MORE bucks to Uncle Sam. Do you want to work harder to pay more taxes? I didn't think so. Having a “Tax Shelter” will net you more cash in the long run.

  3. How much do you like people? A whole lot, I hope. Owning income producing property is a “people business” and a nasty attitude towards your tenants could bring you a nice law suit.

  4. Don't care that the units are a bit shabby, close together, no on-site laundry---- who cares about “quality of life” issues if you are not living there?Right? WRONG! Don't ever purchase a property you yourself would not be proud to live in. Your tenants will be shady characters, at best.

  5. An “ugly duckling” that is paying for itself-- may be a superb investment if it is in an area of higher priced single family homes and duplexes. Don't overlook the “Appreciation” factor. A 4-plex located in a nice residential neighborhood has a much greater potential to appreciate in value than the same property located in "apartment city".

 

Caveat: Don't overlook an otherwise great property if it doesn't “cash flow” immediately. Reasons could be many: poor management, high capital expenditures (due to deferred maintenance), below market rents and a host of other things. A Real Estate portfolio should be as diversified as a stock portfolio----for similar reasons.Examine the financials and consult with your CPA and Tax Attorney before purchasing any income producing property.

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INVESTMENT SPECIALIST

Hogue and Belong Realty-Bankers Hill

San Diego, CA

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Wallace S. Gibson, CPM 09/12/2011 06:19 AM
  2. Michelle Francis 09/12/2011 08:17 AM
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Show All Comments
Rainmaker
338,965
Lloyd Binen
Certified Realty Services - Saratoga, CA
Silicon Valley R since 1976;408-565-8177

Last time we saw any legitimate cash flow property with 20% down in Silicon Valley was the 1970s.  Prices went up much faster than rents.

Low-end property will always 'pencil' better than high end property.

Sep 10, 2011 07:46 PM #1
Rainmaker
177,970
DEBORAH STONE
Hogue and Belong Bankers Hill- San Diego, CA - San Diego, CA

Lloyd- You are so right. My dad always told me to buy "bread and butter" units, because in a recession, the higher end units will be sitting vacant. Was he ever right about that!! I have had zero vacancies in my "bread and butter" properties in 12 years!

Sep 10, 2011 07:53 PM #2
Rainmaker
1,085,421
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

#2 is the SECRET GEM that I explain to homeowners who can not sell their homes.  It is the SILVER LINING in the whole process that can actually SAVE them money in their taxes.

Sep 11, 2011 07:25 AM #3
Rainmaker
409,895
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Deborah, 

Cash flow is an important consideration, but not the only one.  Great blog post for investors to think about.

All the best, Michelle

Sep 12, 2011 08:13 AM #4
Rainmaker
177,970
DEBORAH STONE
Hogue and Belong Bankers Hill- San Diego, CA - San Diego, CA

Wallace-

It is such a hard concept for some to understand BUT more income flowing in may be detrimental to a RE portfolio's perfromance. I guess when you hear "INCOME" property, the lack of a positive cash flow seems odd to many, but it is our job to educate the new investor.

Michelle-

Breaking even in this market with 20% down is usually a good investment, IF the property has some upside and is  well located.

Sep 13, 2011 10:54 AM #5
Show All Comments
Rainmaker
177,970

DEBORAH STONE

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