Cash Flow, Cash Flow—Wherefore Art Thou Cash Flow?

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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