Real Estate Blog - What's Your Opinion: Which Wins- Cash Flow or Equity?

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What's Your Opinion: Which Wins- Cash Flow or Equity?

variation on "anger" by Lynne Lancaster - http://www.sxc.hu/profile/weirdvis

There's a debate going on among real estate investors.

And the answer changes depending on the month, week or even time of day.

So... without explaining my take on this, I though I'd ask the universe this question:

If you could only have one thing from your real estate investment, which would you prefer

Cash flow ... or... break-even with equity upside?

By cash flow let's define it as income that exceeds expense.

By equity upside let's define it as a property that is not losing money appears to have increased equity potential.

Talk amongst yourselves people... pick a side and explain why. I look forward to what you have to say.

Posted by Chuck Willman, Arizona Realtor® 480.292.0600 on 06/01/2008 07:24 PM

Comments (8)

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Originally posted at: Arizona Real Estate Specialists: What's Your Opinion: Which Wins- Cash Flow or Equity?

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8 Comments on What's Your Opinion: Which Wins- Cash Flow or Equity?

JUN

2008

Hmmm, going to sit awhile here and wait and see how the comment's pan out...

Karen... you're doing what I am on this one! Well, we'll see how it pans out. I've had this discussion so many times over the past few months that it's amazing how much badmittion is involved on this point.

Cash flow I want the extra money to pay for repairs or whatever may come up.

John- are there any conditions that would tilt the scale?

JUN

2008

Chuck - I think you need to balance both. You don't want negative cash flow for long, because if the market doesn't pick up you may be holding the property for a long time. You also don't want just cash flow and no equity, because appreciation is usually faster at growing profits than cashflow can be.

I guess I would have with equity over cash flow.

Larry... I stated I'd wait for my comment... I guess enough time has passed now. Of course, in a perfect world you want both. I'm inclined to go with your way of thinking... you can achieve cash flow in some areas but at the cost of the exit strategy. Some of the "cash flow neighborhoods" have the unfortunate aspect that they're often in neighborhoods on the decline. Some areas have yet to reach that magic moment where the services (grocery, good schools, entertainment, retail) haven't arrived.... but when they do? The run up of home value creates that high swooping equity curve. As you intimated- negative cash flow is not pleasant... but those who are able to break even may have the best outcome: increased rental opportunities and (higher cash flow) and equity. I make it my challenge to find both: cash flow AND equity upside. This is the aspect of investing that can be un-nerving but exciting- finding that needle in the haystack... and prices are such that there are a few areas that are looking ripe for the picking.

JUN

2008

I guess I look at things differently because I never had children.. a blend of cash flow with equity to me would be ideal, but the older I get, the more I just want enough to pay my bills, give to special causes, and enable me to enjoy my passions. I'm driven to be good at what I do, but not driven by the $$... although $$ would be nice right now!

Susie- this is why this conversation changes so much. So many were burned in the past couple years by thoughts of both cash flow AND huge equity upside. With homes losing so much value, those who couldn't cash flow saw that the equity part of the equation was pushed out a few years. Most of my current investors want cash flow right now.

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