My latest article for BiggerPockets is up that asks whether the most important thing you should look for is built-in equity when buying (i.e. getting in at 75 to 80 percent of the ARV) or cash flow. My answer is equity.
Buying with built-in equity allows us to BRRRR a property, get all (or most) of our money out, and repeat the process more quickly than we would have otherwise. Even if the "otherwise" here involved a house with better cash flow. Furthermore, it's built-in equity that protects us from the dangers of leverage and allows us to take advantage of its upsides (which are very big)
Although I make an important cavet which many seem to have misunderstood. (Some in the comments falsely assert I am comparing cash flow to potential appreciation.)
This doesn’t mean that cash flow doesn’t matter. You still need to buy properties that cash flow. There are a few occasions when the trends in an area are so strong it makes sense to hold a property even if it bleeds each month. But these instances are few and far between and should only be done with a small percentage of your portfolio. Going big on properties with negative cash flow is, more or less, just speculating.
The article is also based on a video we did for our YouTube channel which you should check out as well:
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