Would you purchase strictly for cash flow?

[Erika Geoffrey]

Hi all,

I've been finding really good deals for cash flow in some of the smaller towns. However I'm a bit nervous about purchasing in a town where there's not much going on.

We are foreign investors, strictly purchasing for cash flow - however there's always that lingering thought of non paying tenants, etc. etc. 

Does anyone purchase strictly for cash flow? Knowing that the property itself likely won't appreciate much or at all over time?

[Kwame Amoako]

I liken the cash flow approach in real estate to the value approach in stocks. To me, as Bill Ackman says, free cash flow is the most important thing in business. When purchasing a property I imagine I am purchasing a business or a farm. You wouldn't purchase a business that didn't have any returns without a path to profitability. But you also wouldn't purchase a business that is in a dying industry. My rule of thumb for analyzing markets is population growth. The economic basis of growth is supply and demand, if you buy in a place where the population is trending down it's likely that you will not see any intrinsic growth in that area. If you can find an area like some cities in the midwest like Indianapolis, Dayton, Cincinnati, etc where the population is increasing and you can still get good cash flow then in my opinion it makes for a sound investment.