cash flow vs paying down mortgage

[Josh Butler]

hey everyone,

I just had a general question that I've often thought a lot about and thought I'd pose it to the BP community.

Before deciding to get into real estate, I had always considered the real benefit of owning and renting out properties to be the fact that you have your mortgage paid off for you.  After a couple years of renting a place out... POOF! you have some equity that you didn't have to pay for yourself (assuming a stable market).  

But after having gotten into the community, it seems like the only thing anyone ever talks about is cash flow.  The large majority of investors seem to completely avoid a property that won't cash flow decently.  The idea of having a mortgage paid down isn't even an afterthought.  It's like that benefit doesn't even really exist!  I have come up with my own answers to this question but i wanted to hear peoples thoughts.

[Ned Carey]

You cant spend equity. The grocery store or the local  restaurant doesn't take it. They take cash. Cash is king, having cash flow for expenses, cash for reserves, cash to do deals are all important concepts. Having net worth ties up in equity in a relatively illiquid investment may do you no good when you  need it. 

Of course mortgage pay down is an advantage in real estate. It can be a real wealth builder over time. However if the choice is equity build up or cash reserve build up, cash reserves win every time.  Only you can make the decision of how to  weigh mortgage pay down vs cash flow, given your unique financial situation.