Buying a house for cash flow or equity?

[Account Closed]

Hi,

My husband and I are looking at two homes. 

One is in a bad area, but is cheap and would require some renovations (cleaning, paint, and a couple new windows, etc), but provide quick cash flow ($50,000 + $20,000 rehab) since I could easily be turned into a duplex. Each unit would rent for $650. The mortgage would probably be around $650. Instant $650 in our pocket! (leverage ~$25,000)

The other is in a nicer area and would not require renovations ($70,000). It's a 3BR one bath and would probably rent for $750. Which would only put about $100-$150 in our pocket a month, but the leverage would be ~$60,000.

The cost of either home would be the same. Which would be better to purchase? It's a matter of do we want money of course, but we can't seem to wrap our minds around it.

Is cash flow better than leverage? or is leverage better than cash flow? In which case would one be better than the other?

We currently own a home with $100,000 in equity and are thinking of taking a HELOC for our next investment property. I'm just giving this information so forum members could help answer this question better for us.

Thanks,

Jeri and Evan