Am I thinking about this right?

[Aaron Nelson]

I am buying two properties.  

Property A is in a desirable neighborhood.  There would be about 40k in equity realized at sale, but if I rent it, cash flow will be near 0.

Property B is in an ok, but less desirable area.  It will have about $25k in equity that I would net at the sale.  It will cash flow $3-400 per month. 

I would have no problem renting or selling either property in this market.

My long term plan is to build a large rental portfolio. I'm considering flipping Property B, and putting the net proceeds into Property A to make it cash flow since I'd rather hold Property A for the long term. 

So, I suppose I'm taking a 40,000 ft view instead of looking at it at the property level.  I know I'll lose some equity to closing costs for the sale of Property B, but I feel I'm better off with a nicer property.  

Am I thinking about this right?

[Evan Wiesner]

Don't forget to calculate in the tax ramifications depending on how you're executing the sale of B. If you get hit with a capital gain tax on it then you're not doing as much for property A as you think you are.

Can you not buy both at the same time? Personally, if property A is in a more desirable area then I'm less concerned about the cash flow if I'm going to hold it. Over time the appreciation and a modest rent increase of say 3%/year is going to help you keep good tenants and really build up the equity.

If your primary concern is cash flow, and not long term appreciation gain, then property B is probably a better option as it starts you out on the right foot towards that goal.

And finally, if you really want to build a portfolio and have the means to do it.... I would buy both now. Property A will build up equity faster and you'll be able to use that equity to fund future purchases in the portfolio. Property B will add the cash flow element that will help you offset Capex expenses in the future. They sound like a good combination to get you rolling if you can pull them both off.