Cash flow is NOT king!

[Arn Cenedella]

“Cash flow is king” is a mantra to many.

It’s repeated over and over in forums and conferences. 

I am not a “cash flow is king” investor

Pending one’s stage in life and career, I submit growing equity and increasing net worth should be the goal of most investors in their 30s and 40s and perhaps even in their 50s - as they enter and are in their prime income years. Presumably someone who has cash to buy investment real estate has a W2 income sufficient to cover their total monthly cost of living - their “job” pays for their lifestyle. So they don’t need cash flow to live off of. From folks in that position, I submit it’s better to invest for capital growth. Properties should pay for themselves with some cash flow left over to cover unexpected expenses. But the focus in my should opinion should be on long term capital growth.

Question: Who will be able to generate more cash flow when they want and need it?

Investor A with $1M of investible assets

Or

Investor B with $3M if investible assets

The answer is obvious, it’s investor B.

I see countless investors talking about buying a cash flow property.

I see countless brokers and owners trying to sell property by indicating “it’s a cash flow property”.

If I may offer my perspective on:

Does the property cash flow?

It’s an incomplete question with no answer.
I believe an additional layer of detail and sophistication is required.

I submit:

Every property will cash flow if you buy with all cash. Right?

So the better question the more informative question is:

What size cash down payment do I need to make so that the property cash flows?

Does an investor need to put 20% down or 30% or 50% down to cash flow?

That’s the better question.

Any question or statement about cash flow only has meaning when connected to the amount of cash required to buy it.

And yes in todays market with todays debt costs, I suspect most SFRs will require 30% to 40% down to cash flow. In my opinion you won’t find cash flow with 20% down unless the property and location are horrible. Even MF assets require 30% to 35% down to provide some cash flow. 

The “popular” opinion isn’t always the best opinion. 

One should tailor their investment approach to their assets - education income capital knowledge experience etc etc - and their goals. 

I’d submit investing for capital growth is by far the better option for many. 

Aim to hit line drive base hits not grand slams.