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Updated 14 days ago, 12/13/2024

User Stats

9
Posts
3
Votes
Kyle Luman
Pro Member
  • Investor
  • Modesto, CA
3
Votes |
9
Posts

Cash flow vs equity discussion in recent Podcast

Kyle Luman
Pro Member
  • Investor
  • Modesto, CA
Posted

I just listened to the recent BP podcast with Dr Benjamin Aaker and Dave Meyer from a couple of weeks ago.

https://www.biggerpockets.com/blog/real-estate-1045

There was a section where Dr Aaker talks about focusing on equity and trying to avoid cash flow since he didn't want more income presently while earning money as a physician.  They didn't dig into specifics on how to do that.  I've been analyzing deals looking more at cash flow, but like Dr Aaker, I don't need cash now and I can't become a real estate professional for a while since I'm working more than 40 hours weekly in my W2 job.

I had hoped Dave Meyer might have asked more specifics on how you design for equity instead of cash flow.

I can think of these ways, but I feel that I am probably missing some of the best ideas:

1. Buy in appreciating areas. Obvious, but maybe the least reliable as it is somewhat by chance. Past performance doesn't guarantee the same future performance.  For instance, a starter home on the wrong side of town in central California is ~$400k now.  Is it really going to be $500k in 10 years?

2. If it looks like it will cash flow too much, take a larger loan (put less down) and use the remaining capital for other properties.  Not sure I want to end up paying higher interest rates due to smaller down payments.

3. Get a 15 or 20 year loan (higher monthly). The cash that would flow in a 30 yr loan underwriting scenario is sent back to the bank so that builds equity faster.

Forced appreciation, while excellent overall, I am not sure it helps in this situation to avoid income from cash flow as that will probably both provide equity, but also increase cash flow right away.  Are there other ways to focus on equity and minimize cash flow?

  • Kyle Luman
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