Positive cash flow per unit or per portfolio?

Question

Hi there,

I'm new to this great forum and I have a question regarding positive cash flow and duration of loan.

I'm currently owning 2 SFR, 1 purchased with cash and second purchased with a 20% DP and I have a positive cash flow per portfolio and not per unit and by combining 2 rents I was able to cut the loan to 15 years.

Was this a good decision from business point of view? or there's a better decision I could have take here?

Do you look to maximize cash flow by taking a 30 year loan?  in what conditions you would prefer shorter loan?

I've been reading books and online resources to extend my RE knowledge and came up with those question to learn from the experienced members of this forum.

Thanks

Ellis San Jose · Answer

My opinion is if you are in estate building mode go for max cash flow with 30 yr fixed mortgages.

Caleb Brown · Answer

30 years if possible.

Asi L. · Answer

I agree that it's a mix but positive cash flow is a must.

What advise you have on loan length?

the longest the better?

Caleb Brown · Answer

As others said it depends on your goal. I always advise people to mix it up. There is always a balance don't over leverage yourself.

Asi L. · Answer

@Mike McCarthy sure thing, I was referring to B | C location with A | B unit.

I think that we all agree on positive cash flow per unit when the unit is in good location and in good quality.

Mike McCarthy · Answer

@Asi L. always remember though cash flow isn’t always what you want/need. I’m happy that I have a property that cash flows $200/mo. Great, I get $2400 over the year. Seems not worth it. BUT, my tenants are also paying down my mortgage (equity is increasing) and I know that I bought this property below market value (more equity), and I believe the neighborhood it’s in will appreciate over time.

Looking at the whole picture, I’m happy even though I’m not making much cash flow. I’m sure there’s someone else out there who’s making the same $200/mo cash flow, but in a rotten area, maxed out on their loan, etc. they aren’t doing nearly as well. We all need to look at the whole investment picture.

Joe Villeneuve · Answer

REI is a game of number$ with dollar $ign$ in front, and (+) signs in front of that.  Analysis is nothing but a math problem.  Unfortunately, too many REI only see the answer to the right of the (=), and are not interested in the formula to the left of that (=).  It's the formula that generates the answer, and it's the formula that is the most important part of that math equation.  If you understand what the formula means, and how each constant, variable and sign impacts that answer, you will be a much better REI.  That understanding will give you the power to control the answer, and make better decisions that end up generating higher numbers to the right of that $ sign.

In other words, don't make decisions based on the numbers to the right of the (=), make decisions based on the elements you can control to the left of that same (=), and the numbers on the right will fall in place as you wnat them to.

Asi L. · Answer

@Joe Villeneuve again I must say that you're right, now things fell in place after I have some understanding how this game is played and I know for sure that I won't be using more than the DP for my next unit.

I will filter deals by positive cash flow per unit and maximize this value as much as I can.

as I said before, I do long distance investing as prices are at peak where I live, I keep an eye on the market value nowadays especially due to covid-19.

Joe Villeneuve · Answer

Why would you agree to making your good deals work overtime to cover up a bad deal?  Let me put it another way.  This is what you are telling your REI to do, if it was you doing the job.  You're saying that since you make so much money at your first job, you're willing to work a 2nd full time job...and use the "extra" income from the first full time job to pay your employer on the 2nd full time job...for the privilege of working there, with the hope that over time you will get enough promotions and raises to make it worth your while...even though you have no control or promises that those promotions and raises will ever happen.

...and yes, why invest in something that's losing you money?  There's nothing more valuable than your cash.  Equity has future value only, and in it's "dead/inactive" state (buried in the walls...somewhere), it has 1/5 of the value of your cash.  So don't trade/buy equity...let your tenants (rent to mortgage payments) and the economy (appreciation) gift it to you.  Then, when the gifts add up enough, get your equity out of prison and take that cash conversion and invest it at that 5 x face value it has outside of those "walls".

Asi L. · Answer

@Kenneth Garrett Thanks, this makes sense I believe when you manage the unit by yourself.

Things get a bit harder for me as I do long distance investment and I'm not a US resident.

I certainly need to sharpen my plan and this is my top priority at the moment.

Positive cash flow per unit or per portfolio?

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