Focus on Equity or Cash Flow for my First Property?

Question

Hey there friends, so I am working out my strategy and what I want to do for my first property. I need some help.

I may be too realistic or just too uninspired but I am assuming for my first deal it will be good but not the best deal ever since I have little experience and I want to purchase off of the MLS. For that reason I am assuming I can find decent equity (20-25%) that I can later refinance out with a HELOC to help purchase my second property. I have found properties like this and I BELIEVE... But looking at numbers in Arizona and Idaho Falls if there is equity in a property it often cash flows very poorly (or negatively). For this reason instead of sticking to SFH, I have began running numbers on Duplexes which cash flow much better but I feel like it will be more difficult to find one with equity since they are valued differently.

So my question is if I should shoot for the stars with a duplex that cash flows really well and has equity I can use a year after it is purchased or a SFH that may not cash flow as well but has much more equity. I think I have a lot of limiting beliefs since I know duplexes can be bought at a good discount but I just don’t feel like it’s realistic that I will find one on the MLS with such little experience and be able to close on it.

Thanks for any advice or inspiration, everything is appreciated.

Breelon Bryant · Answer

@Jacob Trogan

Having ZERO experience just like you, I started learning about REI in january by reading books and podcasts and analyzing deals everyday. I found myself getting in analysis paralysis mode and said “lets put in an offer” on a deal and stuff. 4 months later I went under contract and soon to acquire my first property and house hack.

That being said, you wont get rich on ANY deal you choose first. 1 property gets you equity, cash flow, tax benefits, and possible appreciation if not a BAD DEAL so you cant go wrong on anything you choose. If you keep analyzing forever the banks will continue to make money off you and your purchasing power of your dollar and inflation will eat you up so why not choose one that AT LEAST breaks even?

Personally I am a believer that “cash flow keep you in the game and appreciation makes you wealthy” so if it cash flows, you are winning.

Good luck on your decision

Lee Ripma · Answer

@Jacob Trogan

My first piece of advice is do whatever gets you started. Getting started will have a bigger impact overall then what you buy on your first deal. Either of the props you presented will work and have both pros and cons. Just look for both of them and whichever one you hit first with a good deal, buy.

Don Spafford · Answer

@Jacob Trogan The above advice is correct. Especially if you plan to house hack, whether it be a SFR, duplex, or four plex, as long as it is not a BAD deal, being a little negative each month as long as you can handle that, it gets you started, motivated, and gains you experience other investors will want to see if you later partner with someone. Plus even if it is a little negative while you live there, that still means you are saving a lot as compared to what you would be spending yourself just on our own rent or house payment so it is still a win. And if it is a little negative, most likely will become positive once you move out and rent that unit. To help make it positive though, you could still rent out a room or whatever space on your side as well which may help make it positive. You just have to get over the fear of the first deal and make it happen.

Jacob Trogan · Answer

Thank you everyone for the responses, I am taking this to heart and just looking for one of the two that works and accepting that the first step doesn't have to be perfect

David Weymouth · Answer

All the advice already given I think is spot on. The only thing I can add is make sure the properties you are buying bring no surprises. I am 1500 miles from my rentals but feel pretty secure. Time, connections and a great realtor. But you have to realize it has become more difficult in many regions. I am in the east valley of Phoenix and it is getting tougher.

Alex Rodriguez · Answer

Do just as @Lee Ripma mentioned. If its a good deal  just dive in. I was in your shoes 6 months ago. I really wanted to buy a 4-plex as my first deal 20% down, but that didnt pan out as it fell out of contract due to huge plumbing issues. I didn't give up though, a month later a sfh came up for sale that worked for me and I was able to purchase that 5% down owner occupied that i'm now house hacking, I pay $0 out of pocket. Im living for free. Well its been 6 months later and I am now in contract on a sweet 4plex and expect to close in 8 days. this will cash flow $700 a month now and once rents are increased in 60 day i will be at $980. Don't give up and keep analyzing deals, Patience is key, jump right in if it works for you.

Vee Vu · Answer

@Jacob Trogan I think it doesn’t matter if it’s a duplex or a single family home. As long as it can provide positive cash flow (at least $200/unit), you can buy and learn from your first investment home. Good luck!

Filipe Pereira · Answer

@Jacob Trogan I think you are prime for getting stuck in analysis mode. Don't get too caught up in the details of your first deal, as long as you are treading water or even if you're going a bit negative, you will most likely be fine long-term as you are house hacking and reducing your housing costs. It’s unlikely you will find something with 20 to 25% equity right off the MLS anyways, you may find that you will have to do some upgrades to be able to make that equity possible.

All that being said, I'm always a fan of more units over equity, one pays me today (cashflow) and in the present - the other, being equity, only pays me when I sell or refi.

Jacob Trogan · Answer

@Jacob Trogan I plan to owner occupy the home for at least 12 months then either owner occupy a second home or buy the second as a rental. So I am planning on only putting 3.5-10% on my first home.

Focus on Equity or Cash Flow for my First Property?

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