ROI vs Cash Flow Confusion on first purchase

[Brian H.]

Hey all! So I am analyzing multiple possible deals for my first buy-and-hold purchase. It is exciting but nerveracking. The main piece that is causing me to stop and question is ROI vs. Cash Flow.

Example:

So I have a home that will generate $102/month in cash flow and that gets me an ROI of 15%. So, the cash flow is not that high but the ROI is still 15%. That's good, right? Obviously this is a lower priced house, and I am taking EVERYTHING into account interms of expenses, initial costs, closing costs, etc.

Or, I have another home I am looking at that may generate about $150/month but that ROI is about 8%. So, higher cash flow but the ROI is almost half of the other. Little pricier house, so my initial downpayment is higher but it has higher cash flow...

My confusion lies in the decision making when it comes to these sorts of numbers.  I have about four homes I am looking at...

Thanks!

[Michael Le]

Generally you want to go for the higher ROI. Just exaggerate the numbers if it's confusing to you. Which one would you rather have? A. It takes you a million dollars to get $500 a month cash flow B. It takes you $20k to get $100 a month cash flow.

Sometimes it might make sense to get the smaller ROI. Say for example property A requires that I spend 3 month to close it and it gives me $102/m and ROI of 15%. Property B also requires I spend the same 3 month to close but because it's a large commercial property, although it only gives me 12% ROI, it also gives me $1000/m cash flow. So I would have to do 9 more property A deals (and corresponding time to do them) to get the same cash flow. So I'm willing to take less ROI because I was able to scale up quicker with less time involved.