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Updated almost 8 years ago on . Most recent reply

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Pralay Desai
  • Fremont, CA
5
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new to real estate and looking for SFR with positive cash flow

Pralay Desai
  • Fremont, CA
Posted

All,

I am new in real Estate and looking to create positive cash flow by investing in SFR. Any advise is it a good strategy or I should look into anything else? Which markets are good to invest into?

Thanks,

Pralay

Most Popular Reply

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David Faulkner
  • Investor
  • Orange County, CA
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David Faulkner
  • Investor
  • Orange County, CA
Replied

It is good that you have a goal, but my advice would be that there are many more considerations to pay attention to than just day 1 cash flow numbers. Cash flow is an important thing, but it is not the only thing. You need to consider ALL the profit centers in REI (including cash flow) and consider them over the ENTIRE LIFESPAN of the investment, not just day 1 or the first year. The major RE profit centers are:

  • Cash flow
  • Mortgage pay down
  • Appreciation (both forced and market appreciation)
  • Tax benefits

All of the above are not static, they change over time, with the market you choose, and with the manner that you structure/finance the deal. Certain strategies are also better tailored to some over the others, and understanding and combining multiple strategies will likely result in optimal returns. For example, flippers take advantage of forced appreciation, but they don't benefit from tax benefits, cash flow, or mortgage pay down. Buy and hold has mortgage pay down, tax benefits, and cash flow, but may not have appreciation (depending on the market) ... but if you buy and remodel like a flipper, then turn it into a rental, you get it all ... this is a very simplistic example that simply illustrates the concepts, but they run much, much deeper than that, and you should try to understand this at least at a high level before investing. The best way to combine all of these elements into a single analysis IMO is to learn how to project financials to compute IRR (you can do some online research on this).

Final bit of advice is that because there are so many different ways to tailor your strategy to make a great profit in REI in just about any market, but many of those strategies are severely restricted for a newbie to learn and effectively apply when investing at a distance, it is better IMO to start your journey investing hands on in your local market. In particular, you could start with the purchase of your primary residence, but bought like an investor would and eventually turned into a rental. Also, find a local mentor that is already succeeding in what you want to do and find a way to add value to their operation and learn in the process.

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