{"id":96,"date":"2021-01-10T01:04:14","date_gmt":"2021-01-10T01:04:14","guid":{"rendered":"http:\/\/osonwanne.com\/?p=96"},"modified":"2021-01-10T01:46:26","modified_gmt":"2021-01-10T01:46:26","slug":"equity-appreciation-vs-cash-flow-strategy","status":"publish","type":"post","link":"https:\/\/osonwanne.com\/?p=96","title":{"rendered":"Equity appreciation vs Cash-flow"},"content":{"rendered":"\n

When I started out in real estate investments, over the course of the first few years, I bought and sold two properties in Phoenix, AZ. I wasn\u2019t satisfied with the pace. And I needed better cash-flow. My initial strategy or approach was \u201cEquity Appreciation\u201d. <\/em><\/p>\n\n\n\n

In the first property I bought, it was at the near-bottom of the housing collapse after the economic downturn and recession post-2008. I purchased the Single-Family-Residence (SFR) for $40,000 which was seller-financed, with only $3k down, in 2011. I couldn\u2019t find seller-financed deals like that a couple years later. The property was at 80% off from the peak of the housing bubble. It had once been valued on Zillow for up to $200k. I sold it 10 months later in October 2012, the following year, for almost double \u2014 at $78k.<\/p>\n\n\n\n

After paying off debts, down to my last $10k in cash, I purchased my second house in Phoenix for $198k with $7k down, the minimum 3.5% requirement on an FHA mortgage, closing in February 2013. I was hoping the market will go up and I will pocket anywhere around $100k this time when I sold the property. That didn\u2019t happen. <\/em><\/p>\n\n\n\n

I rented it out and towards the end of about 3 years holding that property, the value didn\u2019t appreciate much. When I sold it for around $225k, after transaction costs I barely made what I put into it.<\/p>\n\n\n\n

With water damage, and other maintenance hassles (I didn\u2019t have a property management company in place, since I was barely breaking even every month with the $1,495 rent minus $1,350 mortgage and $75 HOA): needless to say, it was a horrible investment.<\/p>\n\n\n\n

I spent a couple thousands, about $10\u201315k in credit card debt fixing issues that weren\u2019t covered by insurance, since the water damage happened over time, and wasn\u2019t sudden. It took me over a year to pay off the debt. A year later, the tenant wasn\u2019t paying rent, and I had to do an eviction. Then I sold the house after another $10k in repairs. I had about $10\u201314k in cash after the sale of the home.<\/p>\n\n\n\n

I finally decided the market wasn\u2019t moving fast enough and you can\u2019t predict it. So I pivoted to a monthly “Cash-flow\u201d strategy<\/strong>: where I invest for the long-term, with no intention of ever selling the house. Instead, I rely on the monthly cash-flow as passive income. <\/p>\n\n\n\n

I also wanted to have every property I owned be managed by a third-party from now on, who would collect rent and send me a direct deposit every month, and also handle evictions if needed. This approach can scale easily, you only have to provide the capital and acquire properties with the best \u201ccap-rate\u201d (net return on investment, that is: yearly cash flow \/ purchase price, as a percentage).<\/p>\n\n\n\n

My first purchase, with this newfound strategy, was a single-family house I bought in South Bend, IN \u2014 it was listed for $17k and I acquired it for $10k cash (with the proceeds of my last sale). It was rented for $400\/month, and is still now rented for $415\/month. <\/p>\n\n\n\n

I typically look for the ones that are tenant-occupied, so it can be as turnkey as possible. After a few months, you start seeing the money deposited into your bank account. This one was over 20% cap-rate (return on investment) and has already paid itself off in returns.<\/em><\/strong><\/p>\n\n\n\n

While I was searching for rental properties even on LoopNet, I noticed that multi-family units perform better than SFR, especially if you were to finance. However, occasionally, you come across a SFR that is low enough in listing price, that you can purchase in cash and not have to worry about mortgage\/financing requirements, etc. <\/p>\n\n\n\n

When looking for these types of properties, I search on Zillow and I built a web app to help me manage the portfolio: investor.smallplex.com<\/a> – after a term for two- to four-unit multifamily rentals which you can get residential financing on (whereas 5+ units require commercial loans). <\/p>\n\n\n\n

With a cash-flow strategy, multi-family generally has higher cap-rates. But there are also SFR with really high cap-rates at more affordable prices. I was hoping to use financing on multi-family e.g. Fourplexes when I started looking, for the highest cap-rate.<\/p>\n\n\n\n

In comparing properties that I would want to buy in this strategy, the highest cap-rates are usually in the Midwest. Within a couple of years, I should attain “financial freedom”<\/strong>, in essence being able to pay not only all of my living expenses but having in excess of that, with monthly cash-flow from real estate investments.<\/p>\n","protected":false},"excerpt":{"rendered":"

When I started out in real estate investments, over the course of the first few years, I bought and sold two properties in Phoenix, AZ. I wasn\u2019t satisfied with the pace. And I needed better cash-flow. My initial strategy or approach was \u201cEquity Appreciation\u201d. In the first property I bought, it was at the near-bottom… Continue reading Equity appreciation vs Cash-flow<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":97,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/posts\/96"}],"collection":[{"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/osonwanne.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=96"}],"version-history":[{"count":16,"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/posts\/96\/revisions"}],"predecessor-version":[{"id":119,"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/posts\/96\/revisions\/119"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/osonwanne.com\/index.php?rest_route=\/wp\/v2\/media\/97"}],"wp:attachment":[{"href":"https:\/\/osonwanne.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=96"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/osonwanne.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=96"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/osonwanne.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=96"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}