Mark Kohler compares where to invest an extra $100,000: money-market accounts at 4.5%, S&P 500 ETFs at 9-10%, and real estate. He argues cash flow after expenses is what matters most, warning that negative cash-flow properties become financial burdens fast.
What is the cash flow? And what I mean by cash flow is what is your cash on cash return? Let's say you've got 100,000 to deploy. Where else could you deploy that? Hell, I could put it in a money market at TD Ameritrade and get 4 1/2% right now. I could go do promissory notes. I could go do an S&P 500 ETF and maybe get even 9 or 10%. So where am I going to put that 100 grand and compare it to if I go do this real estate deal? I want to start with cash flow. I'm pretty adamant about that. What is my cash flow going to be at the end of each month? Annualized out on that 100 grand now? Yeah. I might get appreciation. Oh, I'm going to mortgage pay down. We're going to come to tax benefits, too. Fine. But. But what's my freaking cash on cash return? Because at the end of the day, I don't want to have a negative cash flow problem and I don't want to be just rolling the dice on cash flow. Been there, done that. 2,000. 5, 6, 7, 8. I bought crap I shouldn't have bought. Music stopped. I'm left holding the bag with crappy cash flow. I learned some hard lessons.
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