Nick Krautter compares two rental property strategies: buy-and-hold for long-term appreciation, or buy for immediate positive cash flow. He prefers cash flow deals and warns that unexpected costs like roof replacement can tank returns on appreciation-only properties.
Hey guys, Nick Krautter here, uh, bringing you some more resources from sellpdx.com. We just relaunched this and I'm super excited to share a lot of free resources, including these videos, to help keep you up to date and educated. But if you're thinking about buying an investment property, there's kind of two main ways to look at it, and I'm going to tell you at the end which my preferred way to look at it is. So there's the two main ways to look at this are: in the very long run, odds are you're going to come out ahead with real estate, so cash flow today isn't as important as it might be for some other investments, or if you're later or closer to your retirement. But if you're getting started and you're thinking long term, one way to look at investing is, I'm going to buy a property, let my, uh, rental income pay off that mortgage over 15, 20, 30 years, and at the end of that time frame, I'm going to have a property free and clear, and then your income is going to go up dramatically. Now, that's a very valid way to look at it. I have a lot of clients that have become very wealthy investing like that with a very long-term perspective. Now, I told you I'd tell you my preferred method, and my preferred method is that you have positive cash flow from day one. 'Cause if you're a fly, like most people, this real estate investment is not your only source of income. And I'll tell you, it's very difficult for a single real estate investment to offset all of your expenses unless you're investing millions and millions of dollars. 'Cause a typical return on a rental property is about, you know, 5 to 7%. So that's not enough for most people to live on. So I think you wanna still limit what you focus on buying to properties that are cash flow positive because there are always surprises and bumps along the way. In my personal portfolio, I need to replace a roof on one of my properties. Well, that's gonna eat up the profit from a couple years on that property because of the cost for that improvement. Now, if I was cash flow neutral or negative, I'd be coming out of pocket. But as it is, I'm gonna take the profit from the last couple years I'm going to reinvest that in a new roof, which protects the asset and it improves the value. And it'll take me probably another year to recapture the expense, but I'm not coming out of pocket so that the profit from the property is paying for the maintenance and improvements while still paying down that mortgage and still creating positive cash flow in the long run. Now, in both cases, you're going to benefit from the 30 years of appreciation. But in the scenario where you're cash flow positive earlier, you add in that positive cash flow to the asset appreciation over the whole life of the investment. And look, it turns out usually that makes more money. So if you're thinking of investing, give us a call. We'd love to talk to you about your options and the process. We've got some other great resources on the website. Make sure to check out the APod calculator. We've really simplified this. It's a good way to do a first look or when you're comparing multiple properties to see which one might be the better option for cash flow. All right, thank you guys so much. Check out sellpdx.com for more resources and give us a call or an email or a DM and we'll be happy to help you.
