NEW: BP Podcast 66: Flips, Apartments, & Protecting Yourself From Professional Tenants with Michael Blank

Hide this

From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1509 topics, 14385 posts — Last Post 04/18/14, 10:36AM

BiggerPockets Exclusive PRO Area

117 topics, 839 posts — Last Post 04/18/14, 05:47AM

New Member Introductions

10875 topics, 85523 posts — Last Post 04/18/14, 10:48AM

Real Estate Success Stories

394 topics, 6131 posts — Last Post 04/18/14, 10:13AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5930 topics, 46742 posts — Last Post 04/18/14, 10:58AM

Renters

643 topics, 5820 posts — Last Post 04/18/14, 08:38AM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/16/14, 03:58AM

Home Owner Association (HOA) Issues & Problems Forum

237 topics, 1609 posts — Last Post 04/17/14, 08:53AM

Do it Yourself

654 topics, 6263 posts — Last Post 04/18/14, 10:24AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3670 topics, 29428 posts — Last Post 04/18/14, 11:09AM

Real Estate Guru, Book & Course Reviews and Discussions

1132 topics, 11551 posts — Last Post 04/18/14, 10:12AM

Ask About A Real Estate Company

740 topics, 7317 posts — Last Post 04/18/14, 10:28AM

Real Estate Investing

Real Estate Strategies

Wholesaling

5594 topics, 43698 posts — Last Post 04/18/14, 10:57AM

Rehabbing and House Flipping

3329 topics, 30958 posts — Last Post 04/18/14, 11:09AM

Real Estate Development & New Home Construction

552 topics, 4679 posts — Last Post 04/17/14, 10:10PM

Innovative Strategies

703 topics, 6027 posts — Last Post 04/18/14, 08:48AM

Tax Liens, Notes, Paper, & Cash Flows Discussion

865 topics, 6668 posts — Last Post 04/18/14, 08:43AM

Rent to Own a.k.a. Lease Purchase, Lease Options

692 topics, 4872 posts — Last Post 04/18/14, 08:57AM

1031 Exchanges

143 topics, 1054 posts — Last Post 04/18/14, 08:41AM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1686 topics, 11285 posts — Last Post 04/17/14, 06:41PM

HUD, VA, and Tax Sales

414 topics, 3088 posts — Last Post 04/17/14, 07:35AM

REOs

1214 topics, 10570 posts — Last Post 04/17/14, 02:28PM

Short Sales

1534 topics, 13120 posts — Last Post 04/17/14, 04:44PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7194 topics, 70675 posts — Last Post 04/18/14, 11:05AM

Mobile Homes & Mobile Home Park Investing

638 topics, 5139 posts — Last Post 04/18/14, 06:11AM

Investor Basics

Starting Out

7694 topics, 60403 posts — Last Post 04/18/14, 11:08AM

Investor Psychology

430 topics, 6098 posts — Last Post 04/18/14, 10:35AM

General Real Estate Investing

4711 topics, 37164 posts — Last Post 04/18/14, 08:52AM

Real Estate Investor Marketing

1730 topics, 14091 posts — Last Post 04/17/14, 06:21PM

Commercial Real Estate

Commercial Real Estate Investing Forum

1409 topics, 8983 posts — Last Post 04/17/14, 06:13PM

Multi-Family and Apartment Investing

1106 topics, 9200 posts — Last Post 04/18/14, 10:48AM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

638 topics, 4884 posts — Last Post 04/17/14, 02:08PM

Business Basics

Goals, Business Plans & Entities

831 topics, 7560 posts — Last Post 04/18/14, 11:09AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2784 topics, 19998 posts — Last Post 04/18/14, 08:30AM

Property Insurance

309 topics, 2045 posts — Last Post 04/17/14, 07:41PM

Personal Finance Discussion

328 topics, 2730 posts — Last Post 04/17/14, 04:56PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2830 topics, 19685 posts — Last Post 04/18/14, 10:40AM

Creative Real Estate Financing

1208 topics, 8764 posts — Last Post 04/18/14, 11:02AM

Crowdfunding Real Estate

35 topics, 459 posts — Last Post 04/18/14, 09:06AM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1208 topics, 7967 posts — Last Post 04/18/14, 11:04AM

Bankers, Lenders, and Mortgage Brokers

441 topics, 1922 posts — Last Post 04/18/14, 09:39AM

Contractors

267 topics, 1676 posts — Last Post 04/18/14, 07:43AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

1986 topics, 11599 posts — Last Post 04/18/14, 08:46AM

Americans & International Real Estate

161 topics, 566 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

64 topics, 428 posts — Last Post 04/18/14, 04:22AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15007 topics, 53927 posts — Last Post 04/18/14, 11:01AM

Real Estate Events and Happenings

163 topics, 2490 posts — Last Post 04/18/14, 08:49AM

Off-Topic

Off Topic

Off-Topic

2903 topics, 32402 posts — Last Post 04/18/14, 07:21AM

Housing News & Real Estate Market

914 topics, 8351 posts — Last Post 04/17/14, 08:41AM

BiggerPockets Real Estate Investing Summit

97 topics, 1751 posts — Last Post 04/10/14, 02:27PM

BiggerPockets Resources

Forums » Commercial Real Estate Investing Forum » Building a Portfolio with Zero Cash Flow Properties

Building a Portfolio with Zero Cash Flow Properties

8 posts by 7 users

Signup


Lately I've been doing a lot of research on Zero Cash flow properties. Where an investor purchases a property with an investment grade tenant (Walgreens, CVS, Jack in the Box, etc.) with a small down payment (12-15%) and uses 100% cashflow generated to pay off the note (hence, zero cash flow). At the end of the term, the investor owns the Walgreens free and clear and would possibly renew the lease or 1031 to another property.

I know this defeats the purpose of investing for cash flow. However, for a younger investor, this seems like a great way to build a portfolio. I find it more than risky considering factors such as tenant default (ex. Rite Aid Bankruptcy), time value of money, Inflation (due to fixed rent rate), etc. I have heard of people doing this, but nothing specific.

Has anyone here had experience investing in zeros? I would love to hear any and all insight and experience.

Thanks in advance,

Andrew



Real Estate Investor · Ellicott City, Maryland


Personally, I wouldn't call this "zero cash flow."

If you're generating enough cash to pay off the note quickly, you're generating plenty of cash flow, regardless of whether you're using it as cash reserves, using it to pay the note down or using it to buy cars and other toys.

Depending on your situation and goals, it may be very smart to a pay a note down quickly...just make sure you're taking all aspects of your long-term strategy and goals into account and ensure that you have a cash reserve cushion of several months in case you run into cash flow issues.


Small_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Telephone: 770-906-6358
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Real Estate Investor · Southlake, Texas


Obviously, you need to be sure that at the end of lease/loan you have a plan for your tenant/property. Often times the market changes and your tenant vacates. You will have to release which will most likely require major tenant finish. Granted, you will have a vacant property free and clear (or at least such a low LTV) that you can borrow against, just plan ahead.


Tod R., Thompson Realty Corporation
Telephone: 817-781-1942
Website: http://www.thompson-realty.com
[email protected] http://www.thompson-realty.com


Real Estate Investor · Cincinnati, Ohio


The rate at which you pay down debt should be driven by your personal financial goals. If your goal is is not take income now, but want a free and clear property later, then the strategy could be a fit. My only thought is why not deploy this approach on a piece of properties with a more favorable exit strategy? Maybe residential income property or something along those lines. I am by no means an expert in commercial but it certainly seems more risky to me.



Real Estate Investor · Round Rock, Texas


What you have described is basically like a zero coupon bond if you look at the cash flow pattern. You invest some money now, get no cash flows for several years, and then get a large "cash flow" at the end which you defer through an exchange.

There is simply no utility for the interim cash flows if you don't plan to use the money. Thus there is really no big utility for current yield in your case. However, you can likely find better uses for your cash than what you are exploring unless you are getting the investment at a large discount to start out with.


Small_inner10_2Bryan Hancock, Inner 10 Capital
E-Mail: [email protected]
Telephone: 1-800-577-0401
Website: http://www.inner10capital.com/invest/
Join Our Investor Base - Currently Growing 12% Per Week


Real Estate Investor · Garland, Texas


These are not designed for the inexperienced or poorly capitalized investor. They can be an excellent tool for the real estate pro who needs tax shelter. They can throw off lots of depreciation (non cash expense), which can be as good as cash flow for the investor in a high tax bracket.


Jon Klaus, SellPropertyFast
E-Mail: [email protected]
Telephone: 214-929-6545
Website: http://www.facebook.com/Buttermilks


Real Estate Investor · Dallas, Texas


As others like Jon have said, these triple nut jobs are not for the inexperienced or for those with shallow pockets. If you have money and a team around you that you trust and has experience here, I'd be more inclined to 1) buy the land and do a ground lease, 2) be involved in the development, or 3) both 1 & 2. Too much risk on the back end of these for a measly 6% or whatever walgreens, cvs, franchises, etc are paying today.


Small_dreamstime_l_17553651_-_copy_crCarlos Flores, Stronger Communities Alliance, LLC
E-Mail: [email protected]



Jon, from what I've seen this is definitely for the more savvy investor where capital reserves are of the utmost importance in order to service the debt in case of tenant vacancy. As you have stated I have only heard of investing in zeroes to offset any income with a depreciable asset. With capital reserves in place, would this be a viable way to build a portfolio?

Bryan, In terms of cash flow it almost like a zero coupon bond. Later down the road you do have to worry about things like phantom income, however it would be very difficult to find these properties at a discount.

My goal would be to have my dollar work as hard as possible. leveraging the tenants credit rating to have the building free and clear at the end of the term.

15-25 years is along time to tie up capital. My question to you is what other investment alternatives would you suggest?

Thank you all for you replies and insight

-Andrew





Sign up