Real Estate Investing Basics

How to Be a Terrible Cash Flow Investor (7 Guidelines for Ultimate Failure!)

Expertise: Business Management, Personal Development, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate News & Commentary
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That’s right. Instructions on how to be a terrible cash flow investor are finally here. Make sure you follow all of these recommendations to ensure ultimate success!

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Once you have decided cash-flow investing is the way you want to go, follow these simple guidelines and you are certain to go broke in no time at all.

Are you ready?

7 Guidelines for Ultimate Failure as a Cash Flow Investor

  1. Overpay for a property. Nothing is more amazing for losing money than paying so much for a property that the rents you collect don’t cover the expenses. And don’t think that paying cash for the property (i.e. no mortgage payment) will make it any better. You may get cash flow then but that doesn’t mean it’s not still a horrible return.
  2. Speculate. Oh man, be sure you only buy properties where the only returns you may potentially see will come from rent increases or general appreciation. Even cooler, be sure you are actually losing each month on your property while you wait for said rent increases and appreciation.
  3. Come up with the highest return possible on paper. In order to make the return on the property look as high as possible, do these things:
    • Definitely don’t include estimates for vacancy and repairs because those don’t anything impressive for your spreadsheet.
    • Be sure to put that magic appreciation percentage in there because that does a real number (no pun intended) on providing insanely high returns. The real estate economy is guaranteed to appreciate at exactly that rate, no?
  4. Buy in cities just because they are cool. Who cares what numbers look like when you can say you own a piece of property in Venice Beach, CA? You can mail those cool points to my home address!
  5. Buy properties just because they are cool. Definitely go for that high-end apartment that you are so enamored with the stunning marina view that you believe people will pay anything to live there.*
  6. Buy in cities that are declining in population. What do I always say is one of the most expensive costs on a rental property? Vacancies. What better way to keep your vacancies high than to buy in a city, or neighborhood, where no one wants to live. Score!
  7. Get the lowest quality tenants possible.

    In case you aren’t experiencing enough vacancies to get the full experience of going broke, be sure to only accept tenants who are absolutely not qualified to live there. Maybe they don’t have a stable job, maybe their income is only just over the rent you are charging, maybe they have consistent evictions, maybe they can only afford your place because you are offering a waive of the security deposit or a free month’s rent… really the possibilities are endless. On top of that, you want to make sure these tenants are going to have no regard at all for your property and they treat it as such. Damage to walls, stains on carpets, breaking things, smoking in the house, not calling in needed repairs that will result in long-term issues, and maybe a pet or two who can thoroughly destroy your floors? You know what is even more fun than damage to the property is when the tenants leave the property with all of your appliances and/or copper wiring in tow. The more damage and theft the better!

*I was motivated for this article by an investor I recently met who claimed to be a “terrible cash flow investor”. When I asked how one earns that title exactly, he gave me some great input how to successfully be a terrible cash flow investor. Without giving out his name, I want to give credit for some of the wording I used as it is his but was so humorously worded that I didn’t want to change the phrasing.

There you have it! The keys to ultimate success in failing at investing for cash flow. I hope these guidelines help you along on your journey and please do keep me posted on your progress along the way!

Since this is the first rendition of this newfound guide to cash flow investing failure, I’m looking for more input to add to the list. From your own experience, what other guidelines can cash flow investors follow to ensure cash flow failure?

Photo Credit: jgarber via Compfight cc

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating true lifestyle design. She did this through real estate investing, using primarily creative financing to purchase five properties in her first 18 months of investing. Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved towards turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process. She’s written nearly 200 articles for BiggerPockets and has been featured in Fox Business, The Motley Fool, and Personal Real Estate Investor Magazine. She still owns her first turnkey rental properties and is a co-owner and the landlord of property local to her in Venice Beach.

    Paul
    Replied over 5 years ago
    Lmao! I needed to read this article at 7:30 am! Good laughs!
    Ali Boone
    Replied over 5 years ago
    Lol. Thanks Paul! I hadn’t thought before to try to make my articles funny, good Monday early-morning reads. I might try to make that my new niche. Could be fun!
    Sharon Tzib
    Replied over 5 years ago
    Haha, Ali – too funny. I think you should also never worry about setting aside reserves for capex, because let’s face it – furnaces, roofs, and appliances never need replacing. And since you’ll never have capex, make sure you buy the oldest house on the block, because it won’t ever become a headache to you with no deferred maintenance to worry about. 😉
    Ali Boone
    Replied over 5 years ago
    Yes Sharon! I’m glad you know about those eternal appliances too, how does everyone not know about those?? I definitely like the oldest properties as well. I find that the more maintenance something needs, the more rewarding it is for me as an owner knowing that I can support the careers of contractors and property managers to the best of my ability by giving them as much of my money as I can. 🙂
    Ronnie Sparrow
    Replied over 5 years ago
    That was awesome!!! Very funny. I have actually caught myself try to fudge the numbers so they look better on paper, to be honest honest my wife caught me and now my numbers are very conservative. I just replaced a roof on one of my rentals but I knew it was needed when I purchased the house. I put money aside for this and the roof was replaced without missing a beat. It’s critical that you plan and budget for capital expenses In this business.
    Ali Boone
    Replied over 5 years ago
    Lol! Ronnie…don’t wives just take all the fun out? Such buzzkills. 🙂 Yes, I agree. Going into any property you should know full out what big item maintenance expenses are looming. No excuse not to when you can hire inspectors to find out for you. (and that’s to be a good cash flow investor, not a terrible one….just in case of any confusion since all the other suggestions on here are to help you become a terrible one)
    Ali Boone
    Replied over 5 years ago
    Lol! Ronnie…don’t wives just take all the fun out? Such buzzkills. 🙂 Yes, I agree. Going into any property you should know full out what big item maintenance expenses are looming. No excuse not to when you can hire inspectors to find out for you. (and that’s to be a good cash flow investor, not a terrible one….just in case of any confusion since all the other suggestions on here are to help you become a terrible one)
    JerryW.
    Replied over 5 years ago
    Ali, excellent article. Don’t forget to not repair things when your renters call about them, and forget about a savings account for taxes and insurance especially if you pay them yearly.
    Ali Boone
    Replied over 5 years ago
    Totally Jerry. And you just made me think of another one I left out- taxes. Make sure you do your own taxes on your rental properties because you are certain to miss amazing write-off opportunities that will put lots of extra dough in your pocket! So much easier to do them yourself and not keep up with all the often-changing tax laws regarding real estate. Way more complicated to know those than to reap the cash benefits from them.
    Erica
    Replied over 5 years ago
    Hilarious! Don’t worry about details either…flood zones, historical districts, old wiring- none of these will be a problem 🙂
    Ali Boone
    Replied over 5 years ago
    Ooh another one I forgot Erica- insurance! If you want to really suck at cash flow, be sure to buy a property in a flood zone that you haven’t gotten an insurance quote on. Nothing is better than assuming $1200/year for property insurance and not know that flood insurance will cost you an additional $4,000/year. {cough…Indianapolis…cough}
    Rachel
    Replied over 5 years ago
    Nice satirical piece, Ali! Let’s also just go with the first contractor bid we receive and forget about the deposit for the prospective tenants to move in since they told us, “I’ll gladly pay you Tuesday for a hamburger today.” 🙂 Just keeping it real, thanks for sharing!
    Ali Boone
    Replied over 5 years ago
    Another good one Rachel- definitely stick with the expensive contractors! I totally forgot about them. Or even more creatively, be sure to get duped by contractors who quote low and reel you in with that awesome quote, only to have to do ‘additional work’ they didn’t know they’d have to do and since they have your house half torn apart, you really have no choice but to agree and say okay. I love that one, makes me feel all warm and fuzzy inside 🙂 Makes me think of one more too- property managers. Make sure you always hire the horrible property managers who nickel and dime you for everything, and make sure they find horrible tenants so they have to charge you constant new tenant fees and maybe even eviction fees. Only an extra joy on top of the vacancy expenses from bad tenants.
    Eric
    Replied over 5 years ago
    I have seen many investors make that same mistake, over pay and then take the first tenants that walk through the door. Proper tenant screening will make or break a landlord. But never fear, I will bail you out, at pennies on the dollar. Far too many investors do not allocate at least 10% for maintenance, or skip vacancy, or management fees. These are generally the small investors, who will be selling to teh real investors after they lose their capital.
    Ali Boone
    Replied over 5 years ago
    Lol, good put Eric. Those are all huge things everyone should consider and you are right that they are make-or-breaks.
    Brock Cole
    Replied over 5 years ago
    Very fun article, Ali! I find myself fighting the urge to over-rehab our vacation rental condos. It’s just so tough to know when to stop!
    Ali Boone
    Replied over 5 years ago
    Ohh good one Brock. Totally true and tempting! Just like the celebs who can’t stop with the plastic surgery. Ha
    Brock Cole
    Replied over 5 years ago
    Very true – My condo is starting to look like the real estate version of Bruce Jenner.
    Ali Boone
    Replied over 5 years ago
    It’s not often Brock I actually laugh out loud at a comment, but I just did. Full-blown laugh actually. And I feel less guilty for laughing (at Bruce’s expense) because I am admittedly a huge Kardashian fan, despite how that makes me sound. I came out of the ‘Kardashian closet’ about two years ago, on BP actually. Someone wrote a blog relating them to real estate and I fessed up there. So, I love Bruce but I do want to tell him he really should stop with all that. Lol.
    Brock Cole
    Replied over 5 years ago
    Poor Bruce looks perpetually surprised. Back on topic, another way to be terrible cash flow investor is to buy properties with high HOA dues. Kills your profits. Reply Report comment
    Brock Cole
    Replied over 5 years ago
    Poor Bruce looks perpetually surprised. Back on topic, another way to be terrible cash flow investor is to buy properties with high HOA dues. Kills your profits.
    Ali Boone
    Replied over 5 years ago
    Oh yes, and add to that, be sure to assume HOA fees won’t go up every year too.
    stephanie willoughby
    Replied over 5 years ago
    Great article! Here’s one that will surely allow you to succeed at going broke on your rental property… when purchasing your new rental, completely ignore the quality and quantity of your new neighbors. That guy next door that has six dogs tied to a tree, and the lady across the street that has eleven teenagers going in and out at all hours? They will never bother or annoy your new tenants, and besides your prospective tenants never look for things like that anyway. So go ahead, pay no attention to the old guy in the pink robe and fuzzy slippers sitting in a tire swing 22′ from the living room window.
    Ali Boone
    Replied over 5 years ago
    Ahhh Stephanie, hilarious! So true about the pink robe and fuzzy slippers.
    Ryan
    Replied over 5 years ago
    Along the lines of buying “cool” properties, I would also recommend you only buy in neighborhoods your friends and family think are appropriate. That is way more important than it actually being a good investment.
    Ryan
    Replied over 5 years ago
    Along the lines of buying “cool” properties, I would also recommend you only buy in neighborhoods your friends and family think are appropriate. That is way more important than it actually being a good investment.
    Ali Boone
    Replied over 5 years ago
    Totally Ryan! It’s so way worth it to lose a couple hundred a month in exchange for getting family approval. I concur.
    LaShelle Smith
    Replied over 5 years ago
    Great article for a newbie…I can’t stop laughing. I’ve read and bookmarked a bunch of your articles so please don’t be offended if starting out I make it a point to absolutely ignore all your advice in this one and try my best to do none of what you said!
    Ali Boone
    Replied over 5 years ago
    Lol. Thanks LaShelle! 🙂