I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
My strategy is growing equity for the first 10 years and then 1031 that capital into triple net deals which are truly passive and live off that cash flow. Living off single family home cash flow can be unreliable at times.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
@Trevor J Dammon Absolutely. You want to invest in private equities where the total ROI is based on income and appreciation and principal paydown. There are many investments available that provide an IRR of 20% or more with 3 to 5-year commitments. These are with companies that have proven track records and have been around for 20 years. Minimal risk, maximum return and very passive.
Alternatively, you could do your own syndication and raise money to purchase your own apartment complex and make money in 4 different ways.
Investing in new development deals could be a play for you then. Those sort of deals generally don't see cashflow for the first few years but have the potential for big back end payout.
If you aren't looking for cash flow but maximum returns I would consider development deals. They will require you to invest with no returns for the first 2-3 years but then have a larger return down the road. Value add deals you might be at 20% with development deals you would be looking at 30% or more. Higher risk though. More risk more reward. Make sure you find someone with experience and a good track record.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
My strategy is growing equity for the first 10 years and then 1031 that capital into triple net deals which are truly passive and live off that cash flow. Living off single family home cash flow can be unreliable at times.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
My strategy is growing equity for the first 10 years and then 1031 that capital into triple net deals which are truly passive and live off that cash flow. Living off single family home cash flow can be unreliable at times.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
My strategy is growing equity for the first 10 years and then 1031 that capital into triple net deals which are truly passive and live off that cash flow. Living off single family home cash flow can be unreliable at times.
What type of loans do investors typically obtain for development deals? Just curious how they compare to bank loans, hard money lenders, and private lending.
Investing in new development deals could be a play for you then. Those sort of deals generally don't see cashflow for the first few years but have the potential for big back end payout.
Land will get you the maximum ROI because each stage of the development process is a massive bump to the property value and there’s no cashflow.
Take a deal that would cashflow with a 30 year loan and get a 25 year loan instead. Your interest rate will be lower and your principle portion will be higher. In 15 years you can refinance or bath in massive cashflow.
Take a deal that would cashflow with a 30 year loan and get a 25 year loan instead. Your interest rate will be lower and your principle portion will be higher. In 15 years you can refinance or bath in massive cashflow.
Except that added principle comes out of the REI pocket as added cost...instead of free from the tenant. Just take the 30 year with the higher cf
I was counting on at least 1/2 percent lower rate on at least $500k providing the extra income. I hear people buying doors for $200/mo. This is basically buying another door for them with zero down. It will take a long time for negative cashflow to equal $125k downpayment. Probably the whole 15 years. At which time they’d have enough equity for at least 3 more properties.
Heck in 4 years they’d have enough equity to re-finance (probably at a lower rate than today’s 15) and buy a 2nd property.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
Tax advantaged cash-flow is a major benefit to Real Estate. If that's not a priority for you and if you are an accredited investor, I would say Venture Capital or Private equity investments. VC has zero cash-flow, but your MOIC's upon successful exit of each position are huge.
What type of loans do investors typically obtain for development deals? Just curious how they compare to bank loans, hard money lenders, and private lending.
I believe he is referring to syndicated deals whereby the sponsor secures all the financing. All you need to do is choose the right syndicated deal and send in your money. Of course, with these types of deals, performing proper due diligence on the operator as well as the numbers behind the deal are critical to help avoid principal loss.
Value add deals with exposure to some execution risk will fit your no cashflow but high return at exit requirement. Most of the return is made at exit after the property has been turned around.
@Trevor J Dammon, If your main source of income is your W-2, and you're not looking to run a full time real estate business (you want more passive returns), then I don't think it's a question of cash flow vs. not cash flow. What you want to do is maximize the efficiency of your W-2 earnings. So, you need know how to find consistent VALUE when you put your money to work, while understanding the trade-offs/risk-reward/opportunity cost when you invest in something.
The way I look at things, "maximizing ROI" is all about efficiency. And in real estate, the people who are super efficient with their time and money are generally getting cashflow and appreciation while being knowledgable enough to minimize risk.
well, we all want to "maximize return". but... "cash flow or no cash flow" isn't really a good framing, because it doesn't address how active or passive you want to be. other posters have alluded to it... but I think that's a better framing.
so... how active or passive do you want to be? =-)
I know folks will say "just find a killer syndication!" but I don't think that's an option for a lot of us... do I go to killer syndications . com and just deposit 50K no questions asked and get 60K back in a year? I don't think so!
if you're a HNWI already and looking to diversify a big chunk then great - go find a fund or a syndication.
@Trevor J Dammon if you don't require cashflow, then you can be shop farther out on the quality curve. Higher value homes. People pay a premium for cashflow, so if you're willing to forgo it, you can essentially improve your investment. That would be the theory anyway. But it's a recommendation I make all of the time. Buy a higher value home and you'll sleep a little better at night *and* you've mortgaged more, meaning you're amortizing more debt.
What type of loans do investors typically obtain for development deals? Just curious how they compare to bank loans, hard money lenders, and private lending.
It's usually short term/bridge financing. Often financed by local banks at interest only. Then once the project is stabilized it's refinanced into longer term debt
@Trevor J Dammon I think if you are well capitalized and not focused on getting your hands dirty with fix and flips, toilets etc, then and you are focusing on a net worth approach to things then your biggest goal right now should be growing your network. I think if you got to your local real estate investors club and rub elbows with the builders, and flippers who have experience and want to grow and you invest in them then this is probably your best place to get the highest ROI with the lease amount of work.
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
One common thing folks in your position do is turn the cashflow|appreciation dial in the extreme opposite direction.
- One extreme direction is warzone investing, crazy cap rates and max cashflow, for dirt cheap homes, but you need that cashflow to patch the bullet holes and pay for all the evictions.
- Then there's the middle, where most REI activity is done. Balance of cashflow and appreciation. When you see/read people debate "B v C neighborhoods," they're discussing where in this middle ground to turn that dial, a tick this way or a tick that way.
- The other extreme has the dial turned all the way to max appreciation, negative cashflow. To use California examples, simply because that's what I'm familiar with, these are your SFRs in the nice areas of San Jose, anywhere in Piedmont, nicer areas of Marin County, ritzy Los Angeles places they make Reality TV shows about, you get the idea. They will never cashflow as a rental, but historically these are markets with vastly above average appreciation over time, as "the rich getting richer" bid up values at a rate that is greater than inflation, greater than median income bumps (they aren't "median income" people), and so on. Those previous decades of higher income people bidding values up is why it's so expensive, you're basically hitching your wagon to that pattern spanning decades (& the model here isn't "up and coming," it's "it went up, and there it's going, into the stratosphere" -- past and present tense, not speculative future tense).
For this "appreciation max, screw cashflow!" type strategy, here's your model tenant (and totally realistic):
- Self employed. Lies on their tax returns, so can't get a normal mortgage, but still needs to keep up with the jones'.
- Great credit, solid income IRL (you just can't see it on tax returns, so ask for 3 or 6 or 12 months of bank statements).
- They're busy convincing their friend circle they own the house, so they will "maintain" it accordingly. No one is calling you for clogged toilets or to change a light bulb, here, they want the homeowner lifestyle, so they're going to call the plumber or electrician.
- Very low turnover.
- Very low drama. The "just how passive is real estate investing?" dial is also turned towards "as passive as possible" here.
And then in 10 or 15 years, if/when you want to retire and need the cashflow, you 1031 it into some very large commercial real estate, turning that "appreciation v cashflow" dial back towards the middle, but at a higher tranche of property. I worked on a pair of transactions some time ago wherein they 1031'd a pair of Piedmont SFRs (the buyers in 1 of the 2 cases were their own tenants who decided to be honest on their tax returns for a couple years, after having rented for quite a while) into some big giant office building in the midwest (I didn't work on that transaction, so don't ask me all the details).
The most common critique here is that it's "speculation" on appreciation. Yes, it is. You're "speculating" that some neighborhood or city demonstrating a pattern that spans decades, will continue. I can think of far more dubious "speculations" than that, that people do all the time, without anyone critiquing them for it.
The dial turned to hyper mega turbo boost, where celebrities buy for $50m and then sell 8 years later for $40m, is too far, insufficient liquidity at those price points seems to create unpredictable volatility. Some moderation even here. I probably wouldn't go too far past a couple million, even if you could. Several $2m houses in San Jose is probably safer than a $10m mega-mansion in Atherton (again, just using towns I'm familiar with, I don't know your state).
I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?
What would your strategy be if cash flow was not a driving factor?
Easy answer, park your money in a syndication that has a focus on capital appreciation :)
In all seriousness, it depends on your goals. Happy to chat about it
Hi @Trevor J Dammon! Great question and I honestly feel the same about my own investing. The problem is that most investments that don't provide cashflow end up speculative in nature. This means that they could in many cases, have higher risk. I don't like speculations, I did enough of them in the past!
The ideal situation is investing in an asset like Berkshire Hathaway stock. They reinvest 100% of their dividends and gains back into the stock. They believe they can invest better than most investors and I agree.
We came up with a solution for investors who don't need cashflow in our latest fund. We have a distribution reinvestment plan. I recommend looking for syndications or funds more specifically, that have a DRIP program that will allow you to have cashflow but reinvest it back into grow the equity value. Good luck and happy investing!
