Is positive cash flow a myth in today’s environment?
Member since 2022 · 4 posts · 5 votes
Is positive cash flow a myth in today’s environment?
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesThere are positive CF deals everywhere, but that doesn't mean all deals will cash flow. Also, if it doesn't have positive CF, why would you buy it? The goal isn't to buy properties.
48 Replies
- Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes3y
The extra complicating factor is going to be looking for a relatively turn key deal. In a competitive market it's important to be nimble and get off-market deal flow. Sometimes that means buying a distressed property and doing renovations, sometimes that means being ready with cash to buy out a distressed owner. The MLS, if that's where you're focusing, hasn't been a great source for turnkey cash flowing deals for a good few years now.
- 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
There are positive CF deals everywhere, but that doesn't mean all deals will cash flow. Also, if it doesn't have positive CF, why would you buy it? The goal isn't to buy properties.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes3y
Expand your search to include multifamily. Those are basically on sale right now, but the rent you can get isn't. At least here in California.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
just check the default cap rate in your city, I know the number in your city and I know it wouldn't even cashflow with 20% down.
But if you find a city/town that has default cap rate > 8 then there's hope even with 7%interest rate.
If you want to invest in your city, I guess your down shall be between 35-40%. - Member since 2022 · 35 posts · 10 votes3y
I share the frustration..perhaps someone can explain what motivates "investors" to buy money losing properties but this is definitely what is happening. Are they waiting for another buyer to come along and pay an even crazier price? Are they waiting for rents to climb even further to get them into positive cash flow?
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Not a myth, you have to buy right. Price/rent ratio has to be good. Look into Sunnyside and 3rd ward, renting by the room or airbnb.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Matthew Harding:
It's fairly simple. Income minus expenses = cashflow. If you have lower income or higher expenses, the numbers change. We've seen astronomical rises in property prices for two years straight. Those prices haven't come down and the rent income hasn't caught up, so the formula usually results in a negative until we get some balance in the market.
You can still find deals. Find them off-market. Find them in a different market. I can guarantee there is someone in Houston right now closing on a killer deal, but maybe they had to look for six months before they found it. If you're putting in the effort, you'll find something.
The DIY Landlord Book4.7248 Reviews - 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
If you are open to other areas, I would recommend Cincinnati! Great cash flow opportunities!
Sam McCormack Realtor - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Matthew Harding
I'm in TX and it's hard to find anything that cash flows off the MLS. I've done rehabs and they're a pain. Lol. So I prefer to buy properties off the MLS that don't need much work. I've found that I break even the first couple years. But then market rent starts going up pretty good and the cash flow looks good 3-5 years out. I have a W2 so I'm ok barely making anything off a property in an area I like for a couple years. So yes, this is normal in TX. But be patient and things will look good for you in a couple years.
- Member since 2020 · 671 posts · 937 votes3y
I realize this isn't popular to say on a real estate investing website, but unless you plan on putting more effort into real estate investing than a casual investor would (I don't, myself), you're probably better off backing away from this market for now.
If you're not connected, you're going to be fist fighting industry experts for an ever dwindling supply of acceptable deals. Or you're going to buy and wait and wait for rents to come up and interest rates to drop to justify your purchase (in the meantime, you'd have probably made more in mutuals). Or you're going to have to buy a large property and modify it to rent by the room - which will be a pain in the arse unless you're fine with it being your new job. Etc., etc., etc.
These are pretty choppy waters and unless you're sure you can swim in them or are knowingly completely willing to swim for your life, I'd say to just wait it out on the shore.
Obviously, I'm just looking to be a passive investor and not looking for a new job for myself though. I believe there's a place in this market to be successful for those that are.
Best wishes
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Chris John:
I realize this isn't popular to say on a real estate investing website, but unless you plan on putting more effort into real estate investing than a casual investor would (I don't, myself), you're probably better off backing away from this market for now.
best commentary/analysis ever .....
- Member since 2020 · 671 posts · 937 votes3y
I'm going to show your comment to my wife and see if it gets me anywhere. Something tells me that she'll remain unimpressed by me. haha
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Chris John:
I'm going to show your comment to my wife and see if it gets me anywhere. Something tells me that she'll remain unimpressed by me. haha
the same thing happened to my SO/GF1/GF2 too, they don't understand how lucky they're haha lol
- Real Estate Agent · PCB/30A Florida and St. Thomas USVI · Member since 2015 · 36 posts · 18 votes3yI'm in Panama City Beach Florida and you can still properties that make money here. I just listed a condo on the beach for $389K that would be a money maker.
- Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes3y
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
Did you choose this market bc its local? If you cant find anything there, checkout Ohio! Columbus is the fastest growing metropolitan area in the midwest with decent cashflow, and appreciation 8% higher than the national average. Cleveland is incredible for cash flow, with around 60% of households occupied by renters. Happy to chat more in-depth on these markets if you shoot me a DM!
- 3yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
It is not a myth, but most purchases will not have positive cash flow at high LTV debt.
Some things to consider for better cash flow: MF typically better than SFR, off market better than on market, value adds can increase CF, STR and MTR typically have better CF than LTR, rent by room has better CF than rent of entire unit.
The easiest to see value add is the rehab. Because everyone sees it there is significant competition, the margins on many rehab value adds have gotten small. In addition, rehabs are labor intensive. Strive to identify more sophisticated or obscure value adds. These often have much better margins than rehab value adds.
Good luck
- Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes3y
Quote from @Taylor L.:
The extra complicating factor is going to be looking for a relatively turn key deal. In a competitive market it's important to be nimble and get off-market deal flow. Sometimes that means buying a distressed property and doing renovations, sometimes that means being ready with cash to buy out a distressed owner. The MLS, if that's where you're focusing, hasn't been a great source for turnkey cash flowing deals for a good few years now.
I agree. If you can search the mls and find a turnkey single family home that cashflows, that probably tells you something less than complimentary about the market or sub-market you're looking in. Positive casflow is all over the place if you buy below market and add value.
- Investor · New York City · Member since 2016 · 45 posts · 22 votes3y
Quote from @Simon Ashbaugh:
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
Did you choose this market bc its local? If you cant find anything there, checkout Ohio! Columbus is the fastest growing metropolitan area in the midwest with decent cashflow, and appreciation 8% higher than the national average. Cleveland is incredible for cash flow, with around 60% of households occupied by renters. Happy to chat more in-depth on these markets if you shoot me a DM!
I love Cleveland, but investors shouldn't forget about capex too! Lot of sketchy parts around Cleveland as well and everything is "street by street"
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
this is the nature of the current environment - high prices and high interest rates. here's a gameplan:
-stay local, but expand your search radius
-get off the Internet and onto the ground - go to REIA meetings, get on buyer lists, look at dozens of properties in person, network
-be patient
- 3yStephen KeigheryBusiness MemberRental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
@Matthew Harding there are definitely positive cashflow properties. If you are prepared to do rehabs you can create those deals anywhere. It sounds like your not so you are going to have to go to a market where you can find them.
Home Buyer Louisiana4.853 Reviews - Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
You need to look out of state, there are double digit net caps to be had,
All the best
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Mohit Asthana:
Quote from @Simon Ashbaugh:
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
Did you choose this market bc its local? If you cant find anything there, checkout Ohio! Columbus is the fastest growing metropolitan area in the midwest with decent cashflow, and appreciation 8% higher than the national average. Cleveland is incredible for cash flow, with around 60% of households occupied by renters. Happy to chat more in-depth on these markets if you shoot me a DM!
I love Cleveland, but investors shouldn't forget about capex too! Lot of sketchy parts around Cleveland as well and everything is "street by street"
I " set up shop " there about 10 years ago, never looked back. My biggest regret was not keeping 50 more of the 500 I flipped, HUGE mistake, that I will not make again. We are trying to buy everything in East Cleveland, certain areas as we see what is coming ,
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Chris John:
I realize this isn't popular to say on a real estate investing website, but unless you plan on putting more effort into real estate investing than a casual investor would (I don't, myself), you're probably better off backing away from this market for now.
best commentary/analysis ever .....
Nope, just connect with those that provide rental properties 100% hands off. So many make it more complicated than it needs to be. I know dozens and dozens of investors that do not do anything, let the pros handle it
All the best
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Bob S.:
Quote from @Carlos Ptriawan:
Quote from @Chris John:
I realize this isn't popular to say on a real estate investing website, but unless you plan on putting more effort into real estate investing than a casual investor would (I don't, myself), you're probably better off backing away from this market for now.
best commentary/analysis ever .....
Nope, just connect with those that provide rental properties 100% hands off. So many make it more complicated than it needs to be. I know dozens and dozens of investors that do not do anything, let the pros handle it
All the best
i know what you mean, problem is most investors doesnt even understand what cap rate is so they dont know how to do proper DD.
The OP itself is asking the wrong question.
If he wants cash flow he should just invest the market at highest cap rate.
problem is biggerpocket podcast teaching is so bad that newbie investor thinks California, TOledo and Houston is going to create the same yield.
Also the original teaching is so bad that newbie doesn't know to increase cash flow that they have to lower the financing cost to generate cash-flow. This is where all over, wrong question is being asked over and over again in BP. Realtor doesn't care about this.
There're 3 elements for cash flow:
1. market / cap rate
2. financing cost
3. time - Rental Property Investor · Streetman, TX · Member since 2018 · 527 posts · 495 votes3yThere are cash flowing properties in just about any market. That said they are not just going to fall into your lap, its going to take a little digging and hard work on your part. I'm currently under contract on a duplex just North of you that will cashflow from day 1, even with today's interest rates.
Quote from @Matthew Harding:
Hi all - I’m looking to purchase my first investment property near Houston. Single family home, relatively turn key, ~$250k, decent schools. Given rates are what they are, I don’t seem to find anything that positively cash flows. Is it silly to be looking at that as a factor? I don’t want to do any significant renovation work with this being my first, and I don’t expect to cash flow significantly, but I am having a hard time finding anything that breaks even. Maybe I’m being too conservative on my numbers, but I thought I would poll the group on whether this is just the nature of the current environment or if there are other things I am not considering. Thanks!
You are going to have to reset your expectations; SFH, Turn Key, ..... Just about anything you buy is going to require some level of renovations. Most good deals are distressed properties, that means they have gone through some level of deferred maintenance before the seller is ready to sell below market price. Here are a few suggestions. Do some research on your target market. Find out the market rent for the type of property you are looking for. Lets assume 3BR/1BA SFH homes rent for $1500 in Houston. As a very rough screen use the 1% rule. Don't bother looking at $250k homes, you are right they will never cash flow at $1500/month. You need to be looking at homes under $150k. Alternatively you need to look at small multifamily. As 2BR/1BA duplex rents for $1000. That puts you in the low 200's. Do a few mls searches and see if you find any leads. You can then screen those leads based on schools, neighborhoods and etc. I have Zillow searches set up on key markets that feed me daily deals to my in-box. Purchased several 1% deals this way. Or if you are not afraid to do a little work try driving for dollars. Drive around your target neighborhoods looking for neglected properties. Once you find a prospect do a trace off the county records and send the owner a letter "I want to buy your house". The latest deal I found this way, estate sale, attorney answered my letter. I got in before the property was ever listed.
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