The Cash Flow Trap

Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

Quote from @Reed Rickenbach:

When I was investing in single-family I had this realization as well. I'd much prefer a lower CoC return from a B+ or A area vs. a higher CoC return from C or lower.

For most people it makes the most sense to invest in GOOD assets in GOOD areas, let the equity build over 10 years and then convert to cashflow focus by selling & paying off or exchanging into other assets.

I'd expect a very insignificant amount of "cash in my pocket" from the cashflow in the first 10 years. But that's just me.. some podcast headlines tell a different story.

I agree 100%. After buying some dogs I looked at my A class properties that were highly appreciating, had no delinquency, low vacancy, and with rents continuing to increase, they became good cash flow properties eventually.

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Reed Rickenbach

Real Estate Broker · Memphis, TN · Member since 2020 · 202 posts · 203 votes

3y

Quote from @Matthew Irish-Jones:

Quote from @Reed Rickenbach:

When I was investing in single-family I had this realization as well. I'd much prefer a lower CoC return from a B+ or A area vs. a higher CoC return from C or lower.

For most people it makes the most sense to invest in GOOD assets in GOOD areas, let the equity build over 10 years and then convert to cashflow focus by selling & paying off or exchanging into other assets.

I'd expect a very insignificant amount of "cash in my pocket" from the cashflow in the first 10 years. But that's just me.. some podcast headlines tell a different story.

I agree 100%. After buying some dogs I looked at my A class properties that were highly appreciating, had no delinquency, low vacancy, and with rents continuing to increase, they became good cash flow properties eventually.

Bingo!

Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

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Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

3y

Nah. I go after cash flow. Value-add properties are my pal. There's a point where yes - you can be that dude (or dudette) on the beach sipping your drink of choice living off 200K a year, however, between the point of that dream and purchasing a property one is going to spend a lot of time value-adding. I would push the fact that real estate with excellent cash flow is almost always hard work more than anything else - but it's much, much easier once you get the properties right.

I'm currently dealing with a portfolio of properties I bought 17 or so months ago. Every penny I make on those properties go back into upgrading them. My LLC also has two loans from me that covered two roof replacements.

I figured it would take 100K to fix these properties up and my math showed in roughly 5 years I would recoup that 100K as well as the portfolio purchase price. The good news is, that's dropped to roughly 4 years now as I've raised rents 25%-45% (most closer to the lower figure, however the detailed apt renovations in the larger units have netted me much better rents - the most extreme is a 4-unit apartment that was a paltry $515 a month and will be closer to $900 a month when completed).

Cashflow is my priority. These are C-class properties and I am very picky as to who moves in. Some people hate on cash flow (mostly those in overcooked markets who bought a cheap property and hired an inept PM to run the place into the ground) but it has served me very well.

I buy in areas I consider to be on the cusp of improvement as I know the areas I invest in quite well, as I grew up in my primary market. It has served me well.

3 Reply

Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

Quote from @Karl B.:

Nah. I go after cash flow. Value-add properties are my pal. There's a point where yes - you can be that dude (or dudette) on the beach sipping your drink of choice living off 200K a year, however, between the point of that dream and purchasing a property one is going to spend a lot of time value-adding. I would push the fact that real estate with excellent cash flow is almost always hard work more than anything else - but it's much, much easier once you get the properties right.

I'm currently dealing with a portfolio of properties I bought 17 or so months ago. Every penny I make on those properties go back into upgrading them. My LLC also has two loans from me that covered two roof replacements.

I figured it would take 100K to fix these properties up and my math showed in roughly 5 years I would recoup that 100K as well as the portfolio purchase price. The good news is, that's dropped to roughly 4 years now as I've raised rents 25%-45% (most closer to the lower figure, however the detailed apt renovations in the larger units have netted me much better rents - the most extreme is a 4-unit apartment that was a paltry $515 a month and will be closer to $900 a month when completed).

Cashflow is my priority. These are C-class properties and I am very picky as to who moves in. Some people hate on cash flow (mostly those in overcooked markets who bought a cheap property and hired an inept PM to run the place into the ground) but it has served me very well.

I buy in areas I consider to be on the cusp of improvement as I know the areas I invest in quite well, as I grew up in my primary market. It has served me well.

Thanks Carl... I own a portfolio of C class doors as well. C class is not a clear cut as it may seem. Some people would consider every home in Buffalo NY a C class property compared to other areas.

Where do you invest, and what is your definition of C class?

I 100% am with you on reinvesting the cash back into the properties though, been doing it for years. If it goes back into the property I guess it was never really cash flow in the first place LOL.

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Jim K.

Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes

3y

Quote from @Matthew Irish-Jones:

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

There's a lot to unpack here, Matthew. Basically, you're right on all points. But we could probably write a book together on what that means.

I have to agree with your conclusion wholeheartedly. If I could do it all over again, I would buy much better properties in much better condition in much better areas from the start. A lot of whatever success I've experienced in buy-and-hold has simply been because the borderline C/D-class area I invested in has done extremely well in the last six or seven years and today, most of it is a very solid C-class area. That, to some extent, was a matter of luck. If things had gone a different way I would have lost my shirt.

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

3y

Quote from @Matthew Irish-Jones:

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

There's more than one way to skin a cat.

I bought for cash flow. I bought crappy units that were under-managed and under-performing, fixed them up, increased rents, and poured all the cash flow into the next rental. I went from one rental in 2016 to 33 rentals and 135 storage units in five years and I could be 100% financially independent for the rest of my life.

Knowing what I know now, I would do it differently but only because I have more tools. What I did was right for me at the time and it worked, so it's hard to say it's a bad technique.

The bigger issue is that things have changed since 2016 or even 2021. Prices are high, rates are high, there's more competition, there's less inventory, etc.

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Karl B.

Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes

3y

Quote from @Matthew Irish-Jones:

Quote from @Karl B.:

Nah. I go after cash flow. Value-add properties are my pal. There's a point where yes - you can be that dude (or dudette) on the beach sipping your drink of choice living off 200K a year, however, between the point of that dream and purchasing a property one is going to spend a lot of time value-adding. I would push the fact that real estate with excellent cash flow is almost always hard work more than anything else - but it's much, much easier once you get the properties right.

I'm currently dealing with a portfolio of properties I bought 17 or so months ago. Every penny I make on those properties go back into upgrading them. My LLC also has two loans from me that covered two roof replacements.

I figured it would take 100K to fix these properties up and my math showed in roughly 5 years I would recoup that 100K as well as the portfolio purchase price. The good news is, that's dropped to roughly 4 years now as I've raised rents 25%-45% (most closer to the lower figure, however the detailed apt renovations in the larger units have netted me much better rents - the most extreme is a 4-unit apartment that was a paltry $515 a month and will be closer to $900 a month when completed).

Cashflow is my priority. These are C-class properties and I am very picky as to who moves in. Some people hate on cash flow (mostly those in overcooked markets who bought a cheap property and hired an inept PM to run the place into the ground) but it has served me very well.

I buy in areas I consider to be on the cusp of improvement as I know the areas I invest in quite well, as I grew up in my primary market. It has served me well.

Thanks Carl... I own a portfolio of C class doors as well. C class is not a clear cut as it may seem. Some people would consider every home in Buffalo NY a C class property compared to other areas.

Where do you invest, and what is your definition of C class?

I 100% am with you on reinvesting the cash back into the properties though, been doing it for years. If it goes back into the property I guess it was never really cash flow in the first place LOL.

The majority of my properties are in Erie, PA. It's hard to define C-class accurately in a one size fits all sense as we all invest in different markets. To be vague, I look at C-class as mostly blue-collar workers living there.

I think we all have A, B, C and D-class parameters in the markets we invest in and we're weighing areas like a scale in our head: how well are neighbors taking care of their homes in the area? What's the crime like? Is this upcoming and improving or not? Etc.

A few weeks ago, I was in Missouri renting out my side of a duplex I used to live in (giving the keys to the tenant, lease signing, checking up on the place) and the neighborhood is newish build (early-2000s). If someone drove through there not knowing the area they would believe it's a nice neighborhood. The place looks nice and the properties are mostly well taken care of.

The issue is that it's a huge neighborhood of duplexes and a few of the worthless PM companies let scumbags in who make the neighborhood a bit tough to live in. It looks like a B-class neighborhood but due to the unruly behavior I believe most well-informed local investors would call it C-class and I would agree with that statement.

So it's tough to define the classes accurately, I believe, as the amount of variables are there. But as a really loose definition I'll stand by the blue collar statement. That said, my tenants there are all great. The newer tenants are managers at stores and on the other side the tenants work in the medical field. They all live in a B-class property in a beautiful neighborhood with some C-class fools running around outside. The good news is several of the properties near me have sold and the owners put money in the places = higher rent = better odds of good neighbors. And I had 4K cameras installed there when I lived there so most neighbors know it's like Fort Knox.

My example shows how hard it is to gauge the classes. The place is the one non-value add property I own. Pretty much all the others needed work and I was able to raise the rents a good amount.

I think the choosing to reinvest in a value-add until it's solid is the essential but ugly truth of buying value-add: some people think they can buy a cheap property, sit back and enjoy those rent checks. What I do is delayed gratification as I buy a POS (some worse than others - some need little work and others, a lot of work), fix it up, and when the place is decent, that's when the money comes, and it's inflated as the rents are higher since the property is nicer. I would rather but value-add than purchase turn-key - I want that upside, plus the competition for value-add is a good amount less in my market, for a lot of people would rather pay more than put in the hard work (or pay someone to fix the place up). I get that a wealthy doctor who invests in real estate would prefer to be hands-off and purchase a turn-key A or B class place with little to no headaches; I'm simply a guy who can handle the B.S. a C-class brings and I deal with the added nonsense all for the superior cash flow.

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James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

3y

Quote from @Matthew Irish-Jones:

If you are just starting out I suggest you don't fall into the cash flow trap.

What is the cash flow trap? It starts with a picture of a guy with abs on a beach sipping a light beer next to a beautiful woman. Then a caption about how he is living off of "cash flow." It ends with you borrowing money from your parents.

How does this happen? You get sucked into a dream that you can take $100,000 and keep rolling it over until you have $200,000 of passive income per year and you are on the beach.

How to avoid all of this?

1. Remove the dream of retiring on cash flow from your mind - Real Estate investing takes lots of hard work, if you don't do the work, you are paying contractors, property managers and handymen do do the work, and they are taking a piece of your cash flow for their time. Its a long term wealth building strategy, not a short term job replacement strategy.

2. Value Real Estate in the following order. a) Location b) Asset Condition c) Returns. Most new investors disregard the most important aspect of Real Estate... location and start walking through places that look like S*it, smell like SH*t, and will most likely have returns like Sh*t, but their spreadsheet says otherwise. If the location is crap, and the asset condition is crap, your bill is coming due eventually. When it does, you can burn your spreadsheet.

3. Chase consistent and reliable returns, not HIGH returns. High returns = high risk. Life is short and your life will be shorter chasing sky high returns. They exist, but not for brand new investors. You are going to start at the bottom. When you start at the bottom a 6% return for a nice double with a new roof, and updated mechanics is a win. As rents go up your nice, conservative double is going to be a 7,8,9 and eventually some day a 10% return.

4. Seriously consider the risk - Risk can be geographic. Risk can be based on the asset itself. Does it have lead paint on the windows, asbestos wrapped radiator? These things increase risk, and if you don't know how to quantify that, you will take on too much risk for too little of a reward. There is also a lot of risk in rehabs, especially if it is your first one. Do you understand permits, asbestos tests, lead tests, building inspections, sub contractor insurance, GC insurance, hold harmless agreements, and the rest? If not, you are once again not properly accounting for the risk involved.

If I could do it all over again, I would have bought much better properties in much better condition, in much better areas from the start.

And while this post is so dead-on bulls-eye hit, it will get as many as tens of votes....
And if you posted about making $100k, in 1st year, part-time, with $5k or less cash, a 580 credit score, and how "easy" it can be just by following your simple 4 step system available for $2,499.... you'd be flooded, FLOODED with votes and requests for that link.......
¯\_(ツ)_/¯

That 4-step system: step 1, create a social media presence. Step 2, fake it till you make it, emphasis on fake it. Step 3, promote to everyone about making $100k, in 1st year, part-time, with $5k or less cash, a 580 credit score, and how "easy" it can be just by following your simple 4 step system available for $2,499. Step 4, use the profits to actually do REI because now you have the $ to pay the legit pro's to do the REI for you...... "Shazam" you're an REI Guru.... Yup.......

7 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

3y

Quote from @Nathan Gesner:

Quote from @Matthew Irish-Jones:

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

There's more than one way to skin a cat.

I bought for cash flow. I bought crappy units that were under-managed and under-performing, fixed them up, increased rents, and poured all the cash flow into the next rental. I went from one rental in 2016 to 33 rentals and 135 storage units in five years and I could be 100% financially independent for the rest of my life.

Knowing what I know now, I would do it differently but only because I have more tools. What I did was right for me at the time and it worked, so it's hard to say it's a bad technique.

The bigger issue is that things have changed since 2016 or even 2021. Prices are high, rates are high, there's more competition, there's less inventory, etc.

Nathan thats a very good point that gets glossed over what happened from 2010 to 2021 was a pretty special time. In the investing cycle.. buying today the thought of your 900.00 rents in your city going to 1800 in the next 5 to 6 years ??? who knows but I suspect rents are not going to continue to sky rocket like they have

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Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

@Jim K. Thank you. So now do you buy higher end properties in better locations?

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Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

@Karl B. Yeah the definition and boundaries of each class can get murky.

I did not know you are in Erie PA. We are in that area with a couple services, and plan to get Realty and property management opened down there in the next couple years.

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Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

@James Hamling you are spot on James. No body likes my wet blanket posts, but here I am either way posting the hard truths not many care to read.

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Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

@Jay Hinrichs agreed. Now we have to usually take on other forms of risk to hit pre 2020 numbers, like large scale value adds, rezoning, converting garages to apartments, etc…

You look like a genius when it works, but when it doesn’t nobody can fathom what you were thinking.

Trying to just go shop on the MLS and find 10% returns for a B class property is no longer going to happen.

Irish Jones Realty4.947 Reviews

Bruce WoodruffPro Member

Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes

3y

Quote from @Matthew Irish-Jones:

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

Matt, your initial thoughts 1 - 4 were right on....I couldn't have said it better.

Each situation is very dependent upon particular markets and each individual's need and desires - and risk tolerance.

Money can be made through both cash flow and appreciation in this business, amongst many other things. It behooves a younger investor to do a lot of research, and this forum is a great place to do that....

Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

3y

Quote from @Matthew Irish-Jones:

If you are just starting out I suggest you don't fall into the cash flow trap.

What is the cash flow trap? It starts with a picture of a guy with abs on a beach sipping a light beer next to a beautiful woman. Then a caption about how he is living off of "cash flow." It ends with you borrowing money from your parents.

How does this happen? You get sucked into a dream that you can take $100,000 and keep rolling it over until you have $200,000 of passive income per year and you are on the beach.

How to avoid all of this?

1. Remove the dream of retiring on cash flow from your mind - Real Estate investing takes lots of hard work, if you don't do the work, you are paying contractors, property managers and handymen do do the work, and they are taking a piece of your cash flow for their time. Its a long term wealth building strategy, not a short term job replacement strategy.

2. Value Real Estate in the following order. a) Location b) Asset Condition c) Returns. Most new investors disregard the most important aspect of Real Estate... location and start walking through places that look like S*it, smell like SH*t, and will most likely have returns like Sh*t, but their spreadsheet says otherwise. If the location is crap, and the asset condition is crap, your bill is coming due eventually. When it does, you can burn your spreadsheet.

3. Chase consistent and reliable returns, not HIGH returns. High returns = high risk. Life is short and your life will be shorter chasing sky high returns. They exist, but not for brand new investors. You are going to start at the bottom. When you start at the bottom a 6% return for a nice double with a new roof, and updated mechanics is a win. As rents go up your nice, conservative double is going to be a 7,8,9 and eventually some day a 10% return.

4. Seriously consider the risk - Risk can be geographic. Risk can be based on the asset itself. Does it have lead paint on the windows, asbestos wrapped radiator? These things increase risk, and if you don't know how to quantify that, you will take on too much risk for too little of a reward. There is also a lot of risk in rehabs, especially if it is your first one. Do you understand permits, asbestos tests, lead tests, building inspections, sub contractor insurance, GC insurance, hold harmless agreements, and the rest? If not, you are once again not properly accounting for the risk involved.

If I could do it all over again, I would have bought much better properties in much better condition, in much better areas from the start.

Outstanding post. I fell into that mindset back in 2012 when I bought several C class properties in Indianapolis. Luckily the timing was perfect and I made decent money on them but I sold them all just before Covid because they were in the end ****** quality assets that I just got lucky with timing. I would have done far better buying better assets with lower cash flow on paper. I also had a couple of Bay Area properties with rent ratios less than 0.3% based on current value but provide consistent reliable cash flow month in and month out and also have large equity values.

6 Reply

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

3y

@Matthew Irish-Jones

great post and I agree. i think the advice on BP still hasn't caught up to the current market, although they are finally trying...

I was just listening to an old interview from 2016 and on it, Josh says the 2016 market is getting "toppy". HA!

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

3y

Quote from @Jay Hinrichs:

I agree rents won't continue to climb like they have, but it's pretty rare that they go backwards and it's usually not much of a drop.

Right now there's still a shortage of inventory around the country, and particularly in my market. It makes more sense to rent than to buy in many markets because prices/rates are so high and inventory is so low. It will take a while for that to turn around.

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Carlos M.

Investor · Lancaster, PA · Member since 2016 · 94 posts · 356 votes

3y

OMG!!Finally some truth!! I am so over people telling me I'm doing it all wrong because I still work so hard on my rentals after 15 years.

We purchased 200 year old value add 4-11 unit properties. ( Our more recent stuff is much larger) Not that that was our niche , but it was all we could afford. I refused to bring in partners or borrow from friends and family to buy nicer newer properties. That was the biggest blessing of all!! We accidentally stumbled into the BRRRR method because of all the sweat equity we did for pennies on the dollar.

Years 1-5 were very slow. Just purchased a few properties and invested ALL of the money back into the properties. My wifey and I did all the work. By all I mean every turn over, mowed every lawn, managed every property. This stage was easy.

Years 6-10 were a lot more difficult as the unit count increased. Our commitment to sweat equity caused us to miss out on most weekends and even a few holidays. We still did not spend ANY of the profits. It was all about re-investing.

Years 11-15 ( current). I quit my 6 figure w-2, my wifey will be done with hers by the end of this month. We live off of the rental income. ( NOTICE I DID NOT SAY PASSIVE) We finally pay someone to mow, we do hire help with renovations and we are training a girl to help manage as well. After 14 years of grinding and sacrifice, Our life finally looks a lot like the picture you painted. Except my abs aren't as pronounced as "that guy", I don't drink light beers, we are at the bay not the beach, and there is NOTHING passive about it. How ever, Life is amazing and I would do it all over again! It is so rewarding to to see what my wife and I have accomplished by simply living below our means, a **** ton of hard work and tenacity.

Years 16-20 should be as passive as we want it to be. I plan on taking a few month long vacations a year but grinding on our portfolio otherwise. What can I say, I love hard work, and It's hard to turn your back on what got us here in the first place.

11 Reply

Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

Quote from @Bruce Woodruff:

Quote from @Matthew Irish-Jones:

@Nathan Gesner @Bruce Woodruff @Jim K. you guys have been in the game for long enough, any thoughts?

Matt, your initial thoughts 1 - 4 were right on....I couldn't have said it better.

Each situation is very dependent upon particular markets and each individual's need and desires - and risk tolerance.

Money can be made through both cash flow and appreciation in this business, amongst many other things. It behooves a younger investor to do a lot of research, and this forum is a great place to do that....

No doubt about it Bruce. I have been at it 10+ years and I am still working full time. While my 60+ doors have accumulated wealth for me, I am not living large off the cash flow. I am still putting a lot of money back into the properties. I like nice properties, I spend a lot of money on my turnovers, I use quality products, and I keep everything up to date.

To truly sit on a beach with abs you have to get your diet right, and you have to have companies do all of the work for you. Realtors, property managers, contractors, etc... When you end up paying them for everything you actual cash output gets lower as a %.

If you have a portfolio of B class properties at 10% cash on cash returns and you pay everyone for every item that comes up and drop down to 5% CoC returns you can easily reverse engineer the amount of properties you need to make 100K in cash flow.

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Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

Quote from @Account Closed:

Quote from @Matthew Irish-Jones:

If you are just starting out I suggest you don't fall into the cash flow trap.

What is the cash flow trap? It starts with a picture of a guy with abs on a beach sipping a light beer next to a beautiful woman. Then a caption about how he is living off of "cash flow." It ends with you borrowing money from your parents.

How does this happen? You get sucked into a dream that you can take $100,000 and keep rolling it over until you have $200,000 of passive income per year and you are on the beach.

How to avoid all of this?

1. Remove the dream of retiring on cash flow from your mind - Real Estate investing takes lots of hard work, if you don't do the work, you are paying contractors, property managers and handymen do do the work, and they are taking a piece of your cash flow for their time. Its a long term wealth building strategy, not a short term job replacement strategy.

2. Value Real Estate in the following order. a) Location b) Asset Condition c) Returns. Most new investors disregard the most important aspect of Real Estate... location and start walking through places that look like S*it, smell like SH*t, and will most likely have returns like Sh*t, but their spreadsheet says otherwise. If the location is crap, and the asset condition is crap, your bill is coming due eventually. When it does, you can burn your spreadsheet.

3. Chase consistent and reliable returns, not HIGH returns. High returns = high risk. Life is short and your life will be shorter chasing sky high returns. They exist, but not for brand new investors. You are going to start at the bottom. When you start at the bottom a 6% return for a nice double with a new roof, and updated mechanics is a win. As rents go up your nice, conservative double is going to be a 7,8,9 and eventually some day a 10% return.

4. Seriously consider the risk - Risk can be geographic. Risk can be based on the asset itself. Does it have lead paint on the windows, asbestos wrapped radiator? These things increase risk, and if you don't know how to quantify that, you will take on too much risk for too little of a reward. There is also a lot of risk in rehabs, especially if it is your first one. Do you understand permits, asbestos tests, lead tests, building inspections, sub contractor insurance, GC insurance, hold harmless agreements, and the rest? If not, you are once again not properly accounting for the risk involved.

If I could do it all over again, I would have bought much better properties in much better condition, in much better areas from the start.

Outstanding post. I fell into that mindset back in 2012 when I bought several C class properties in Indianapolis. Luckily the timing was perfect and I made decent money on them but I sold them all just before Covid because they were in the end ****** quality assets that I just got lucky with timing. I would have done far better buying better assets with lower cash flow on paper. I also had a couple of Bay Area properties with rent ratios less than 0.3% based on current value but provide consistent reliable cash flow month in and month out and also have large equity values.

Same here. I have done it all and C class investing was my strategy for a while as I dreamed of the beach. The headache was not worth it. I still hold a lot of them and they cash flow great, but I use my PM company for everything and am 100% hands off. Overall, life would have been easier, and more lucrative as the market sky rocketed to have A class properties.

Irish Jones Realty4.947 Reviews

Matthew Irish-JonesBusiness Member

OP

Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

3y

Quote from @Carlos M.:

OMG!!Finally some truth!! I am so over people telling me I'm doing it all wrong because I still work so hard on my rentals after 15 years.

We purchased 200 year old value add 4-11 unit properties. ( Our more recent stuff is much larger) Not that that was our niche , but it was all we could afford. I refused to bring in partners or borrow from friends and family to buy nicer newer properties. That was the biggest blessing of all!! We accidentally stumbled into the BRRRR method because of all the sweat equity we did for pennies on the dollar.

Years 1-5 were very slow. Just purchased a few properties and invested ALL of the money back into the properties. My wifey and I did all the work. By all I mean every turn over, mowed every lawn, managed every property. This stage was easy.

Years 6-10 were a lot more difficult as the unit count increased. Our commitment to sweat equity caused us to miss out on most weekends and even a few holidays. We still did not spend ANY of the profits. It was all about re-investing.

Years 11-15 ( current). I quit my 6 figure w-2, my wifey will be done with hers by the end of this month. We live off of the rental income. ( NOTICE I DID NOT SAY PASSIVE) We finally pay someone to mow, we do hire help with renovations and we are training a girl to help manage as well. After 14 years of grinding and sacrifice, Our life finally looks a lot like the picture you painted. Except my abs aren't as pronounced as "that guy", I don't drink light beers, we are at the bay not the beach, and there is NOTHING passive about it. How ever, Life is amazing and I would do it all over again! It is so rewarding to to see what my wife and I have accomplished by simply living below our means, a **** ton of hard work and tenacity.

Years 16-20 should be as passive as we want it to be. I plan on taking a few month long vacations a year but grinding on our portfolio otherwise. What can I say, I love hard work, and It's hard to turn your back on what got us here in the first place.

This is a great story and a great post, congratulations. You are an actual success story, and there is no beach. My timeline is very similar, I literally gave up 3 summers of my life to do nothing but work on building a portfolio and business's to surround them. The bigger you get the more there is to do. The sage Jay Z has it right "Mo Money Mo problems."

Irish Jones Realty4.947 Reviews