CASH FLOW: Why you have been analyzing your deals all wrong.

CASH FLOW: Why you have been analyzing your deals all wrong.

Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

This might be my most controversial post ever…that is, until you see what I have to say.

And what I’m talking about is cash flow – and you’ve been lied to about it. Ok, maybe not LIED about it. But it has been GROSSLY exaggerated. I’ve seen the same articles you have. The same books. The same videos. “Just sit back and relax! Collect mailbox money!” That might be possible for someone with significant means but for the average real estate investor this isn’t realistic. Especially in this environment. Real estate is difficult, it is not a “get-rich-quick-scheme” but if you do participate in it then real estate will be one of the best investments you can make. As long as you have the right expectations.

Cash flow is NOT the most important piece of the equation. And I’m going to show you why. First, some historical perspective.

If you have been investing in the past 10 years the current environment is VERY foreign to you. But for those of us been doing this for a while, we’ve seen it before. And if you are “newer” then get used to this. This occurs every 8-12 years. If you learn from this one, you’ll be better prepared for the next one. This is where we make our money. Pre-Housing Crises (pre-2008) interest rates for investment properties were 6.5%-7%. Cashflow wasn’t even part of the discussion. Frankly, neither was the interest rate! Pre-9/11 rates were 7%-8% for investment properties. Everyone knew the score. If you wanted to be a full time investor then you flipped properties. That’s what you did. But if you kept a couple of properties a year, then in the long run you would be very wealthy. Only in the past few years has “cash flow” even been a strategy. But now that prices are so high, interest rates are high, insurance premiums have shot through the roof, etc. many investors are wondering how to make this work. I’ve had people tell me “I’m only buying a property if I cash flow $500 per month”. Ok….I guess I’ll see you in about 5 years? Meanwhile, the rest of us are becoming millionaires while you wait on the sidelines. And at no fault of their own – cashflow is what they were SOLD on.

Here's what I want you to understand about “buy and hold” residential real estate:

  • Let’s use a single family home with a property value of $300,000
  • Let’s use an initial loan amount of $240,000
  • Let’s use an interest rate of 7.25%
  • And I’m going to give you $150 of cash flow per month
  • Use a 5% appreciation amount for your property

Let’s see what happens after 5 years:

After 5 years…

  • $150 of cash flow per month = $9,000
  • Your mortgage has been paid down to $227,000 = $13,000
  • Your property is now worth $382,000 = $82,000

So that’s $9,000 of cash flow, $13,000 of principle buy down, and $82,000 of appreciation. We make money in 3 ways with “buy and hold” properties…and cash flow is the smallest piece!

Will you cash flow in this environment currently? No, you will not. At least, I want that to be your expectation. Make your offer a little lower because of it. Also, don’t forget you will increase your rents in year 2, year 3, year 4, etc. So you WILL cashflow eventually but go into the property expecting not to cashflow now. And then you are still going to make $95,000 on a property. Remember Brandon Turner’s article on “How to Make $100,000 per year” – you can read it HERE.  Don't forget about it.  

If you analyze properties on their "Year 1 Cash Flow" then you are going to miss the boat.  Buyer's have all the power now.  It's not your fault someone is asking too much for their property!  Just adjust your numbers on your offer to account for the difference.  Don't miss out on the opportunity that's in front of you.

Thanks for reading!

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Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
3y

And frankly, BP played a huge role in selling cash flow. The original owner Josh Dorkin pushed cash flow a lot, because he has seen what happens when you bank on appreciation and it goes the wrong way in the wake of 2008. And for a while this worked like magic, real estate was basically a preputium mobile throwing of money like an ATM and people quit their job and traveled the world. Remember the "what's your freedom number?" discussions?

Now we are back to RE investing is actually hard, takes a very long time and you need capital to get started. I would love to see BP's user data, as undoubtedly it will shrink over the next years as REI is slowly falling out of fashion as a get started easy thing!

See this reply in the discussion

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y
    Quote from @Ryan Thomson:

    @Andrew Postell I agree.

    Cashflow has been pushed hard by the FI movement so that people can work towards quitting their jobs. The problem is the timeline is often way off. They are hoping to do so in 1-2 years. Which was possible when rates where 2.5%. Not anymore.

    I agree that calling a property a good investment bc it makes you an extra $150/month ($1,800/year) is wild. It's certainly not going to make you rich. The cashflow pales in comparison to loan paydown and appreciation. You captured that well.

    I am trying to get my clients in Colorado Springs to see that if the home is currently negative $100 in cashflow each month (-$1200/year) then that is part of the investment. You invest your down payment and you invest into the house each year (maintenance and negative cashflow and vacancy, etc) with the long term expectation that rents will rise and your home will appreciate.

    When you take all of the ways real estate makes you money into account (loan paydown, appreciation, tax advantages, and cashflow(even negative)) your ROI is STILL better than most of the other investment opportunities out there.

    You obviously have to be able to afford the extra monthly payment. But ruling out an investment because it doesn't pay you monthly seems short sighted.

    This obviously makes more sense for house hackers who have to live somewhere and can look at that negative monthly payment as the "rent" they are no longer paying.

    There is a huge misunderstanding of what CF means today, as opposed to years, maybe even decades ago in REI.  When you buy for CF, the DP is what you are paying for that CF.  When it takes decades to recover that cost from the cash flow, holding that property long term is losing money, based on the potential of what your cash can buy. 

    Today's reality, in buying for CF, is a two step process:
    Step 1
    - The initial CF recovers your cost (the DP) as fast as possible.  Your equity is growing while this is happening (or it should/better be).  The value of a property isn't the cash flow,...yet.  The value is in the growing equity, and what it can buy for you in new properties as it grows.  As your equity grows in the original property, it is losing you money.  The equity is actually what you are paying for the property over time.  The DP is what you paid for the property at purchase.  Your cash flow's role, in this step, is only to recover your cost at purchase (the DP).  The equity's role, is to grow and move forward into new deals of greater value.
    Step2
    - When you've grown you portfolio to the point where the CF can now substitute for income, your CF takes on that role.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Joe Villeneuve:
    Quote from @Atul Mohlajee:

    My real estate income is not used for living expenses at all.  I like to lower risk at this time.  I can manage even if my cash flow goes to zero or $5000 below zero.  I am not in expansion mode anymore due to personal preference as well as high property costs as well as high interest rates.

    You're spending more money than you are getting in return.

    If the focus / goal was to reduce risk, isn't risk best reduced via the mitigating power of diversification of risk? 

    Risk, spread out across a larger pool lowers risk exposure from any 1 within the pool. This is the mathematical law every insurance fund/organization operates and exit's from, why a home owner policy is generally in the hundreds not thousands for monthly premiums, correct? Smaller the pool, the greater the risk of financial impact, the greater the allocation requirement for contingency. 

    Fund's left liquid sitting in contingency fund would be added Opportunity Cost, would it not? 

    Bigger pool, risk spread out more, less contingency fund requirement vs size of whole, less opportunity cost.... 

    Less does not seem to be less in the world of risk mitigation, more is actually less, by the math of it all. Risk mitigation wise that is. 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y
    Quote from @James Hamling:
    Quote from @Joe Villeneuve:
    Quote from @Atul Mohlajee:

    My real estate income is not used for living expenses at all.  I like to lower risk at this time.  I can manage even if my cash flow goes to zero or $5000 below zero.  I am not in expansion mode anymore due to personal preference as well as high property costs as well as high interest rates.

    You're spending more money than you are getting in return.

    If the focus / goal was to reduce risk, isn't risk best reduced via the mitigating power of diversification of risk? 

    Risk, spread out across a larger pool lowers risk exposure from any 1 within the pool. This is the mathematical law every insurance fund/organization operates and exit's from, why a home owner policy is generally in the hundreds not thousands for monthly premiums, correct? Smaller the pool, the greater the risk of financial impact, the greater the allocation requirement for contingency. 

    Fund's left liquid sitting in contingency fund would be added Opportunity Cost, would it not? 

    Bigger pool, risk spread out more, less contingency fund requirement vs size of whole, less opportunity cost.... 

    Less does not seem to be less in the world of risk mitigation, more is actually less, by the math of it all. Risk mitigation wise that is. 

    Correct.  Risk is also reduced based on the ratio of debt to property value.  The higher the ratio of debt (and lower equity), the less you have at risk.  The property value isn't what's at risk, it's the equity.
    Now combine this with what you just wrote and you have the best risk control.  If you have your equity spread out over more properties, you have lower risk because the debt is actually protecting the equity.
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    2y

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

  • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    2y
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 


    Your in MFH, speaking of MFH in this regard, correct? 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    Correct!!!  Rationalizing negative CF is just costing more money, that you will depend on future events you have no control over, to justify.  That's speculating.  Leave that to the Stock Market.
    If the market, and I'm talking location here, doesn't have the correct numbers to invest,...then don't invest.  There's nothing that says you have to buy anything, at any time, just because you're a REI.  Buy when the numbers with dollars signs in front of them are all "positive",...or just don't buy.

     You don't lose money when you don't buy, only when you buy wrong...and you can't make money when you buy wrong.

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 


     It's going to be stimulus plus new home-loan products.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 


     It's going to be stimulus plus new home-loan products.


     Talking about the 40/50yr am.? 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 


     It's going to be stimulus plus new home-loan products.


     Talking about the 40/50yr am.? 

    40 year. I know @Carlos Ptriawan will get back to investing when this comes out, he ain't waiting till 2025. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 


     It's going to be stimulus plus new home-loan products.


     Talking about the 40/50yr am.? 

    40 year. I know @Carlos Ptriawan will get back to investing when this comes out, he ain't waiting till 2025. 

     I am still bidding in this market, but I always got outbid :-) @James Hamling friends here in CA keep asking buyer to bid the market. Last week very ugly house is listed for 800k, I have my bid at 600k and thought that was generous. Home is sold within three days for 950k, no contingency, 9 days closing with cash LOL

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @James Hamling:
    Quote from @V.G Jason:
    Quote from @Cody L.:
    Quote from @Jay Thomas:

    Cash flow is the least important factor in buy-and-hold real estate, with appreciation, leverage, and tax benefits taking precedence. In the current environment, it's challenging to find positive cash flow properties due to rising interest rates, inflation, and high prices, but focusing on appreciation, buying below market value, and long-term holding can still lead to success. In Houston, consider Inner Loop neighborhoods like Montrose, suburban areas with job growth like The Woodlands, and up-and-coming areas such as East End.

    Respectfully I couldn't DISAGREE more...

    I'm starting to get calls every day by brokers, owners, and banks..   They're all looking to sell properties that were bought in the last few years, at studpi high prices, by people who didn't care about cash flow.   They thought the appreciation game would last forever.  Rent increases would last forever.  etc.

    Now they can't pay their bills.  And they're ready to give the keys back to the lender.

    Meanwhile I'm offering the same price on the properties that I was a few years ago.  It's just a few years ago I was getting outbid by people who didn't care about making money.   Now, luckily, most of those people are gone.  And we're back to a market where people by income properties based on -- wait for it -- the income a property can generate. 

    I'm loving this correction and hope it continues.   People that overpaid need to get flushed out. 

    This is true for multi, not entirely in SFH. I'm constantly going against like-minded HNWs in my areas(mainly sunbelt like North Carolina, Georgia, Tennessee and Texas).

    I've bought a "ton" of houses this calendar year ATM/slightly OTM most with cash. And I know several similar size HNW individuals doing the exact same. The cash isn't what we're seeking, but we're willing to mitigate it(if leveraged). We know that land value + cost to rebuild is likely to exceed the price we're paying. That's what we care about, there's going to be an artificial floor. So grab great parcels in growing areas. We do not invest in section 8, affordable low(er) ish areas, we look at B+ to A-. A small % in B- areas that could come up, but that's only if the lot size is just so significant and we can take a block off in one go.

    And if you are a large SFH buyer(especially in the sunbelt) you should be seeing some cold calls/letters coming in now trying to buy your house cash in the next 90-120 days from shell companies sourced by the largest institutional players. If you're leveraged they know what you paid(or near it) and are going to make just enough of an enticing offer for you to cash out. If you're a true investor(look at 7yr+ horizon), hang tight.


    Reading this just ran a cold chill down my spine V.G Jason. I can only hope few to none ever read this, even less comprehend it, and you go forward telling NOBODY until the year after were done with this strategy and I am happy to co-author that "How We Did It" book, at that later date, lol. 

    Truth be told, I think we could all but hand-out road map's on it and still people wouldn't get it, telling us "oh, but the whole real estate market is about to collapse any-day-now, oh yeah, big discount's coming, 30, 40, 50%+ off".... uh-huh, yup, sure it is, ok, you have fun with waiting for that. 

    I am curious how you know some of this though V.G Jason.... 


     Some large banks already put out their 2024 housing forecast with a slight small increase in YoY. Just wait till we get closer to the end of 2023, and into 2024 when they say this is free-falling while simultaneously having shell companies putting cash offers in the mode I put out. This is no different than Ackman saying the world needs to pause and being short the entire market.

     And the advice I give is just from that perspective: eat minute CF losses, invest quality over quantity, grab great parcels , have healthy reserves & hold tight (meaning have solid cash reserves or for the folks here way more than solid). If you don't have those means to work with then grab your ideal primary house and start paying that debt down. Go invest in paper assets. The bulls will come at you full form for the hard assets and you'll get fear mongering and shaken down to get you to sell. 


    The "Canary-in-the-coal-mine" for all to watch for Q1/Q2 '24', is a "stimulus" announced to "help affordability to buy homes", lol. 

    I love-it when any Gov. entity/official of any ilk say "help affordability" because it's ALWAYS code-word for "were gonna make it SOOooo much more expensive because Uncle Sammy is gonna MAKE-IT-RAIN!" so ya won't care as we finance it away..... for a time...." lol. 


     It's going to be stimulus plus new home-loan products.


     Talking about the 40/50yr am.? 

    40 year. I know @Carlos Ptriawan will get back to investing when this comes out, he ain't waiting till 2025. 

     I am still bidding in this market, but I always got outbid :-) @James Hamling friends here in CA keep asking buyer to bid the market. Last week very ugly house is listed for 800k, I have my bid at 600k and thought that was generous. Home is sold within three days for 950k, no contingency, 9 days closing with cash LOL


    Ya know, people also said bid the ask on AMC and GME. And, for some time, it looked like it made sense.... if one did ZERO research and had NO clue about investing in the market and trading ie NOT an investor and NO place trading.

    But, what does the U.S. say? LET FREEDOM REIGN.    It's not; LET INTELLIGENT FREEDOM REIGN, nor smart, good, healthy. No, it's FREEDOM, period. Meaning, your free to be as self-harming, idiotic, financially damaging as one want's. 

    See, this is what I am talking about that the SICK culture of the U.S. is really and truly the problem, the ROOT problem. Because people demand there FREEDOM, but, demand it be free of any harm or accountability for THERE CHOICES. 

    So idiots pay those CA prices. So people say bid the ask on AMC. YOU HAVE A CHOICE. You do NOT have the "right" to buy whatever you want, for whatever you want it for. You have the freedom to choose, with no right for it to be the right choice.

    As an investor it's your job to be better. It's your job, not the market's, to know what makes sense and what doesn't. 

    And, guess what, those agent's ARE right. Some may point to this saying "see, it's the agent's driving up prices". NO, it's a buyers agent doing the very job there hired to do, tell there buyers what it will take to WIN that property. That's ALL the agent does, they don't decide what property a buyer want's, or is worth it, buyers gotta decide for themself. A buyer's agent is to inform what it will take to WIN, the buyer decides if it's worth it or not.   

  • Member since 2020 · 351 posts · 329 votes
    2y
    Quote from @James Hamling:

    If the focus / goal was to reduce risk, isn't risk best reduced via the mitigating power of diversification of risk? 

    Risk, spread out across a larger pool lowers risk exposure from any 1 within the pool. This is the mathematical law every insurance fund/organization operates and exit's from, why a home owner policy is generally in the hundreds not thousands for monthly premiums, correct? Smaller the pool, the greater the risk of financial impact, the greater the allocation requirement for contingency. 

    Fund's left liquid sitting in contingency fund would be added Opportunity Cost, would it not? 

    Bigger pool, risk spread out more, less contingency fund requirement vs size of whole, less opportunity cost.... 

    Less does not seem to be less in the world of risk mitigation, more is actually less, by the math of it all. Risk mitigation wise that is. 

    That’s only true if the risk is uncorrelated. And the the variability goes as 1/n where n is the number of investment. He has 36 properties. To reduce his risk in half he needs to double the number of properties.

     Some risk such as local economy, tax situation, large natural disasters, and other political risk are highly correlated if he has only bought in the same city. Typically we are thinking of price decreases affecting your returns and prices in a single area are likely to be highly correlated.

    On the other hand leverage increases variability (risk) linearly. 5x leverage means 5x variability.  I think our Atul was at 3x leverage. So in order to reduce risk by half he needs to pay down 2/3 of his debt. Or one million in his case (if I remember correctly) which is likely cheaper than buying another 36 properties.

    The math changes at 1-2 depending on number of properties and leverage. As well as how correlated your risks are. But I believe that James is right generally and 

     Atul is right in finding an exception for himself.

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Peter W.:
    Quote from @James Hamling:

    If the focus / goal was to reduce risk, isn't risk best reduced via the mitigating power of diversification of risk? 

    Risk, spread out across a larger pool lowers risk exposure from any 1 within the pool. This is the mathematical law every insurance fund/organization operates and exit's from, why a home owner policy is generally in the hundreds not thousands for monthly premiums, correct? Smaller the pool, the greater the risk of financial impact, the greater the allocation requirement for contingency. 

    Fund's left liquid sitting in contingency fund would be added Opportunity Cost, would it not? 

    Bigger pool, risk spread out more, less contingency fund requirement vs size of whole, less opportunity cost.... 

    Less does not seem to be less in the world of risk mitigation, more is actually less, by the math of it all. Risk mitigation wise that is. 

    That’s only true if the risk is uncorrelated. And the the variability goes as 1/n where n is the number of investment. He has 36 properties. To reduce his risk in half he needs to double the number of properties.

     Some risk such as local economy, tax situation, large natural disasters, and other political risk are highly correlated if he has only bought in the same city. Typically we are thinking of price decreases affecting your returns and prices in a single area are likely to be highly correlated.

    On the other hand leverage increases variability (risk) linearly. 5x leverage means 5x variability.  I think our Atul was at 3x leverage. So in order to reduce risk by half he needs to pay down 2/3 of his debt. Or one million in his case (if I remember correctly) which is likely cheaper than buying another 36 properties.

    The math changes at 1-2 depending on number of properties and leverage. As well as how correlated your risks are. But I believe that James is right generally and 

     Atul is right in finding an exception for himself.

    The items your missing in this are that I am speaking of DIVERSIFICATION of market, which as one diversifies market's of allocation on rapidly reduces risk not at a linear but at a compounded rate. Being in 4 markets vs 2 is not half the risk, it's 35%. 

    And as @Joe Villeneuve has brought up, discussed, detailed and tried to explain in more places and times than I can readily recall, "risk" on leveraged fund's is not the same as on invested funds. 

    That is person A buys a $100k property for $100k cash down, Person A has a $100k capital "risk". 

    Where-in person B buys same $100k property, via leveraged funds, putting down $20k, the "capital risk" is $20k, NOT $100k. Because as an investment property, we place the $80k under the tenant, the tenant is "carrying" that $80k. 

    This is similar reason why we say that to a certain factor interest rate and payment's on mortgage don't matter, because it is a tenant's payment not the investors. The investor reaps the overage and/or shortfall from/of such. 

    This also speaks to the VERY incorrect notion people have that when say, Person A buy's that $100k property all-cash, and say's "I have a $1k monthly cash-flow" NO, no they don't. They have a $1k monthly RECOUP. Until that $100k invested capital is paid back, there is $0 profit, NONE! Because it is not profit, it is recouping of capital investment. 

    So when we understand this mathematical premise, of profits FOLLOW recouping of capital investment, those at-leverage have a faster recoup of capital than those all-cash. Don't believe me, chart it out. With annual rent increase at it's 20yr historical average of 3.89 and property appreciation of 2.9395, see how it comes out. And remember vacancy rate per area, I do mostly B+ nowadays so I have 3.1 on that. AND than tax impact to make accurate "landed" net capital. 

    Leveraged funds reduce risk exposure. 

    Diversification reduces risk exposure. 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y
    Quote from @James Hamling:
    Quote from @Peter W.:
    Quote from @James Hamling:

    If the focus / goal was to reduce risk, isn't risk best reduced via the mitigating power of diversification of risk? 

    Risk, spread out across a larger pool lowers risk exposure from any 1 within the pool. This is the mathematical law every insurance fund/organization operates and exit's from, why a home owner policy is generally in the hundreds not thousands for monthly premiums, correct? Smaller the pool, the greater the risk of financial impact, the greater the allocation requirement for contingency. 

    Fund's left liquid sitting in contingency fund would be added Opportunity Cost, would it not? 

    Bigger pool, risk spread out more, less contingency fund requirement vs size of whole, less opportunity cost.... 

    Less does not seem to be less in the world of risk mitigation, more is actually less, by the math of it all. Risk mitigation wise that is. 

    That’s only true if the risk is uncorrelated. And the the variability goes as 1/n where n is the number of investment. He has 36 properties. To reduce his risk in half he needs to double the number of properties.

     Some risk such as local economy, tax situation, large natural disasters, and other political risk are highly correlated if he has only bought in the same city. Typically we are thinking of price decreases affecting your returns and prices in a single area are likely to be highly correlated.

    On the other hand leverage increases variability (risk) linearly. 5x leverage means 5x variability.  I think our Atul was at 3x leverage. So in order to reduce risk by half he needs to pay down 2/3 of his debt. Or one million in his case (if I remember correctly) which is likely cheaper than buying another 36 properties.

    The math changes at 1-2 depending on number of properties and leverage. As well as how correlated your risks are. But I believe that James is right generally and 

     Atul is right in finding an exception for himself.

    The items your missing in this are that I am speaking of DIVERSIFICATION of market, which as one diversifies market's of allocation on rapidly reduces risk not at a linear but at a compounded rate. Being in 4 markets vs 2 is not half the risk, it's 35%. 

    And as @Joe Villeneuve has brought up, discussed, detailed and tried to explain in more places and times than I can readily recall, "risk" on leveraged fund's is not the same as on invested funds. 

    That is person A buys a $100k property for $100k cash down, Person A has a $100k capital "risk". 

    Where-in person B buys same $100k property, via leveraged funds, putting down $20k, the "capital risk" is $20k, NOT $100k. Because as an investment property, we place the $80k under the tenant, the tenant is "carrying" that $80k. 

    This is similar reason why we say that to a certain factor interest rate and payment's on mortgage don't matter, because it is a tenant's payment not the investors. The investor reaps the overage and/or shortfall from/of such. 

    This also speaks to the VERY incorrect notion people have that when say, Person A buy's that $100k property all-cash, and say's "I have a $1k monthly cash-flow" NO, no they don't. They have a $1k monthly RECOUP. Until that $100k invested capital is paid back, there is $0 profit, NONE! Because it is not profit, it is recouping of capital investment. 

    So when we understand this mathematical premise, of profits FOLLOW recouping of capital investment, those at-leverage have a faster recoup of capital than those all-cash. Don't believe me, chart it out. With annual rent increase at it's 20yr historical average of 3.89 and property appreciation of 2.9395, see how it comes out. And remember vacancy rate per area, I do mostly B+ nowadays so I have 3.1 on that. AND than tax impact to make accurate "landed" net capital. 

    Leveraged funds reduce risk exposure. 

    Diversification reduces risk exposure. 

    This should be an article, not just a comment.  Beautifully put.
  • Member since 2020 · 240 posts · 104 votes
    2y

    @Andrew Postell ok, but if you don't cash flow, you schedule E doesn't look too sexy to lenders when looking to borrow for your next deal?

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Mario Morales:

    @Andrew Postell ok, but if you don't cash flow, you schedule E doesn't look too sexy to lenders when looking to borrow for your next deal?


     i agree but it kinda of underwriter's subjective opinion too, many times either they don't care or they put exception in that case.

  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    2y

    @Andrew Postell

    Great post! This has been my strategy and my “base hits” at first start producing runs in 3-5 years with rent increases, principal pay down and appreciation. I’ve done several cash out refis after 3-5 years to harvest some of that equity to scale up and buy more properties with the cash.

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @John Morgan:

    @Andrew Postell

    Great post! This has been my strategy and my “base hits” at first start producing runs in 3-5 years with rent increases, principal pay down and appreciation. I’ve done several cash out refis after 3-5 years to harvest some of that equity to scale up and buy more properties with the cash.


     yes these strategy, cash flow+appreciation would always work when money is cheap.

    Coming after 2022 I  think differently, gone the day I could refi indefinetely and use the equity from the house as cash cow LOL
    In 2022/2023 I moved entirely to househacking or only purchasing two units Single family LOL

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    2y
    Quote from @Mario Morales:

    @Andrew Postell ok, but if you don't cash flow, you schedule E doesn't look too sexy to lenders when looking to borrow for your next deal?


    Let's ask this in a real-world A-B context. 

    Which do you think financing underwriting would most prefer and be approving?: 

    A- Person who has $250mnth "cash-flow" on a property, with meeting just minimal down. Which in all likelihood is NOT net-profit cash-flow but invested capital recoup cash-flow. 

    - OR -

    B- Person who has net-0 "cash-flow", but is utilizing 1031 fund's to effect 25%-35% down payment position. And/or flush with additional equity or capital position from liquidating, or holding, equitable profit's in previous/other properties. 

    Keep in mind, underwriting work's where $100 "income" is NOT $100 additional monthly "affordability" in financing. A portion of that $100 is.  

    In general, every $100 per month in additional income = $4,700.00 in additional purchase $ total. 

    So, that $250mnth cash-flow = additional purchase power of $11,750.00 

    With that math in mind, which would look "more sexy" to an underwriter, a cash-flow with value "as-much-as" $11,750 purchase power, which is often credited at 70% so more like $8,225.00, OR the additional $20k, $30k, $50k+ down payment/ reduction of borrowed fund's? 

    "Pyramiding" via equitable gain's is the prevailing "super-power" to growing a portfolio. "Cash-flow" is of the operational leg, capital investment recoup, and later down the road "dividend returns".    

    "Cash-flow" is not a significant empowerment of acquisition until/unless one is at market of scale. Market of scale is not 3, 4, 7 odd unit's but when one crosses the threshold of a portfolio being self-sustaining, which often is around the ~25 unit range if SFR. MFH often ~40/80+.

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @James Hamling:
    Quote from @Mario Morales:

    @Andrew Postell ok, but if you don't cash flow, you schedule E doesn't look too sexy to lenders when looking to borrow for your next deal?


    Let's ask this in a real-world A-B context. 

    Which do you think financing underwriting would most prefer and be approving?: 

    A- Person who has $250mnth "cash-flow" on a property, with meeting just minimal down. Which in all likelihood is NOT net-profit cash-flow but invested capital recoup cash-flow. 

    - OR -

    B- Person who has net-0 "cash-flow", but is utilizing 1031 fund's to effect 25%-35% down payment position. And/or flush with additional equity or capital position from liquidating, or holding, equitable profit's in previous/other properties. 

    Keep in mind, underwriting work's where $100 "income" is NOT $100 additional monthly "affordability" in financing. A portion of that $100 is.  

    In general, every $100 per month in additional income = $4,700.00 in additional purchase $ total. 

    So, that $250mnth cash-flow = additional purchase power of $11,750.00 

    With that math in mind, which would look "more sexy" to an underwriter, a cash-flow with value "as-much-as" $11,750 purchase power, which is often credited at 70% so more like $8,225.00, OR the additional $20k, $30k, $50k+ down payment/ reduction of borrowed fund's? 

    "Pyramiding" via equitable gain's is the prevailing "super-power" to growing a portfolio. "Cash-flow" is of the operational leg, capital investment recoup, and later down the road "dividend returns".    

    "Cash-flow" is not a significant empowerment of acquisition until/unless one is at market of scale. Market of scale is not 3, 4, 7 odd unit's but when one crosses the threshold of a portfolio being self-sustaining, which often is around the ~25 unit range if SFR. MFH often ~40/80+.


     This is very good question. Is there actual underwriter in Biggerpocket ? Can they give us an input in that particular case ?

    I've been wondering the same too as my file sometimes moving to special status and get actual exception. A lot and a lot of Freddie Mac requirement actually doesn't make sense in 2023.

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