Safe and stable investment: Do I buy rental properties or keep money in a HYSA?

Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes

1y

There are cash flowing deals on the open market, I'm helping clients find them daily but in some situations it makes sense to go with the turnkeys to minimize your risk. It's just a matter of choosing the right company to work with. Some are offering 5.38% interest rates on a 30 yr fixed rate at no cost to you, couple that with a 1 year maintenance free guarantee and a resident in place at closing and it can be a slam dunk of a deal

I would love to hear more about this from you. You help people find cashflowing deals. But yet you're saying that turnkey may make sense. Why?

The way I see it the turnkey companies help a) find the deal, b) fix it up to "their standards" and c) manage the property.

If an agent like you can take care of a). And if we're dealing with properties that are in a better condition so that there is not much fixing that needs to be done.. then the last thing missing is finding a great property management firm. Assuming that with some research and due diligence I could find that and then I'd be able to use the same agent and property management company over and over again.. So in theory I could save a big chunk of upfront capital by not going with the turnkey company, and in return I would have to spend the time to research and vet the agent and PMC. Do you agree?

I wear two hats in this conversation: as a licensed agent, I have a fiduciary duty to my clients to ensure their best interests are always prioritized. I can give clients advise and my opinion on situations but not everything is always known. Additionally, as a Portfolio Advisor at REI Nation, a true turnkey company, I help investors make informed decisions.

The real difference comes down to risk and alignment of interests. Turnkey companies assume the upfront risk—they buy, renovate, place qualified residents, and offer warranties. These steps ensure the property meets high standards and minimizes surprises. With an in-house management team and data-driven decisions, a company like this provides peace of mind for truly passive investors.

While finding properties on the open market can work, it often comes with uncertainties regarding condition, tenant quality, and maintenance history. You may save upfront, but the long-term risks could offset that savings. Ultimately, it’s about the level of involvement and risk tolerance you’re comfortable with.

0 Reply

Taz Zettergren

Real Estate Agent · Memphis, TN · Member since 2019 · 365 posts · 264 votes

1y

@Rafael Ro And one other thing I failed to mention turnkey is a buzzword often used for marketing, but few companies truly deliver a full turnkey experience from start to finish. Many only handle part of the process but still market themselves as turnkey because the term is popular. Rather than focusing on the label, look closely at the services being provided, the value those services bring, and how that value aligns with the price you’re paying as an investor

0 Reply

Vincent JacobbiPro Member

Lender · San Diego, CA · Member since 2023 · 61 posts · 25 votes

1y

Hi Rafael,

Which turnkey property company did you find? I have a similar story where I live in California, wanted to start small and was hungry to invest. A friend of mine mentioned investing with a turnkey property company in Memphis and so I went out there, got a feel for the neighborhoods, saw the business model, and invested. 5 years later, it turned out to be a great investment! The property has doubled in appreciation and even if it didn't, the cash flow has been great and helped mitigate any potential risk which would help you if you are pessimistic about the economy. Maybe I am lucky, but I've had the same tenant for 5 years.

I now work on the lending side so if you have any questions about Memphis or getting qualified for an investment property, I'd love to connect.

My advice is, wherever you invest, go out there. Get a feel for the area and the people you are investing both with and into.

[email protected]716-472-5588

1 Reply

James WachobBusiness Member

Real Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 888 votes

1y

Hi @Rafael Ro,

I totally get where you're coming from, especially with balancing a busy life, family, and trying to make the best investment decisions without overexposing yourself. Let’s dive into your options, but first, I think Memphis could be a great choice for you.

Memphis has a lot of advantages for real estate investors, especially for someone who wants a hands-off investment. The market is affordable, with properties in the $100K - $150K range (or lower), which allows for scalability, just like you mentioned. Cash flow is usually strong because rent prices are decent, and the cost of the property is relatively low compared to places like California. Plus, property taxes are reasonable, and there’s a growing demand for rental properties, which bodes well for long-term stability.

When it comes to your options, I think the second one—buying a few out-of-state properties through a turnkey provider—would be a great fit for you. These properties come already tenanted, and the turnkey company handles the management, which takes a lot of the work off your plate. This means you wouldn’t need to spend time managing properties or building a team, which is perfect given your time constraints. Even though you’re paying a slight premium for the convenience, the ability to scale and the fact that the company vets the properties makes it a solid choice. Memphis is a strong rental market with reliable tenants, so while the cash flow might seem modest, it should be stable enough to keep the properties cash-flowing and mitigate risk.

If you were to buy directly through an agent and build your own team, you could save some money, but you’d also take on more risk. Managing a team remotely can be tricky, and if they don’t perform well, it could become a headache you don’t want to deal with. If you’re looking for simplicity and don’t have the time to be hands-on, the turnkey approach is probably the best option.

As for buying one more expensive property in California, I understand the appeal of having a more stable tenant base. But with the high mortgage payments and tight cash flow, it could be hard to make it work as a rental without losing money upfront. Appreciation might come eventually, but in the short term, it sounds like it could be more of a challenge.

Lastly, while keeping money in a savings account is certainly a safe move, it’s not going to get you the growth you’re looking for. With inflation and interest rates where they are, real estate is a better way to hedge against inflation and build equity over time. Memphis, in particular, offers a good opportunity to enter the market without the massive price tags of places like California.

In summary, I would recommend looking into the turnkey provider in Memphis and slowly scaling up with a few properties. It seems like the best fit for your situation—less time commitment, steady growth, and manageable risk. Plus, with a relatively low entry cost and scalable options, you’ll be able to build a solid portfolio without overexposing yourself.

Let me know if you want to dive deeper into Memphis real estate!

0 Reply

David F.

Member since 2018 · 113 posts · 135 votes

1y

@Rafael Ro

Great discussion here. I’m in a very similar boat as you. I’ve got 2 kids, a strong career, am the sole breadwinner, am not moving my family anywhere, and I have very little time. But I love real estate, and I spend a lot of time in these forums.

A few things I'd like to point out in an effort to be helpful. For reference I own exactly one handful (5) SFH rentals in my hometown, all have been purchased in the last 4 years.

1) buying at a discount is MY preferred way to reduce risk. I'm able to spot deals, through my network, and with a lot of time understanding my local market, to where I am "all in" for a 15-20% discount off full retail ARV. Since I have a family, a career, and a low risk tolerance, I consider this my safety cushion, to where I can sell any of my investments and still recoup my down payment. It costs 10% to sell. Perhaps I make 5-10% if forced to sell if I'm lucky, break even at worst.

2) I’m VERY glad I chose to invest in my local market (and not OOS), because I know which neighborhoods to buy in, and I also can self manage, which saves a ton of money and I am able to develop local connections, which helps me buy at a discount. From what I know now as a real estate investor, I find it incredibly risky to invest out of state. You are exposing yourself to SO MANY people who can take advantage of you in more ways than you know. I don’t like the thought of that with kids. Plus stress 1000+ miles away that I can’t do anything about.

3) I relate to what you said about REI perhaps being more of an obsession or passion more than anything else. That has been my story. I have been interested in REI for 7+ years, have been a landlord for 4+ years, but in all reality, if I put all of that same energy back into my work career instead, I would probably be financially further down the road. REI is simply a place to park your money. And it's definitely not passive for me or most.

4) I'm in REI because it's fun, thrilling, and meaningful, and hopefully profitable. I have learned to be honest with myself and recognize that it's NOT a huge money maker now, but will be if I hold for 20+ years. I could probably be making more money at times working my primary job (but sometimes I'd rather just be doing REI). Buying SFH's does give me something to chase after though, my little "REI dream".

5) and REI definitely forces me to save! Every time I buy a house, I'm forced to up my income and save more. It's a Catch-22, it helps me perform at work, but it also put more stress on me…. sometimes I like that, sometimes I don't.

These are a few of my experiences and thoughts. Good luck on your journey from somebody who’s in a similar situation as you are!

2 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @Allie McAlister:

Hi, Rafael.

I've worked with many investors who began their journeys with turnkey providers. As a first time out-of-state investor, I completely understand how the upside looks on paper when it comes to working with these companies. It's easy- often the properties are already rented and managed, and you can be arms reach away from the property while someone else takes care of it.

However, it's not uncommon for these providers to charge a 20-30% property premium, considering the services they provide. You may be willing to pay that extra percentage off of the top, but at the end of the day, you do not have to go through a turnkey provider to find a rent-ready ( and oftentimes, already tenant-occupied ) property, and a good property management team to manage the property for you.

My advice to you would be to find and develop a relationship with a knowledgable realtor in the market(s) you're taking a look into. They'll be able to find you turnkey deals in the open market, and help you stay in those A and B class neighborhoods it seems that you're looking for. And, if you're working with an investment-focused Realtor, they'll most likely be looking to keep you as a long-time client and not just sell you an "ok" house to make a quick commission off of you.

If you're seriously considering Memphis as a market you'd be interested in, I'd be happy to connect with you and discuss the turnkey options I see in this market, and see if those could be a good fit for you. I also have connections with a couple of great property management teams that would alleviate that out-of-state management anxiety.

Hello Allie,

This all sounds in line with what I'm looking for.

2 questions for you.

1) Does Memphis have Class A or B properties that can (realistically) come close to cash flowing or break even, with a property management company running them?

2) As someone that's out of state, how would you recommend that I vet a real estate agent? Everything would start from finding the right property - if I make the wrong decisions with that, then the rest can break down quickly. I need someone that has access to good deals, and a good knowledge of the rental market too, so they can identify an opportunity while others may miss it.

But on the flipside, the wrong agent can pretend to know, or think that they know all that... When they don't.. and may steer me the wrong direction.

Any insights?

0 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @James Wachob:

Hello @Rafael Ro,

Thanks for sharing your situation—it's really helpful to understand where you're coming from. I can definitely see why you're cautious, especially with the real estate landscape in California and concerns about the economy.

When it comes to Memphis, I think it’s a great option for your out-of-state investment. The city offers affordable property prices, which can provide solid cash flow potential compared to the high prices in California. Homes in the low $100k range are pretty common, and that’s an attractive price point for real estate investors, especially when you’re looking for properties that can break even or provide positive cash flow. With your $50k to invest (and access to more), you could quickly scale your portfolio without stretching yourself too thin financially.

Memphis also has a steady rental market, which is driven by factors like population growth, job opportunities, and a strong economy. The demand for rentals remains strong, and with tenant-occupied properties, the risk of vacancies is relatively low. You’re looking at a market where cash flow is more predictable, and that's something you can count on in the long run.

Another reason Memphis is popular with out-of-state investors is the city's history of solid returns. Many people choose Memphis because the market offers a good balance of cash flow and long-term appreciation. It’s a market with low risk and high potential, which makes it an attractive option for those looking to diversify outside of expensive markets like California.

Regarding turnkey properties, it sounds like you’ve already found a good provider. The advantage of buying through a turnkey company is that they’ve done most of the work for you—finding the property, getting tenants in place, and handling property management. This can be a great option if you don’t have the time or desire to deal with the day-to-day operations of managing a property. Sure, the premium they add (20-30%) is something to consider, but you’re paying for the convenience of having everything handled. Plus, if you want to scale quickly, turnkey providers make it easier to buy multiple properties without worrying about finding each one individually.

If you’re feeling comfortable with taking on a little more responsibility, you could also buy directly through an agent and work with a property manager to handle everything. That route might save you some money, but it would require a bit more of your time to find the right team and manage the process. Luckily, Memphis has a strong network of real estate professionals who are used to working with out-of-state investors, so you'd have plenty of support.

In terms of risk, I think buying in Memphis is a good way to manage that. The more affordable price points, combined with a steady rental market, provide some peace of mind. If you buy multiple properties, you can spread out your risk and avoid putting too much pressure on a single investment. Even with potential vacancies or slow periods, the demand for rentals should keep things stable enough to cover expenses.

Ultimately, I think Memphis is a great place for your real estate investments. You can grow your portfolio, maintain manageable risks, and still see some solid returns. Whether you go with a turnkey provider or build your own team, I’m confident it’s a solid market that will work well for your goals.

Please reach out to me if you'd like to learn more about our city.

Thank you James.

Do you think Memphis has Class B (or B+ or A) properties that could realistically cash flow or break even with today's prices and rates?

My understanding is that the properties in the low 100s are more in Class C areas, where realistically the tenants are not going to be great. Is that fair to say?

0 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @Chris Clothier:

Quote from @Nicholas L.:

@Marcus Auerbach

I think we need to help OP distinguish between "cash flow" and "a good investment."

As you have pointed out in other threads, paper cash flow on old midwest properties is illusory. But everyone in this thread keeps saying cash flow over and over.

To summarize:

-Old/older midwest properties in good neighborhoods that you will hold for 25+ years: good investments

-Cash flow on such properties: non-existent for the first 5-10-15 years

Yes?!

I am joking with this comment, but I was going to ask if you were new to Biggerpockets with your cash flow comment. It is pushed over and over and over, especially on social channels and from service providers, and often interchanged with other terms and defined differently constantly, but mentioned again and again. To the point where a new investor can be forgiven for not knowing there is any other reason to invest in real estate. It's super frustrating when you work with investors every day, and the common refrain is I want to buy a passive turnkey property, but it must cash flow. No discussion about why. There is no consideration for risks, areas, quality of the house, renovation, or management. Just make sure it cashflows on paper according to how I read in some thread to run my numbers!

End of rant - continue!

I actually loved your first comment, and assumed that there was a silent rant hiding in there too lol

When I bought my house and after extensive research in the areas I was focusing on, I realized that unlike most other markets, real estate is much more "accurate". If I'm looking for a used phone then chances are that I'll be able to find a listing that's a great deal (substantially below market rate) after some time.. but with houses that wasn't the case. Even those priced low would just get a ton of bids and land on a market price.

I think that's true of investment properties too.. the worse the area (which of course comes with riskier tenants, more maintenance, and vacancies) the better the numbers look in theory in terms of "cash flow"... But in practice most of these numbers are likely not taking into account turnovers and repairs. I understand that.

The question is - would you say that it's pointless to look for better properties (ie. Class A or B) that have potential to cash flow or at least break even? Are they non existent or could certain agents with access to deals or that understand their local market better be able to find them?

For example, an agent in my area came to me with a deal for a house that looked overpriced... But then she explained that it's on a certain land that allows it to be used as a short term rental and that due to its location between within 2 months of the year (when huge events take place, every year) it would make enough to cover its mortgage for the year. I would have missed that, and many others would too. Could a good agent get you a better property with some "cash flow" potential?

I'm using quotes mainly because I don't necessarily mean cash flow per se. I'll have to pay the bills while looking for a tenant, I'll have to pay for repairs and all sorts of other things... If a property can come close to breaking even then it's essentially "cash flowing" in my book.

But if I buy a property where the numbers pencil out negative, before any unforeseen issues, then in my current financial situation I feel like I'd be overexposing myself. That same property could be a huge winner due to appreciation in the next 10 or 15 years... But I don't think I would want to bet that much on appreciation.. Ideally I'm hoping for a more balanced opportunity. Less potential appreciation, but better numbers so that if things go smoothly then I'd be breaking even, if not slightly positive.

Then again maybe that doesn't exist... Do you think it doesn't?

0 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @Ashish Acharya:

@Rafael Ro Option 2 (turnkey out-of-state properties) suits your situation, balancing time constraints, risk tolerance, and scalability. A vetted turnkey provider offers a hands-off approach, with properties likely to break even or generate modest cash flow, spreading risk across multiple doors. Start with one property to gain confidence before scaling. If willing to invest more effort for higher ROI, consider Option 3 (building your own team), though it requires time to establish reliable management. Retain a cash reserve to cover vacancies or downturns, and align with your long-term goals by consulting a financial advisor. This approach mitigates risk while leveraging your resources effectively.

Looks like your household could qualify as REPS and really offset your taxes if your portfolio is optimized.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Hello Ashish,

Would love to connect and discuss a little more about the potential tax aspects of all this. Would you be able to help if we're in different states (I'm in CA)?

0 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @Chris Seveney:

Quote from @Rafael Ro:

Hello all,

I would really appreciate your insights here.

I live in CA and have a family with 2 kids - we're not moving anywhere. Have about 50k I would invest (access to more), with excellent credit and good income too, from my full time job. I'm the sole breadwinner.

I tend to overanalyze things, often leading to inaction, mainly because I have a somewhat pessimistic outlook on the economy and I'm trying to avoid getting overexposed.

Realistically, BRRR or wholesaling or other ideas that require a bigger time investment are not good for me - I run my business so I don't have much time left.

With that in mind, my first idea was to buy a condo or a house in my local area (Palm Springs, CA) and use it as a long term rental.

The issue there is the current prices and CA laws - for the past year I've been struggling to find a property that's somewhat turnkey and that would at least break even... And CA is extremely tenant friendly so it's not a great place for a rental.

That's why I started looking out of state. I found a good turnkey property company out in Memphis. Everything about them seems to check out, and their properties (which they sell already tenanted, and they manage) seem to break even with 25% down. They claim a small cash flow, and while that looks too optimistic, I believe that they can at least break even, so the tenants would be paying it off which is great.

Another cool thing about that is that most their properties are in the low 100s, which means that I can buy 2 of them, and then buy another every time I can gather 25k more. It's scalable. And they sell lots of them.

My issue with them is that from a quick look it looks like they're selling everything at a 20-30% premium (which I understand and respect). At the same time, I can't help but think that if I could get connected with a great agent and property manager, then I could do the same and save a great deal of money.

Then again this would also mean that I'd need to build a small team, and I'd need everyone to perform whereas they're bringing it all in one.

Another big thing here is the risk - as I said above I have a fairly pessimistic view about the economy in the next couple of years.. If I own a property with a 1k mortgage per month and it stays empty (or I'm trying to evict) for a couple of months then I'll be ok. But if the mortgage is 2k or 3k then I'll be in a tough spot.

I would love to make a move before the end of the year and so I keep trying to decide which of the following is best for me:

1) Buy 1 more expensive CA property near here, and thus a better tenant (less likely to cause issues), but lose a little bit of money every month due to the current numbers, while hoping for future appreciation?

2) Buy a few out of state properties over the next few years, through a well vetted turnkey provider like the one I mentioned above, which should more or less break even or give me a little bit of cash flow, and since I'd end up with a few doors my risk would be a little more spread out?

3) Buy a few out of state properties directly through an agent and work with a property manager to manage them?

4) Keep my money in a guaranteed savings account making 4.5%, until rates drop more or something changes, and the numbers are better to make a move?

Thank you in advance to everyone who read this, and moreso to those who respond with their thoughts.

There is no such thing as a "safe and stable" investment in real estate if you are going to be active or passive. you can buy the best property in the best area and have a tenant destroy the place or have it mismanaged that can cost you.

Check out the syndication group on how many people were promised "safe" or guaranteed returns and lost little money to everything. From turnkey rentals to syndication - real estate has significant risk and the more leverage you use the more amplified that risk

That makes sense and it's important to remember. I should have said "safer" and "more stable".

I was expecting to hear more things about Section 8.. or other types of investments that may provide some more stability.

However, ultimately what I'm looking for is a better understanding of the type of real estate investment that would fit my risk threshold.. and this thread is helping me figure that out.

I started by thinking that the cheapest areas/properties may be the way to go.. because they are cheap (so worst case scenario I can foot the bill for a little while) and they can potentially cash flow. I'm now thinking that better areas/properties make more sense because they'd likely appreciate faster (which amplifies the return) and attract better/more stable tenants.

Would you agree with this blanket assessment?

0 Reply

Rafael Ro

OP

Member since 2020 · 52 posts · 14 votes

1y

Quote from @Marcus Auerbach:

Quote from @Rafael Ro:

Quote from @Marcus Auerbach:

Quote from @Rafael Ro:

Quote from @Drew Sygit:

@Rafael Ro some great advice already here!

IF you decide to move forward in Memphis, recommend buying the first one turnkey to get you going.

You'll learn a lot about rentals and the market with the first one.

THEN, if you like results you can look for agents & PMCs to help you buy more and save the 20-30% markup you mentioned.

Recommend you also read below info to set your expectations correctly:

_________________________________________________________________________

We think the Midwest is a GREAT place for OOS investors to consider!

Check out some of things happening in Detroit in 2024:

https://michiganchronicle.com/2024/01/03/major-developments-that-will-define-detroit-in-2024/

Your first question shouldn't be WHERE to invest (that is #2 question), but HOW you will invest!

Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Let us know if we can help in any other way.😊

This is very helpful - thank you.

It is also what I am starting to realize.

Class C and D areas/properties will always cash flow better on paper, but on paper things like extra repairs, turnover, evictions and such are often not taken into account.

I am leaning towards Class B. Not the nicest areas, but nice enough.. and I would be looking for minimal cashflow, banking on appreciation.

The reason is that I'm looking at this as a long term investment where my goal is to grow my money with minimal headaches (even if that means slower growth).

With that in mind, maybe Memphis is not the place to invest. Would you agree?

The Midwest is probably your best bet for a number of reasons. Home prices are one, cost of living and relatively disaster-free weather keeps insurance costs down.

You can look up the median home price for every city or metro area. Class A and B neighborhoods are above median price and C and D are below. It's tough to cash flow in a B neighborhood when you are only putting 25% down and paying a PM.

My strategy as an investor has changed over the years, today I look at real estate more like a collection of properties and less through the cash flow lens. My main question is will I be happy in 10 years that I bought this property? I also never had to worry about vacancies: if you own a desirable property, you will always have people lined up to rent from you. The same is true if you would want to sell it at some point. This can not be said about many 100k properties.

Turnkey providers made sense IMO back in 2010-2015 when it was easy to find deals, but hard to get funding, so you'd sell the ones you could not get funding for. Today you can get funding for a good deal without an issue, so the business model is kind of obsolete.

I used to buy BRRRR deals, but over the last years, we switched to buying homes that are in move-in ready condition. We still end up doing a few things like upgrading appliances or installing recessed LED lighting and dimmer switches and other life-style upgrades to attract top-notch tenants. Milwaukee inventory has just been so low, that even very distressed properties sell to first-time home buyers without a significant discount, so in the end it's cheaper for me to buy properties that already have a new roof, windows, kitchen, HVAC etc

I appreciate that insight and it makes perfect sense.

As I wrote in another reply too - one more benefit for me is that in a way it's "forced savings" - I have to find a way to pay the bill... But also (for the most part) the money goes back to me.

I think buying attractive, move in ready properties and possibly making small updates to make them look more stylish is the way to go. Less sensitive about the price too, because the goal is to hold for a long time..

In your experience, do you find that it's possible to cashflow or at least break even with these properties and today's prices/rates?

Yes, my banks require a 1.2 DSCR debt service coverage ratio, meaning they want to see rent 20% higher than the mortgage payment. If you finance conventionally you don't have that limitation, but you can set your own goal. You can buy a 250k property with 25% down and pay about $1600 in PITI, or 350k / $2100. That's my typical price range for Milwaukee suburbs and both will break even at 20% down, slightly positive at 25% and I usually end up with 30% down to get to the 1.2 DSCR. But that's without paying a PM.

I have not looked at Milwaukee at all yet, but these kind of numbers seem to be the norm for nicer areas.. the issue is that I would need a PM so it would be hard to break even.. and I don't think I'd want to take on more monthly expenses just in hopes of appreciation. Maybe that's exactly the right move here.. just wishing that I would be able to find deals that are a tad better to make the numbers work (ie. pencil out a small positive cashflow, to allow for the occasional unforseen issue that is bound to come up, particularly as the portfolio gets bigger)

0 Reply

Ashish AcharyaBusiness Member

CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes

1y

Quote from @Rafael Ro:

Quote from @Ashish Acharya:

@Rafael Ro Option 2 (turnkey out-of-state properties) suits your situation, balancing time constraints, risk tolerance, and scalability. A vetted turnkey provider offers a hands-off approach, with properties likely to break even or generate modest cash flow, spreading risk across multiple doors. Start with one property to gain confidence before scaling. If willing to invest more effort for higher ROI, consider Option 3 (building your own team), though it requires time to establish reliable management. Retain a cash reserve to cover vacancies or downturns, and align with your long-term goals by consulting a financial advisor. This approach mitigates risk while leveraging your resources effectively.

Looks like your household could qualify as REPS and really offset your taxes if your portfolio is optimized.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Hello Ashish,

Would love to connect and discuss a little more about the potential tax aspects of all this. Would you be able to help if we're in different states (I'm in CA)?

We would love to discuss tax planning with you. We have extensive experience working with real estate investors and implementing strategies to lower your tax liability. Please send a direct message, and our team will contact you for a free consultation!

[email protected]941-914-7779

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Marcus Auerbach

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