Why getting into real estate primarily for cash flow is wrong - and even dangerous

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

Hear me out.

Over the last years, more and more of the BP discussions circle around cash flow. As LTR was getting harder 2018-2020 STR became the new thing everyone started chasing. Until that started getting difficult. So now what?

The idea aspiring investors get mesmerized with is basically to start in real estate and somehow build a portfolio out of thin air. And gurus are happy to feed that dream. Basically, they suggest to buy a property with very little money, collect the cashflow, then refinance to pull money out of the property, buy more real estate for more cash flow and quit the W2 they hate.

The first flaw is that a lot of the books written before 2020 will tell you to analyze more deals until you find one that cashflows. The problem is that the market landscape has fundamentally shifted. Back then looking at more deals would eventually get you a "quality" deal, today it will get you a deal in the hood. And as you can read here on BP this is probably the number one recipe for financial failure. Best case, you learn a lot, survive financially and trade up. You certainly won't achieve any significant wealth in that asset class. The second flaw is the idea that you can refinance your way to wealth - that has always been very risky even with low interest rates.

It is called in-vesting for a reason. You are putting money in. Let me explain.

The goal of real estate investing is to allocate your capital in a low-risk investment that grows your net worth predictably over long periods of time - think at least decades if not longer! The superpower of real estate investing is equity growth: the asset appreciates, while inflation and loan payments erode the underlying debt until you own the asset free and clear and can leverage it again. When you run numbers in a BP calculator you can see quickly that equity gains DWARF cash flow. So, for anyone who wants to go into real estate primarily for cash flow, they have not yet understood the concept!

Don't get me wrong: cash flow is still an important factor, it keeps the lights on, it pays for repairs and upgrades. And eventually, it helps you buy more real estate (until when you start milking your portfolio to cover your living expenses).

If cash flow is what you want, buy a business.

A business has an inverted financial profile: it is literally designed for cash flow. That's the main objective. And not just $200 per month per door (which has been the long-standing average, at least here in Milwaukee) Yes, you can also create equity with a business, if you are growing it to a size where it becomes a sellable asset, you replace yourself, hire a manager and a team of workers. But ask anyone who ever sold a business: it is not easy!! That's why many businesses just close instead of being sold.

Real estate investing provides a lot more creative angles than the stock market, but on a conceptual level, nobody would seriously attempt to replace their W2 income in a few years by investing a few thousand dollars in the stock market. In a way, STR is a hybrid because while real estate is part of it, you are really running a one-room hotel.

So if you are an aspiring real estate investor, the first question you should ask is where do I have a consistent source of free cash that I can use to invest? That can be excess income from your W2 job, or it can be a business you run on the side. Then you can take that cash and buy quality real estate, accumulate the cash flow and grow your portfolio-wide before you grow it deep - meaning paying off loans.

The day you start siphoning cash flow out of your real estate portfolio, you are stifling future growth. So you will have to decide if your portfolio has grown enough to support your goals and dreams at that point. Otherwise, keep pushing!

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.

Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.

The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.

Here's my take on the roles of CF and equity, and why I say you must have both:

Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.

Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.

When both things occur (order doesn't matter), I sell.

Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

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Marcus Auerbach
OP
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
1y
Quote from @Henry Clark:

Quote from @Marcus Auerbach:

These are all different moves you make on the REI chess board. But before you can worry about taxes and 1031 exchanges, you need money. REI is pay to play.
A lot of new investors think that they can build a portfolio (aka the "plan" @Joe Villeneuve mentioned) by leveraging their first deal. It's not about one deal, it's about a pipeline and frquency. After you invested all your liquid capital, now what?

The reason I started this post was to discuss ways how to generate the cash that you need to keep in-vesting beyond property one. I was hoping to hear some ideas on what everyone is doing, other than working a W2 and eating ramen.
OP to respond to this post versus your original.

Basically how to keep scaling.
1. If you wait on cash flow then you’re waiting a long time to do your next deal.

2. Flip properties. We do self storage and country subdivisions where we sale the lots. You have to have a method to develop a cash snowball. Versus buy and hold. In housing- buy 2/1 and ADU into a 3/2 and sale. Buy house with say 5 acres and subdivide land and sale. Value add- ugliest property in a great neighborhood fix flip. Get both the value add but also the great neighborhood premium. Texas offlist property tax sales.

3. If your doing buy hold then your ADU or development initial value add needs to enough at say 65% collateralization to have a downpayment on the next property.

Our Country subdivision lot sales we expect a minimum 100% COC return on a cash only deal or 200% if financed, but a lot riskier. Over a 3 to 5 year window.

Our self storage developments we expect a 400% COC return in 2 years.
Both of the above REI create more than enough equity to collateralize our next deals at 25% down. Using a 65% collateralization with our lender.
Summary- evaluate your scaling strategies. You might have 2 strategies. Cash snowball and a buy hold.
At our Belize place we started feeding out hogs for my guys. They cost $130 BZD or $65USD at 25 pounds. If we butchered at 220 pounds it would be cheaper to just buy the pork at the market. Since we have to overcome the original cost of the piglet. So we take ours up to 350 pounds. Point is change your strategy to meet your objectives.
Talk about some happy families. Normally just rice, beans and tortillas. Sometimes chicken. Now every Friday they take home frozen packages.

Henry, I love the hog story on so many levels! As a business philosophy and what you are doing for your guys and their family! That is awesome!!
Combining a cash-snowball with buy&hold is the dream team! Would you be willing to share a little more about land flipping and storage?
0 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
1y
Quote from @Marcus Auerbach:

Quote from @Henry Clark:

Quote from @Marcus Auerbach:

These are all different moves you make on the REI chess board. But before you can worry about taxes and 1031 exchanges, you need money. REI is pay to play.
A lot of new investors think that they can build a portfolio (aka the "plan" @Joe Villeneuve mentioned) by leveraging their first deal. It's not about one deal, it's about a pipeline and frquency. After you invested all your liquid capital, now what?

The reason I started this post was to discuss ways how to generate the cash that you need to keep in-vesting beyond property one. I was hoping to hear some ideas on what everyone is doing, other than working a W2 and eating ramen.
OP to respond to this post versus your original.

Basically how to keep scaling.
1. If you wait on cash flow then you’re waiting a long time to do your next deal.

2. Flip properties. We do self storage and country subdivisions where we sale the lots. You have to have a method to develop a cash snowball. Versus buy and hold. In housing- buy 2/1 and ADU into a 3/2 and sale. Buy house with say 5 acres and subdivide land and sale. Value add- ugliest property in a great neighborhood fix flip. Get both the value add but also the great neighborhood premium. Texas offlist property tax sales.

3. If your doing buy hold then your ADU or development initial value add needs to enough at say 65% collateralization to have a downpayment on the next property.

Our Country subdivision lot sales we expect a minimum 100% COC return on a cash only deal or 200% if financed, but a lot riskier. Over a 3 to 5 year window.

Our self storage developments we expect a 400% COC return in 2 years.
Both of the above REI create more than enough equity to collateralize our next deals at 25% down. Using a 65% collateralization with our lender.
Summary- evaluate your scaling strategies. You might have 2 strategies. Cash snowball and a buy hold.
At our Belize place we started feeding out hogs for my guys. They cost $130 BZD or $65USD at 25 pounds. If we butchered at 220 pounds it would be cheaper to just buy the pork at the market. Since we have to overcome the original cost of the piglet. So we take ours up to 350 pounds. Point is change your strategy to meet your objectives.
Talk about some happy families. Normally just rice, beans and tortillas. Sometimes chicken. Now every Friday they take home frozen packages.

Henry, I love the hog story on so many levels! As a business philosophy and what you are doing for your guys and their family! That is awesome!!
Combining a cash-snowball with buy&hold is the dream team! Would you be willing to share a little more about land flipping and storage?

OP I left several examples of cash flip items for SFH above which is in your lane. Use the lookup function and my name with Self Storage in the title. Over 100 posts. Do the same for Journeys end and Silver Springs subdivision.
Fit to your size and resources. Follow the posts. Since you're in RE. Look up MLS and also Loopnet. Self storage is about zoning and market study. Country subdivisions are about identifying low value nasty properties, in a size 15 to 40 acres. Farmers don't want it. To big for single landowners. To small for large developers.

1 Reply
Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
1y
I love that you made this post, its what I have been trying to preach to anyone new. Buy solid real estate - its NOT SEXY. Buying one house isn't going to make you magically w2 free. As you said it takes years of effort and a lot of capital and most importantly - TIME.

I have a good amount of conversations, even with clients, on how they want to cash flow x amount so they can set up to buy their next property. How crazy is that? People want to buy their second property in X amount of months without even owning their first one. They haven't even understood how to rent out a home. How to finance an investment. How to deal with certain maintenance issues and even management issues - and they already are calculating how to get their second investment property.

Getting started is the hardest part. Decrease your risk and buy solid Real Estate. Reduce the risk by putting more money down.

Its funny to hear investors tell me: "I think its good to buy when everyone is scared, and sell when everyone is greedy" But when everyone is too scared to buy in todays market: "Its not enough cash flow, I don't think its a good time to buy"

The CLASS D investment bubble is going to burst. People are actually making money on the cash out refi - that's real. But what is not happening: they aren't getting the rents they estimated, they aren't renting them out to solid tenants, they are sitting vacant for 6+ months.

I think there is a DSCR bubble going around that will burst and these nonQM lenders might become more strict with financing. IE only lending to stabilized assets.
[email protected]267-767-0111
Alan Asriants - New Century Real Estate 592 Reviews
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Alan Asriants:

I love that you made this post, its what I have been trying to preach to anyone new. Buy solid real estate - its NOT SEXY. Buying one house isn't going to make you magically w2 free. As you said it takes years of effort and a lot of capital and most importantly - TIME.

I have a good amount of conversations, even with clients, on how they want to cash flow x amount so they can set up to buy their next property. How crazy is that? People want to buy their second property in X amount of months without even owning their first one. They haven't even understood how to rent out a home. How to finance an investment. How to deal with certain maintenance issues and even management issues - and they already are calculating how to get their second investment property.

Getting started is the hardest part. Decrease your risk and buy solid Real Estate. Reduce the risk by putting more money down.

Its funny to hear investors tell me: "I think its good to buy when everyone is scared, and sell when everyone is greedy" But when everyone is too scared to buy in todays market: "Its not enough cash flow, I don't think its a good time to buy"

The CLASS D investment bubble is going to burst. People are actually making money on the cash out refi - that's real. But what is not happening: they aren't getting the rents they estimated, they aren't renting them out to solid tenants, they are sitting vacant for 6+ months.

I think there is a DSCR bubble going around that will burst and these nonQM lenders might become more strict with financing. IE only lending to stabilized assets.

my clients that I help with intial BRRRR funding so they can cash our refi or just refi.. lenders pretty much want a tenant in place with a signed lease before they will fund.
Podcast Guest on Show #222
JLH Capital Partners51 Review
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1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Henry Clark:

Quote from @Marcus Auerbach:

These are all different moves you make on the REI chess board. But before you can worry about taxes and 1031 exchanges, you need money. REI is pay to play.
A lot of new investors think that they can build a portfolio (aka the "plan" @Joe Villeneuve mentioned) by leveraging their first deal. It's not about one deal, it's about a pipeline and frquency. After you invested all your liquid capital, now what?

The reason I started this post was to discuss ways how to generate the cash that you need to keep in-vesting beyond property one. I was hoping to hear some ideas on what everyone is doing, other than working a W2 and eating ramen.
OP to respond to this post versus your original.

Basically how to keep scaling.
1. If you wait on cash flow then you’re waiting a long time to do your next deal.

2. Flip properties. We do self storage and country subdivisions where we sale the lots. You have to have a method to develop a cash snowball. Versus buy and hold. In housing- buy 2/1 and ADU into a 3/2 and sale. Buy house with say 5 acres and subdivide land and sale. Value add- ugliest property in a great neighborhood fix flip. Get both the value add but also the great neighborhood premium. Texas offlist property tax sales.

3. If your doing buy hold then your ADU or development initial value add needs to enough at say 65% collateralization to have a downpayment on the next property.

Our Country subdivision lot sales we expect a minimum 100% COC return on a cash only deal or 200% if financed, but a lot riskier. Over a 3 to 5 year window.

Our self storage developments we expect a 400% COC return in 2 years.
Both of the above REI create more than enough equity to collateralize our next deals at 25% down. Using a 65% collateralization with our lender.
Summary- evaluate your scaling strategies. You might have 2 strategies. Cash snowball and a buy hold.
At our Belize place we started feeding out hogs for my guys. They cost $130 BZD or $65USD at 25 pounds. If we butchered at 220 pounds it would be cheaper to just buy the pork at the market. Since we have to overcome the original cost of the piglet. So we take ours up to 350 pounds. Point is change your strategy to meet your objectives.
Talk about some happy families. Normally just rice, beans and tortillas. Sometimes chicken. Now every Friday they take home frozen packages.

Vegans are spitting out their coffee with this post :)
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
4 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Henry Clark:

Quote from @Marcus Auerbach:

Quote from @Henry Clark:

Quote from @Marcus Auerbach:

These are all different moves you make on the REI chess board. But before you can worry about taxes and 1031 exchanges, you need money. REI is pay to play.
A lot of new investors think that they can build a portfolio (aka the "plan" @Joe Villeneuve mentioned) by leveraging their first deal. It's not about one deal, it's about a pipeline and frquency. After you invested all your liquid capital, now what?

The reason I started this post was to discuss ways how to generate the cash that you need to keep in-vesting beyond property one. I was hoping to hear some ideas on what everyone is doing, other than working a W2 and eating ramen.
OP to respond to this post versus your original.

Basically how to keep scaling.
1. If you wait on cash flow then you’re waiting a long time to do your next deal.

2. Flip properties. We do self storage and country subdivisions where we sale the lots. You have to have a method to develop a cash snowball. Versus buy and hold. In housing- buy 2/1 and ADU into a 3/2 and sale. Buy house with say 5 acres and subdivide land and sale. Value add- ugliest property in a great neighborhood fix flip. Get both the value add but also the great neighborhood premium. Texas offlist property tax sales.

3. If your doing buy hold then your ADU or development initial value add needs to enough at say 65% collateralization to have a downpayment on the next property.

Our Country subdivision lot sales we expect a minimum 100% COC return on a cash only deal or 200% if financed, but a lot riskier. Over a 3 to 5 year window.

Our self storage developments we expect a 400% COC return in 2 years.
Both of the above REI create more than enough equity to collateralize our next deals at 25% down. Using a 65% collateralization with our lender.
Summary- evaluate your scaling strategies. You might have 2 strategies. Cash snowball and a buy hold.
At our Belize place we started feeding out hogs for my guys. They cost $130 BZD or $65USD at 25 pounds. If we butchered at 220 pounds it would be cheaper to just buy the pork at the market. Since we have to overcome the original cost of the piglet. So we take ours up to 350 pounds. Point is change your strategy to meet your objectives.
Talk about some happy families. Normally just rice, beans and tortillas. Sometimes chicken. Now every Friday they take home frozen packages.

Henry, I love the hog story on so many levels! As a business philosophy and what you are doing for your guys and their family! That is awesome!!
Combining a cash-snowball with buy&hold is the dream team! Would you be willing to share a little more about land flipping and storage?

OP I left several examples of cash flip items for SFH above which is in your lane. Use the lookup function and my name with Self Storage in the title. Over 100 posts. Do the same for Journeys end and Silver Springs subdivision.
Fit to your size and resources. Follow the posts. Since you're in RE. Look up MLS and also Loopnet. Self storage is about zoning and market study. Country subdivisions are about identifying low value nasty properties, in a size 15 to 40 acres. Farmers don't want it. To big for single landowners. To small for large developers.

Yup one of my clients just tied up a really nice 47 acre in Washington state that I am going to fund for them. and in this county you can do a short plat by just survey and record IE create 4 lots.. cost maybe 10k in survey work.. buying for 180k I am providing 100% of the capital sales will garner about 450k in less than one year probably be all done by Sept.. he will make a boat load and well I will do OK to as his Capital partner.. these deals are out there as Henry mentions. its not all about rental cash flow.. this deal will make him after tax at least 100k with no money other than survey work out of his pocket in one year and this is one of about 15 I have going with him at anyone time.. can you say young milliionare in the making !!!
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JLH Capital Partners51 Review
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
3 Reply
Alan AsriantsBusiness Member
Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
1y
Quote from @Jay Hinrichs:

Quote from @Alan Asriants:

I love that you made this post, its what I have been trying to preach to anyone new. Buy solid real estate - its NOT SEXY. Buying one house isn't going to make you magically w2 free. As you said it takes years of effort and a lot of capital and most importantly - TIME.

I have a good amount of conversations, even with clients, on how they want to cash flow x amount so they can set up to buy their next property. How crazy is that? People want to buy their second property in X amount of months without even owning their first one. They haven't even understood how to rent out a home. How to finance an investment. How to deal with certain maintenance issues and even management issues - and they already are calculating how to get their second investment property.

Getting started is the hardest part. Decrease your risk and buy solid Real Estate. Reduce the risk by putting more money down.

Its funny to hear investors tell me: "I think its good to buy when everyone is scared, and sell when everyone is greedy" But when everyone is too scared to buy in todays market: "Its not enough cash flow, I don't think its a good time to buy"

The CLASS D investment bubble is going to burst. People are actually making money on the cash out refi - that's real. But what is not happening: they aren't getting the rents they estimated, they aren't renting them out to solid tenants, they are sitting vacant for 6+ months.

I think there is a DSCR bubble going around that will burst and these nonQM lenders might become more strict with financing. IE only lending to stabilized assets.

my clients that I help with intial BRRRR funding so they can cash our refi or just refi.. lenders pretty much want a tenant in place with a signed lease before they will fund.

Yes I see that as well. But in our area. there are so many SW philly properties that are getting cash out refi's as vacant properties. Based on "market rent"
[email protected]267-767-0111
Alan Asriants - New Century Real Estate 592 Reviews
View Page
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Alan Asriants:

Quote from @Jay Hinrichs:

Quote from @Alan Asriants:

I love that you made this post, its what I have been trying to preach to anyone new. Buy solid real estate - its NOT SEXY. Buying one house isn't going to make you magically w2 free. As you said it takes years of effort and a lot of capital and most importantly - TIME.

I have a good amount of conversations, even with clients, on how they want to cash flow x amount so they can set up to buy their next property. How crazy is that? People want to buy their second property in X amount of months without even owning their first one. They haven't even understood how to rent out a home. How to finance an investment. How to deal with certain maintenance issues and even management issues - and they already are calculating how to get their second investment property.

Getting started is the hardest part. Decrease your risk and buy solid Real Estate. Reduce the risk by putting more money down.

Its funny to hear investors tell me: "I think its good to buy when everyone is scared, and sell when everyone is greedy" But when everyone is too scared to buy in todays market: "Its not enough cash flow, I don't think its a good time to buy"

The CLASS D investment bubble is going to burst. People are actually making money on the cash out refi - that's real. But what is not happening: they aren't getting the rents they estimated, they aren't renting them out to solid tenants, they are sitting vacant for 6+ months.

I think there is a DSCR bubble going around that will burst and these nonQM lenders might become more strict with financing. IE only lending to stabilized assets.

my clients that I help with intial BRRRR funding so they can cash our refi or just refi.. lenders pretty much want a tenant in place with a signed lease before they will fund.

Yes I see that as well. But in our area. there are so many SW philly properties that are getting cash out refi's as vacant properties. Based on "market rent"

I did about 100 deals for one Philly outfit but they flamed out big time I am sure you read about them in the paper.. I took no loss's and actually did quite well with them because my set up is superior to the risk of being a lender.. But his clients got hosed big time. So those D and Cs are just getting recycled again. I have been in the C D BRRR funding game since 02 and what your describing has been happening since then.. Folks dont understand the challenge of D class land lording and the create their own problems by setting some pie in the sky return criteria that puts them right in the super HIGH risk investment zone.. They simply do it to themselves and have no one to blame but themselves because of their own greed.. Thinking that 10 caps are as easy to run and manage as 5 caps :)
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Micaila Frazier
Investor · Winston, MO · Member since 2025 · 18 posts · 13 votes
1y
Jay Hinrichs love this idea!
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".
3 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".

fully agree starting from scratch with limited funds debt is mandatory no question. But as Scott is pointing out for others that can buy with cash that works to.. And as know about 40% of all SFRs are free and clear and thats got to be goal number one for your retirement years in my mind.. and to be fair and balanced like Fox news.. those i know with 8 figure or more net worths generally sold business they spent decades building they did not get there buying SFR rentals.. Or as you note high wage earners. There are millions of amreicans than make well over 500k a year in salary and commishs.. And a lot of them watch Bp but dont post.
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1 Reply
Brandon Morgan
Member since 2023 · 132 posts · 145 votes
1y
Quote from @Paul Novak:

Marcus I think this was a great post. I have not subscribed to the stance of trying to get into a property with as little down as possible just to generate cashflow. I have actually taking the unpopular stance of the exact opposite. I have tried to focus on properties that are in good locations where I can attract good tenants and then adjusted what I put down to hit my cashflow goals. Not adjusting for vacancy and maintenance my cashflow goal on a property is $500 per month at a minimum. We have put down 20 - 40% on some properties to achieve this goal. Like you said we have been saving upwards of 60% of our W2 income and business cashflow in order to do this.

I agree with this strategy. I am newer to real estate and I only just recently stabilized my first rental property. I got a decently priced duplex in Pennsylvania and used my FHA loan. since the property was a real good price I cash flow about $600 a month since the mortgage isn't very high and I get rent from both tenants. I plan on getting a similar amount of cash flow from my next property and am willing to put 20% down if I need to. I feel this will keep my properties stable since expenses and everything will be covered. so far it is working.
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".

fully agree starting from scratch with limited funds debt is mandatory no question. But as Scott is pointing out for others that can buy with cash that works to.. And as know about 40% of all SFRs are free and clear and thats got to be goal number one for your retirement years in my mind.. and to be fair and balanced like Fox news.. those i know with 8 figure or more net worths generally sold business they spent decades building they did not get there buying SFR rentals.. Or as you note high wage earners. There are millions of amreicans than make well over 500k a year in salary and commishs.. And a lot of them watch Bp but dont post.

Yes, a million%.

And I think far too many are stuck in some weird tunnel vision of eternal absolutes.

I am as strongly opposed to the leverage-forever notion as I am the no-leverage-ever notion, both make no sense what so ever.

The end goal should ALWAYS be a Debt-free existence.

The catch is how to get there with wealth to endure the remainder of one's days. To be empowered to truly LIVE, not just exist.

I too believe that the #1 way to get there is via business building.

And #2 is via Investing with Real Estate.

Because once made it, the #1 way to protect, defend, and secure that wealth for an enduring longevity is via Real Estate Investments.

Proof is in the pudding. Name the enduring wealth center and almost uniformly they have significant Real Estate holdings.

And as you noted, rental housing is just 1 of the many Real Estate Investment options.

Bill Gates for example, is now the #1 land/Ag owner up here in my neck of the woods. Followed closely by similar others. And they keep on buying more....

There not all of a sudden into farming, and I don't buy it for a second that they give a squat about farmers. It's about $. Wealth preservation and enduring legacy of wealth.

I personally see this segment as "The Dividend King" in Real Estate, Ag. It's a great "How-to" for preserving $ and generating a "dividend" in perpetuity.

For those with the $ to deploy and park funds, I wouldn't waste time with housing and it's myriad of headaches, I'd go for the land.

Housing is for wealth generation, land is for preservation.

That's my 2-cents.
1 Reply
Brandon Morgan
Member since 2023 · 132 posts · 145 votes
1y
Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".
very well said. for the vast majority leveraging is really the only way to get started.
1 Reply
Marcus Auerbach
OP
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
1y
About land deals. A word of caution here: you really need to know what you are doing. it sounds so cool when someone posts how they bought land for 200k and then sold it for 400k etc. If you are lucky you are working with someone like @Jay Hinrichs how has been working land deals since back in the days when rocks were still soft...

A LOT can go wrong!

So you need to know what you are looking for. Most real estate agents don't know much about what to look for on raw land (and then they call me because I am the one-eyed amongst the blind). You don't have a home inspection to fall back on.
So it takes comprehensive knowledge of the market trends, zoning laws, the local municipalities approval process, survey cost, subsoil conditions, irrigation requirements, development cost, utilities (gas, power and internet), city water or well water, city sewer or POSW to name just a few...
A builder developed the farm field next to our SD, bought it for $1.5M and wanted to build 25 homes as a conservancy subdivision. I am glad we did not buy it, because it took them over a year to get through hearings with concerned neighbors to even get a plan approved and they cut them down to 13 lots. And they had to dig a pond. So whatever their original projections where, the final number will look very different.

@Jay Hinrichs
2 Reply
Erik Raftery
Real Estate Agent · Greater Boston, MA · Member since 2016 · 14 posts · 7 votes
1y
Well written and well said Marcus. Thanks for sharing.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
1y
Quote from @Marcus Auerbach:

About land deals. A word of caution here: you really need to know what you are doing. it sounds so cool when someone posts how they bought land for 200k and then sold it for 400k etc. If you are lucky you are working with someone like @Jay Hinrichs how has been working land deals since back in the days when rocks were still soft...

A LOT can go wrong!

So you need to know what you are looking for. Most real estate agents don't know much about what to look for on raw land (and then they call me because I am the one-eyed amongst the blind). You don't have a home inspection to fall back on.
So it takes comprehensive knowledge of the market trends, zoning laws, the local municipalities approval process, survey cost, subsoil conditions, irrigation requirements, development cost, utilities (gas, power and internet), city water or well water, city sewer or POSW to name just a few...
A builder developed the farm field next to our SD, bought it for $1.5M and wanted to build 25 homes as a conservancy subdivision. I am glad we did not buy it, because it took them over a year to get through hearings with concerned neighbors to even get a plan approved and they cut them down to 13 lots. And they had to dig a pond. So whatever their original projections where, the final number will look very different.

@Jay Hinrichs

my example was a pure path of progress play with basically nothing money 28k is all that cost to buy it.. for sure if your paying for development dirt now one needs to be able to do due diligence no doubt. Now how I do it in markets I am not familiar with personally . I will figure out what civil engineers are recording plats in a given county.. I will then hire them and pay them to do a full due diligence report for me 5k to 10k.. And most we pass on so its just the cost of doing bizz but 5k to 10k up front can save you hundreds of thousands on the back end no doubt. Also its a niche there are brokers like myself that are very versed at land just like there are brokers that are very versed at MF or commercial etc etc.. Your certainly not going to trust a SFR resale or small MF agent that has zero experience in land development that would be foolish.

One of my projects I got 80k into it and exactly what your talking about happened to us.. city cut my density from 24 to 18 seller would not adjust price and we walked and lost 80k. It happens..

But there are markets and jurisdictions that have "by right" in other words current zoning allows certain density as long as you meet the utls standards road standards and lot size standards and that is not hard to determine up front.

I think i just posted on this thread one I am funding for one of my land flippers later this month 47 acres in Washington state that has "by right " short plat rules so as long as you meet base zoning and road frontages for each parcel you can do a 4X split by simply surveying and recording the new lots.. Some pretty big spreads in these.. this one is 180k purchase exit will be around 450k and all within 9 months..

As a young Broker my Dads attorney who worked for many big developers in the SF bay area told me learn the courthouse thats where the money is made.. So between being able to do my own title searches and how to search old plats and understand comp plans etc etc I was able to learn enough to muddle through it in my early years.
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1 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
1y
OP. Land deals are like any other deals.

Start small and Make Your Big Mistakes Early.
.
Develop a knowledge base and system.
Then start scaling. You can start with $10,000 even.
0 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
1y
Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".

fully agree starting from scratch with limited funds debt is mandatory no question. But as Scott is pointing out for others that can buy with cash that works to.. And as know about 40% of all SFRs are free and clear and thats got to be goal number one for your retirement years in my mind.. and to be fair and balanced like Fox news.. those i know with 8 figure or more net worths generally sold business they spent decades building they did not get there buying SFR rentals.. Or as you note high wage earners. There are millions of amreicans than make well over 500k a year in salary and commishs.. And a lot of them watch Bp but dont post.

1.4 million people earn over $500k.
0 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
1y
Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

My goal is to continue growing my net worth. My only real care about cash flow is to have sufficient margin for safe debt coverage. At age 59 I expect to slow down in the future but am not interested in "retiring". My hope is that my son will continue growing our family's net worth, which will mean not becoming debt free at any time in the foreseeable future.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
1y
Quote from @Eric James:

Quote from @Jay Hinrichs:

Quote from @James Hamling:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

Yes, this is 100% true and works IF (and it's a very BIG IF) one has the spendable cash to buy 5 properties free & clear. On average were talking $2,000,000.00 spendable liquid cash.
For the vast majority starting out in REI, and on BP, that's not remotely realistic.
Most can't even conceive how they will ever have just $200,000 sitting around in liquid cash to spend.
For a great many, getting to just $50k saved up liquid cash was an achievement that takes years. So to wait another decade+ to save up enough to get 1, just 1, is not viable investing strategy.
So to use LEVERAGE, to grow a portfolio, to snowball appreciation, to Pyramid up portfolio size to get too 20, 35, 50 on leverage so they can shift strategy too Consolidation, selling down to achieve 5 Free & Clear....
That is the most realistic and viable path for the vast majority. Investing there way UP, via leverage, to a place in life where they have compiled millions in equity position so they can consolidate down to the "Dividend" phase of life.
To the "Hiltons" of life who have $250k+ a year they can throw at investing.... Well it's a totally different thing isn't it. It's not investing anymore in the earning sense, it's more so a high interest savings account. They already "made it" via what there doing for active income.
Again, a million kudo to them, double high-5.
But they are the ever so rare few. The vast majority are not there and don't have any prospects of ever having such.
And for that majority, there is hope. It will take more work, more time, more intention of actions and yes more leverage. Leverage is how they can "hack" the math into there favor. So they can achieve WEALTH.
Those who already start with wealth, it's not about creating any more it's about preservation and that is a totally different picture of things, right.
There is no 1 universal path for all. It's about path's custom tailored to the persons.
Most are in the rat-race, grinding it out in there 9-5 with no light at end of the tunnel and that is why they look to REI, for hope, for light at end of the tunnel, for there way out of the rat-race, for wealth creation not preservation.
The preservation comes after you have it to preserve. And 6% wont create wealth unless one lives a Vampires life of millennia in time scale. Most got maybe 30/40 years if not less to get from next to $0 too "retirement".

fully agree starting from scratch with limited funds debt is mandatory no question. But as Scott is pointing out for others that can buy with cash that works to.. And as know about 40% of all SFRs are free and clear and thats got to be goal number one for your retirement years in my mind.. and to be fair and balanced like Fox news.. those i know with 8 figure or more net worths generally sold business they spent decades building they did not get there buying SFR rentals.. Or as you note high wage earners. There are millions of amreicans than make well over 500k a year in salary and commishs.. And a lot of them watch Bp but dont post.

1.4 million people earn over $500k.
"1.4 million people earn over $500k."

Wow... That's only 0.4% of the population.....
Buuuut 10% of FT employed civilian workforce, that seems a lot better.....
......but why is >50% of US populace not employed FT?
US prime-age employment-too-populace ratio is 80.9%....
I should have never looked down this rabbit hole, it's depressing, lol.
0 Reply
Tom O.
Chicago · Member since 2018 · 216 posts · 165 votes
1y
Quote from @Joe Villeneuve:

Refinancing isn't pulling out cash free. Also, you're only accessing part of the equity,...and, since the principal on the new loan will be higher with the refi, your mortgage payment will also be higher, so your CF will go down.
Refinancing isn't the same thing as selling. Refinancing is only a linear return, selling is an exponential return. I'm looking at a spread sheet I use to show this to my students, and the difference over time is quick, is rather large.

0 Reply
Marcus Auerbach
OP
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
1y
1.4 million people need a better tax planner... talk about a business opportunity!
0 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
1y
Quote from @Eric James:

Quote from @Jay Hinrichs:

Quote from @Joe Villeneuve:

Quote from @Scott Trench:

Quote from @Joe Villeneuve:

The CF mistake REI make is they think you can accumulate CF properties starting from the beginning. You can't, and you shouldn't. Even if you could (and you can) find a lot of PCF deals out there, how do you buy them? It's not like you have an unlimited source of DP's available to you, and buying all cash is foolish. If you think you are accomplishing something just because an all cash deal is PCF, it's an illusion. All you are doing is playing catch up to your cost,...you cost being the cash you put into every deal. That's your cost. The more you put in, the more you have to recover before the PCF is actually a profit. That's one of the big reasons to leverage. You can spread your cash out, and each property then accumulates CF to recover the same cash you might have used on one all cash deal.
Buying for accumulating equity is also an illusion. The equity is actually what you are paying for the property. It's a form of cash that is locked up and useless to you. Those that say it has value, I'll give you all of my sports trophies I've accumulated over the years. I'll even through in my daughter's. They are both the same value.
The power of the equity is the PV it buys. When you initially buy a property, ad 20% DP, you are buying a property that's worth 5 times what you are paying for it. As the equity grows, it's diluting the power of that equity since it grows on a 1 to 1 ratio to the PV growth. Remember, that equity started out as a 5 to 1 ratio.
Here's my take on the roles of CF and equity, and why I say you must have both:
Role of CF - To accumulate within a property to equal the cash you put into it. As long as you have PCF, this really means you have a clear property since the tenant is paying for the rest.
Role of Equity - To grow from appreciation to a point where the growth is equal to the original equity, thus doubling it.
When both things occur (order doesn't matter), I sell.
Banking only on either CF or equity is a loss. You have to have both, and to say you can't just means you are looking in the wrong markets, and/or using the wrong strategies.

Why is buying all cash foolish? I think that, right now, it offers excellent risk adjusted returns.
Thinking you are ahead with all cash deals are an illusion. It's bad, very bad, math.
If you buy a property with all cash for $200k, and that allows you to have PCF of $1000/month, that means it will take you 200 months before you break even. That's illogical.
Thinking that you can focus on the equity as an offset is even less logical, and worse math. The DP is the initial equity you buy. Added equity comes from appreciation, which has nothing to do with how much cash you have in, or how much equity you start out with. Added equity is gained from appreciation, which is based on the property value, which starts out the same, and increases at the same rate, whether you ny all cash or no cash.

YOu have math and then you have reality and personal preference.. We all know we can run math and what the math tells us.. but tenants dont follow our math projections. And banks dont care about our math projections and how hard do you want to work to prove your math projections.. Honestly my wealthiest clients and friends with 8 figure plus net worth have little to no debt.. I get it starting out but there comes a time if you can afford it and it works free and clear is just a great place to be .. I mean right now with the price of rentals 6% or so is in reality a levered cash on cash return.. equity grows at the same rate.. now granted if you wanted to you can have more props growing equity if you leverage them but your taking on lender loan risk.. At some point free and clear is just fine for many investors. Many props that are bought for cash will return 5 to 6% COC .. So as you age out how many cats do you want to herd . :) 5 or 10 or 30 to 50 to get to the same spendable cash flow.. And is that not what 97% of BP members want spendable cash flow so they can live their life on that cash flow ? No debt makes that far more attainable than massive debt.

My goal is to continue growing my net worth. My only real care about cash flow is to have sufficient margin for safe debt coverage. At age 59 I expect to slow down in the future but am not interested in "retiring". My hope is that my son will continue growing our family's net worth, which will mean not becoming debt free at any time in the foreseeable future.

Sufficient margin, solely in the form of cash flow, is a risky game. The black swan events really will pull the rug on you. Not to say don't grow, but delever-ing is not always synonymous with contraction.

Full on max leverage never works; you might survive one downturn, you will not survive two. Not to say you're doing that, or full max levered, just stating that outright.

For all we know we could wake up one of these days and learn some random event such as Sam Altman from OpenAI is a fraud and the market tanks on such widespread fear to America's road to progression. Now we got a crash that starts in equities but will run rampant across all sectors. Just never know.

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