About small amounts of cash flow...

4 Replies

I'm sorry if this is a stupid question, but I'm just really starting to research this stuff and some things don't make sense to me... Ok, I've read in several places that multi family units are what many aim to buy. But then someone will say they bought a multi family, rehabbed it, rented it out, but the cash flow is only $200 a month. Why would you go through so much trouble for only $200 a month? Is it because you're also paying down the mortgage on the property so 15 years from now you'll own it and can sell it for profit? Explain it to me like I'm 5, but I'm not getting out of bed for $200 a month. I'm sure I'm missing something here....? thanks!

@Hilary Hill . Your question doesn't have a lot of information to actually deep dive into a good logical explanation of this particular scenario you are referring to. How many units are we talking about? How much money was put down?What market is this? Did the person invest for cashflow or for appreciation? The answers to these questions matter to understand the rational. Is this a use case from an experienced investor? Did the person just purchase a deal without doing lots of analysis? Was there unexpected expenses, which wasn't properly accounted for? Was the purpose of this investment just trying to diversify/park money?   

@Hilary Hill I'll explain using a BRRRR I'm a few weeks away from completing. Paid $55k for it, put $55k in renovations and holding costs, so I'm all in at $110k. Home will be worth roughly $150k and will rent for $1600/month. I'm going to refinance at 75% ARV so I'll get back $112k, meaning that I'll pay the loan off, get my down payment back, and have spent $0 in the end for the property. I'll cash flow about $225 after all expenses and reserves, and have $38k in equity. So essentially for free, I have a house with $38k in equity, $225 per month imcome in perpetuity, and get all of the tax benefits associated with owning property. That's a pretty good deal, if you ask me, and that's why I get up for $200 per month.

It’s possible they meant $200/unit/month profit, which is decent enough, particularly if you’re starting out.

$200 is pretty thin on a multifamily, I wouldn't settle for that generally, but the biggest advantages of real estate, IMO, is the long term appreciation/principal paydown. So as long as you stay afloat (especially if you bought with equity and don't have much of your own money in the property) eventually you will pay off enough of your loan and the property will appreciate enough that you will have built some real wealth. Cash flow is nice and can eventually add up. But it's mostly important to keep you liquid so you don't have to keep feeding such properties and risk running out of money entirely.

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