Agent said not to worry about cash flow and consider tax benef

107 Replies

So I recently was sent 2 possible duplexes to purchase from an agent I trust. I ran the numbers using the basis Brandon lined out, and the properties comes out to a negative monthly cash flow by about $175 per property . I told the agent I had to pass, and gave her the reasons why. I got a follow up email that was considerate and agreed with my assessment but also stating that people get to caught up on “monthly cash flow, and should consider the yearly tax benefits.” Being that this would be my first investment, am I being too picky? I’m not looking for a crazy cash flow, $150/$200 a door, I just don’t want to be negative. Thanks for any input!

If you lose money on it every month it is not an asset, it is a liability.  I wouldn't do it personally unless there was crazy appreciation upside.  Even then its speculative at best.

Find another agent. Your trust in her is foolish. She might be a great agent for homeowners, but you're not a HO, you're a REI, and the two property qualifiers have NOTHING in common.

Did I mention that you shoud have (already...as soon as she sent you her followup email) "found another agent"...ASAP...yesterday might have been a good time to have found that other agent.

Promotion
Avail
Landlording made easy.
Best-in-Class Platform for DIY Landlords
List unlimited units, screen tenants, draft and sign leases, and collect rent—all free.
Use Avail—Free!

You didn't say how much you were calculating the expenses at (5%, 7%, etc.) but it sounds like your close enough to make it cash flow if you can control/lower the expenses. Also, you didn't say whether you're using current rent or market rate. Is there any chance you could raise the rents to make it cash flow? Or a combo of both?

Edit: Also, if you want to test the agent you could look for (and run the numbers on) places that meet your requirements but that the agent didn't send you. If the cash flow on those is even worse, it might be that you are not in a good cash flow market.

Originally posted by @Nathan Yarnell :

So I recently was sent 2 possible duplexes to purchase from an agent I trust. I ran the numbers using the basis Brandon lined out, and the properties comes out to a negative monthly cash flow by about $175 per property . I told the agent I had to pass, and gave her the reasons why. I got a follow up email that was considerate and agreed with my assessment but also stating that people get to caught up on “monthly cash flow, and should consider the yearly tax benefits.” Being that this would be my first investment, am I being too picky? I’m not looking for a crazy cash flow, $150/$200 a door, I just don’t want to be negative. Thanks for any input!

reread Kyosaki's cashflow quadrant. He quotes that losers listen to people who say " buy it for the tax benefits" It must cashflow. Even if its not alot.

Ahaha, she's an agent. She makes money if you buy the property, she makes nothing if you don't. This is kind of easy to see through, is it not?

PS - This is not representative of all RE agents.

Originally posted by @Steven Wilson :
Originally posted by @Nathan Yarnell:

So I recently was sent 2 possible duplexes to purchase from an agent I trust. I ran the numbers using the basis Brandon lined out, and the properties comes out to a negative monthly cash flow by about $175 per property . I told the agent I had to pass, and gave her the reasons why. I got a follow up email that was considerate and agreed with my assessment but also stating that people get to caught up on “monthly cash flow, and should consider the yearly tax benefits.” Being that this would be my first investment, am I being too picky? I’m not looking for a crazy cash flow, $150/$200 a door, I just don’t want to be negative. Thanks for any input!

reread Kyosaki's cashflow quadrant. He quotes that losers listen to people who say " buy it for the tax benefits" It must cashflow. Even if its not alot.

 Thanks for the input! It’s on the list of books for this year!

Originally posted by @Bruce Woodruff :

Ahaha, she's an agent. She makes money if you buy the property, she makes nothing if you don't. This is kind of easy to see through, is it not?

PS - This is not representative of all RE agents.

 I mean that’s the answer that was staring me in the face, just wanted to throw it out here and see if I was missing something, appreciate the input!

Originally posted by @Michael E. :

You didn't say how much you were calculating the expenses at (5%, 7%, etc.) but it sounds like your close enough to make it cash flow if you can control/lower the expenses. Also, you didn't say whether you're using current rent or market rate. Is there any chance you could raise the rents to make it cash flow? Or a combo of both?

I considered all of that Michael, and those are options, although the rents are very comparable.  And obviously if  I could secure the properties at a lower price..It was more of a question on the mindset of the realtor I guess more than anything, and if the tax benefits are that big of a trade off. 

Originally posted by @Nathan Yarnell :

I considered all of that Michael, and those are options, although the rents are very comparable.  And obviously if  I could secure the properties at a lower price..It was more of a question on the mindset of the realtor I guess more than anything, and if the tax benefits are that big of a trade off. 

 

Oh, well in that case, if you told that agent you wanted cash flow and that's what they brought you then yeah, look for a new agent.

Best of Luck

Originally posted by @Nathan Yarnell :
Originally posted by @Steven Wilson:
Originally posted by @Nathan Yarnell:

So I recently was sent 2 possible duplexes to purchase from an agent I trust. I ran the numbers using the basis Brandon lined out, and the properties comes out to a negative monthly cash flow by about $175 per property . I told the agent I had to pass, and gave her the reasons why. I got a follow up email that was considerate and agreed with my assessment but also stating that people get to caught up on “monthly cash flow, and should consider the yearly tax benefits.” Being that this would be my first investment, am I being too picky? I’m not looking for a crazy cash flow, $150/$200 a door, I just don’t want to be negative. Thanks for any input!

reread Kyosaki's cashflow quadrant. He quotes that losers listen to people who say " buy it for the tax benefits" It must cashflow. Even if its not alot.

 Thanks for the input! It’s on the list of books for this year!

 Its a great book, it has helped me build my business here in Columbus!

@Nathan Yarnell  

In God we trust. All others must bring data.

Here are your tax benefits, make sure you understand these as a dollar value and not just a quote from your agent.

1) Mortgage Interest: pretty easy to figure. In most cases, you are offsetting your rental income.

2) Depreciation: spread usually over 27.5 years.

3) Property taxes: the average in your home state of Kansas is 1.37%

4) Repairs: sounds great but you still have to pay for the repairs.

5) Other: milage is a good one. Advertising doesn't usually add up to much. Insurance, utilities if you pay them. uncollected rent (hope that doesn't happen) and probably a few others.

Originally posted by @Chris London :

@Nathan Yarnell 

In God we trust. All others must bring data.

Here are your tax benefits, make sure you understand these as a dollar value and not just a quote from your agent.

1) Mortgage Interest: pretty easy to figure. In most cases, you are offsetting your rental income.

2) Depreciation: spread usually over 27.5 years.

3) Property taxes: the average in your home state of Kansas is 1.37%

4) Repairs: sounds great but you still have to pay for the repairs.

5) Other: milage is a good one. Advertising doesn't usually add up to much. Insurance, utilities if you pay them. uncollected rent (hope that doesn't happen) and probably a few others.

Thanks Chris! Tons of information here! Very helpful!

Promotion
Vacasa
Vacation Rental Property Management
We do the work. You get the ROI.
We do it all for your vacation rental. All—marketing, pricing, guest requests, housekeeping & more.
Free income estimate

I Wouldn't necessarily fire the agent and burn bridges but I would definitely not buy a property that you know is gonna lose money.

The justification that its a tax write off is poor advice.

I agree with what Chris said above. The agent isn't 100% wrong necessarily, but there is so much to consider when tax planning. There are rare occasions where buying for cash flow isn't the main objective. But typically these situations are with VERY high active income earners who are being directed by experienced financial/estate/tax planners.

Unless that agent is qualified in tax & estate planning and he/she knows the details of your individual situation, I would be very leery of their advice.

On another note, best of luck with your first investment. It's really exciting to get started!

@Nathan Yarnell unless you have some big gains or major cash flow to offset somewhere else, I wouldn’t even consider it. For me it needs to be cash flow positive or it’s a no go.

I think that is bad advice.  You always want it to cash flow. How many can you truly buy if you have to take $100-$200 out of your pocket every month.  Also, if the market goes down, you are not stuck with this extra payment for possibly many years while you wait for the market to rebound.  

Originally posted by @George W. :

I Wouldn't necessarily fire the agent and burn bridges but I would definitely not buy a property that you know is gonna lose money.

The justification that its a tax write off is poor advice.

 Thanks for your input George!

Originally posted by @Brandon Scott Jordan :

I agree with what Chris said above. The agent isn't 100% wrong necessarily, but there is so much to consider when tax planning. There are rare occasions where buying for cash flow isn't the main objective. But typically these situations are with VERY high active income earners who are being directed by experienced financial/estate/tax planners.

Unless that agent is qualified in tax & estate planning and he/she knows the details of your individual situation, I would be very leery of their advice.

On another note, best of luck with your first investment. It's really exciting to get started!

 Thanks Brandon I appreciate the info and the good luck!

Originally posted by @Dave E. :

@Nathan Yarnell unless you have some big gains or major cash flow to offset somewhere else, I wouldn’t even consider it. For me it needs to be cash flow positive or it’s a no go.

Thanks Dave, that was my initial thought, just wanted to make sure I wasn’t missing something! 

Originally posted by @Eric Janson :

I think that is bad advice.  You always want it to cash flow. How many can you truly buy if you have to take $100-$200 out of your pocket every month.  Also, if the market goes down, you are not stuck with this extra payment for possibly many years while you wait for the market to rebound.  

 I appreciate the input Eric, that’s what I was thinking!

@Nathan Yarnell From my past experience in the last market downturn I got burnt by others saying to "buy and its a great deal" even though it was not cash flowing. I had to short sale a couple of properties and lost a lot of money. It was before I really understood REI and I will never make that mistake again. Find an investor friendly agent, go direct to seller, or utilize a local wholesaler in your market.