Rental Property Investor · Muncie IN · Member since 2015 · 68 posts · 25 votes
10y
No, cash flow is key. Do you have enough set aside for CapEx? Have you estimated maintenance accurately? Can you cover vacancies? Without any cash flow you have no room for anything to go wrong. And something will go wrong. Murphys Law.
Counting on appreciation is nothing but speculation. Ask those who lost their shorts in the recession. Even with 4-5% appreciation, the stock market would be a better place to invest your money. There are better deals out there. You just have to be patient and look harder.
I will not look at anything that will not cash flow for $150 unit or $200 for SFH.
No, cash flow is key. Do you have enough set aside for CapEx? Have you estimated maintenance accurately? Can you cover vacancies? Without any cash flow you have no room for anything to go wrong. And something will go wrong. Murphys Law.
Counting on appreciation is nothing but speculation. Ask those who lost their shorts in the recession. Even with 4-5% appreciation, the stock market would be a better place to invest your money. There are better deals out there. You just have to be patient and look harder.
I will not look at anything that will not cash flow for $150 unit or $200 for SFH.
I respect your diligence. However.........if you have 500K cash to invest in the stock market and could find a +5% return I hear you. But if you have No Capital, acquiring a 500k asset with creativity maybe the play, if it's your only play. Granted the expenses are factored in with an adequate cushion. I structured the question understanding the, "no cash flow-no deal" opinions will definitely prevail but does $150 a month cash flow limitation really cancel the deal in your opinion? Probably could get 100 more in a year or so anyways.
No, cash flow is key. Do you have enough set aside for CapEx? Have you estimated maintenance accurately? Can you cover vacancies? Without any cash flow you have no room for anything to go wrong. And something will go wrong. Murphys Law.
Counting on appreciation is nothing but speculation. Ask those who lost their shorts in the recession. Even with 4-5% appreciation, the stock market would be a better place to invest your money. There are better deals out there. You just have to be patient and look harder.
I will not look at anything that will not cash flow for $150 unit or $200 for SFH.
I respect your diligence. However.........if you have 500K cash to invest in the stock market and could find a +5% return I hear you. But if you have No Capital, acquiring a 500k asset with creativity maybe the play, if it's your only play. Granted the expenses are factored in with an adequate cushion. I structured the question understanding the, "no cash flow-no deal" opinions will definitely prevail but does $150 a month cash flow limitation really cancel the deal in your opinion? Probably could get 100 more in a year or so anyways.
Trouble is, if your property has negative or break even cash flow, I don't think of that as an asset.
My cancellation number is anything less than $300/month...and yes, if it is less than that, I don't go through with the deal, or at least I make an offer that will give me my $300/month.
I don't want a 100 more properties that make less than $300/month. REI is a numbers game. How many numbers you have with street names after it don't matter. How many numbers you have with $$$$$ in front do...an the number after the $$$$$ better be greater than 300.
No, cash flow is key. Do you have enough set aside for CapEx? Have you estimated maintenance accurately? Can you cover vacancies? Without any cash flow you have no room for anything to go wrong. And something will go wrong. Murphys Law.
Counting on appreciation is nothing but speculation. Ask those who lost their shorts in the recession. Even with 4-5% appreciation, the stock market would be a better place to invest your money. There are better deals out there. You just have to be patient and look harder.
I will not look at anything that will not cash flow for $150 unit or $200 for SFH.
I respect your diligence. However.........if you have 500K cash to invest in the stock market and could find a +5% return I hear you. But if you have No Capital, acquiring a 500k asset with creativity maybe the play, if it's your only play. Granted the expenses are factored in with an adequate cushion. I structured the question understanding the, "no cash flow-no deal" opinions will definitely prevail but does $150 a month cash flow limitation really cancel the deal in your opinion? Probably could get 100 more in a year or so anyways.
Trouble is, if your property has negative or break even cash flow, I don't think of that as an asset.
My cancellation number is anything less than $300/month...and yes, if it is less than that, I don't go through with the deal, or at least I make an offer that will give me my $300/month.
I don't want a 100 more properties that make less than $300/month. REI is a numbers game. How many numbers you have with street names after it don't matter. How many numbers you have with $$$$$ in front do...an the number after the $$$$$ better be greater than 300.
Rental Property Investor · Gambrills, MD · Member since 2014 · 372 posts · 88 votes
10y
I'm going to take a slightly different approach. I don't think we would do a deal that provides no positive cash flow. However, we are willing to accept a much lower amount of cash flow than others have stated. The reason being is that we are not trying to produce current income. We are planning for 20 years down the road. Our investing is part of our retirement plan. The four members of my LLC all have good incomes and steady jobs. We make sure that we have planned adequately for maintenance, cap ex, vacancy, etc. Once we have covered those expenses, we like to see a little positive cash flow. We don't need to see $300. In our market, we don't think that's particularly feasible without investing more cash in each property. That would limit our long-term growth in a way that frustrates our long-term goal. I hope this is helpful.
Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
10y
Ryan Rogers
With little money how would you even go about doing that? These deals are very cash intensive and then you have to qualify for a mortgage at the end. Can you get another 400k in debt? A good starting point would be a 50k house and make your mistakes. My opinion anyway and worked well for me.
I'm going to take a slightly different approach. I don't think we would do a deal that provides no positive cash flow. However, we are willing to accept a much lower amount of cash flow than others have stated. The reason being is that we are not trying to produce current income. We are planning for 20 years down the road. Our investing is part of our retirement plan. The four members of my LLC all have good incomes and steady jobs. We make sure that we have planned adequately for maintenance, cap ex, vacancy, etc. Once we have covered those expenses, we like to see a little positive cash flow. We don't need to see $300. In our market, we don't think that's particularly feasible without investing more cash in each property. That would limit our long-term growth in a way that frustrates our long-term goal. I hope this is helpful.
Thank you Stephen! Let me see that beautiful face :)
Ryan Rogers
With little money how would you even go about doing that? These deals are very cash intensive and then you have to qualify for a mortgage at the end. Can you get another 400k in debt? A good starting point would be a 50k house and make your mistakes. My opinion anyway and worked well for me.
appreciate the advise. Parking spots cost 150K here tho :(
Madison Heights, MI · Member since 2014 · 471 posts · 132 votes
10y
I'm going to go against the grain on this one and say yes, but only under certain circumstances. First, this should only be attempted by someone that has plenty of capital and cash flow already. Just one unexpected expense can run in the thousands. A bad sewer line that requires a street break will easily run over 10,000, including the city bond, for example. Second, there should be an expectation of appreciation of rents and prices. Relying strictly on principal pay-down is way to unrewarding for the effort required, in my opinion. So, as long as you can get your cash back out of it, fine..
Personally, I focus on cash flow and will continue to do so until I meet my first long-term goal in terms of cash flow.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
What's the value add opportunity look like? How much below market can you buy it for? How much above and beyond your repair costs do your repairs add in equity? Cash flow is only a small part of the total return picture. It is important to consider, but not the end all, be all. Personally, if a property were truly cash flow neutral after ALL expenses were factored conservatively and I had significant value add opportunity that had some profit built into my purchase day 1, sure, I'd consider it. Then, you are playing with the house's money to hold for appreciation (if it materializes long term), but can still profit short term through sale if you need or want to. I would NOT consider it with negative cash flow, unless I had a bullet proof plan to turn it cash flow positive or neutral REAL SOON.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
Ryan Rogers If by "perform the BRRRR strategy" you mean refinance out all the cash you put in, sure I'd do that deal. Own a $500k asset with no capital tied up and tenants covering the monthly principle in an historically appreciating market? Sign me up. On a $350k loan, I'd be making $440/m from day 1 on principle alone. Add in rent increases and likely appreciation and there's plenty of upside.
But, the chances of pulling this off - ESPECIALLY for someone with little cash - is less than unlikely. Qualifying for capital to buy, qualifying for long term financing, doing the rehab right, ending up with 30% equity, having access to enough capital if something goes wrong, and doing so in a high priced market with presumably lots of seasoned competition? Ain't gonna happen.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
I should add ... In such a situation I'd be looking first at selling the place immediately to walk with the profit, but that wasn't the OP's implied question.
I should add ... In such a situation I'd be looking first at selling the place immediately to walk with the profit, but that wasn't the OP's implied question.
What profit? You're killing the Golden Goose before its laid the first egg. Also unless you are assuming CapEx money is coming in exactly when needed then there is cash flow. See how thinking cash flow is profit is folly?
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
@Ryan Rogers there is a lot of work involved with the BRRR strategy. A lot more than is often portrayed. A lot has to go right in most cases for you to just get your money back on the refi.
Let's say your backend appraisal falls short of where you expect which definitely can happen. The cash flow from the deal can cushion that deal and make it worth all of the time and effort you put in. Betting on appreciation is something that may never come to fruition and now you've wasted all of that time and money for what?
@Ryan Rogers there is a lot of work involved with the BRRR strategy. A lot more than is often portrayed. A lot has to go right in most cases for you to just get your money back on the refi.
Let's say your backend appraisal falls short of where you expect which definitely can happen. The cash flow from the deal can cushion that deal and make it worth all of the time and effort you put in. Betting on appreciation is something that may never come to fruition and now you've wasted all of that time and money for what?
"...Betting on appreciation is something that may never come to fruition..."
If I am not mistaken, history has shown this to be true many times.
"...Let's say your backend appraisal falls short of where you expect which definitely can happen...."
Then you refi and get most of your cash back...enough to move onto the next deal, and your cash flow keeps coming and quickly makes your "cash even" again...but the refi, even if partial, keeps you moving forward.
Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes
10y
Also to clarify the market being Boston. Can you all in a major metropolitan city ever see the property not appreciating at inflation. (Long Term) Obviously in a 5 year span etc, anything can happen. But all you buyers in San Fran, New York, Maimi, Paris....we have any Paris blog members????etc.., I'm sure you must calculate expected appreciation into your formulas somewhat right?
Thanks again, Happy Thursday guys and ladies!!!! :)
Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes
10y
I don't know the prices in Quincy but in my market, (outside Virginia suburbs outside Washington DC) there are just about zero cash flow opportunities with traditional financing at $500,000. I have had many investors come to me saying they would like to buy a cash flow property at $500,000 and I suggest to them that it won't work but if they want to buy two at $250,000, they will have decent cash flow. Are you starting too high?
As to your comment Ryan about major markets always seeming to appreciate, I agree but I don't want to gamble on that. But you know what? Two at $250,000 will probably net the same as 1 at $500,000 over time and you will have had cash flow while waiting.
I don't know the prices in Quincy but in my market, (outside Virginia suburbs outside Washington DC) there are just about zero cash flow opportunities with traditional financing at $500,000. I have had many investors come to me saying they would like to buy a cash flow property at $500,000 and I suggest to them that it won't work but if they want to buy two at $250,000, they will have decent cash flow. Are you starting too high?
As to your comment Ryan about major markets always seeming to appreciate, I agree but I don't want to gamble on that. But you know what? Two at $250,000 will probably net the same as 1 at $500,000 over time and you will have had cash flow while waiting.
You can't cash flow every market. The ones where the numbers tell you "No Cash Flow", means don't even try...and don't rationalize negative cash flow as a good reason (or even a bad reason) for buying a property to hold.