BRRR Poll Question: With break even cash flow, Yay or Nay?
Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes
BRRR Poll Question: With break even cash flow, Yay or Nay?
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesNo. The fact you have very little money to start is even more of a reason not to waste it
179 Replies
- Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes10y
Joe V. is correct. In some markets you just can't cash flow and they should be avoided. But sometimes folks want to buy a mid range or upper range property in their market and the numbers don't work but the entry level properties do. So using the same funds it is better to buy 2 entry level homes than one mid level home. But, I agree, if the entry level homes don't cash flow than go to another market.
- 10yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
"If the Cash Flow doesn't fit, you must (a)quit"
@Ryan Rogers Are you saying that after factoring in all expenses, including vacancy, capex, management, the unit would break even, or it is cash flow zero (which would not include vacancy, capex, repairs, etc)? That is a big difference.
Also, when you refi, will you be left with zero cash in with a 80%LTV loan?
While I dont do deals that are cash flow negative, I could see doing a zero profit deal in an expensive area assuming that it accounted for vacancy, capex, management, repairs (thus it would actually be cash flow positive most months). This assumes that you can support the $400k debt and that would not stop you from future deals. If the dept caused me issues with DTI limits, I would not do it.
- Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes10y
@Ryan Rogers I'm going to go with the couple of contrarians on here. And that's because this is really a flip--at least it would have to have that potential from the start.
If I knew I had $150K of equity in that house and that it would sell, heck yeah, I'd do it. Of course, I might prefer just flipping it.
- 10yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Larry Turowski:
@Ryan Rogers I'm going to go with the couple of contrarians on here. And that's because this is really a flip--at least it would have to have that potential from the start.
If I knew I had $150K of equity in that house and that it would sell, heck yeah, I'd do it. Of course, I might prefer just flipping it.
You're right Larry...this is a flip.
- Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes10y
Originally posted by @Joe Villeneuve:
"If the Cash Flow doesn't fit, you must (a)quit"
lolololol love it Joe! :)
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes10y
Originally posted by @Joe Villeneuve:
Originally posted by @Larry Turowski:
@Ryan Rogers I'm going to go with the couple of contrarians on here. And that's because this is really a flip--at least it would have to have that potential from the start.
If I knew I had $150K of equity in that house and that it would sell, heck yeah, I'd do it. Of course, I might prefer just flipping it.
You're right Larry...this is a flip.
That's right ie. the very OPPOSITE of the topic: BRRR!
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Originally posted by @Justin R.:
@Account Closed Taking a $125k profit for someone with "very little money" could rather easily be better than having the equity build over time.
Not that it matters - as I said, this situation ain't gonna happen.
Where is this $125,000 profit? I read twice and still don't see it.
Originally posted by @Account Closed:
Originally posted by @Justin R.:
@Account Closed Taking a $125k profit for someone with "very little money" could rather easily be better than having the equity build over time.
Not that it matters - as I said, this situation ain't gonna happen.
Where is this $125,000 profit? I read twice and still don't see it.
My reading was an unrealistic situation where the poster could (for example):
1. Buy a property for $250k
2. Put $100k into rehab.
3. Get it appraised for $500k.
4. Have the option of (somehow) getting a loan for $350k.
So, hold it for zero free cash flow but let principal payments and appreciation do their work ... Or sell and take the $125k after sales costs.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
No cash flow = no way. That just means there is too small a margin for error. I would never buy for appreciation, I buy for cash flow and nothing else. The rest is just icing. Especially if you are planning on buy and hold. If this is flip then appreciation doesn't come into play.
I am still a fan of always buying with cash flow in mind. People talk about always having multiple exit strategies. Great cash flow allows for many exit strategies.
Remember, this is a business, not unlike poker, of making decisions with incomplete data. You want to make the decision that stacks the odds in your favor. Equity, cash flow, location, quality of home are all things you want on your side, to stack the odds. To me the most important two, are equity and cash flow, don't pass on either of those.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
Oh, and no area is going to appreciate 4%-5% long term.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
@Joe Villeneuve has this game figured out. I concur with all of his thoughts, though I only read about 60% of them.
- 10yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Jacob Sampson:
No cash flow = no way. That just means there is too small a margin for error. I would never buy for appreciation, I buy for cash flow and nothing else. The rest is just icing. Especially if you are planning on buy and hold. If this is flip then appreciation doesn't come into play.
I am still a fan of always buying with cash flow in mind. People talk about always having multiple exit strategies. Great cash flow allows for many exit strategies.
Remember, this is a business, not unlike poker, of making decisions with incomplete data. You want to make the decision that stacks the odds in your favor. Equity, cash flow, location, quality of home are all things you want on your side, to stack the odds. To me the most important two, are equity and cash flow, don't pass on either of those.
I compare REI to poker all the time, but my comparison is that the number one rule is the same for both, "you must stay in the game". You don't throw more chips in with a negative hand, and you don't keep paying your tenant's bills (i.e. negative cf). Both will quickly get you out of their respective games. You can always get your money back, in both games, as long as you're still in them. In poker, your money is temporarily in another pile on the table. In REI, it's in the NEXT property.
- Grand Blanc, MI · Member since 2015 · 24 posts · 13 votes10y
I haven't done any deals yet. That being said, I wouldn't do it. Real estate is a risk-reward game. You take on the risk of debt for the reward of income or cashflow. To hold so much debt, especially when just starting out, I would say the cash flow would need to be especially enticing to be interested in the deal.
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
Originally posted by @Joe Villeneuve:
I compare REI to poker all the time, but my comparison is that the number one rule is the same for both, "you must stay in the game". You don't throw more chips in with a negative hand, and you don't keep paying your tenant's bills (i.e. negative cf). Both will quickly get you out of their respective games. You can always get your money back, in both games, as long as you're still in them. In poker, your money is temporarily in another pile on the table. In REI, it's in the NEXT property.
That's funny, I see so many similarities, as well. I have been writing a little paper on the idea, that is how I crystallize ideas, in my head. Here are some of the principles I think work for both.
1. Play within your bank roll.
If you have to get too creative then you probably aren't prepared for that level of play.
Master your current game and build a large enough bank roll so you can tip toe to the next level. There are tools you will need to be successful at the next level that you aren't aware of, yet.
2. It's more important to protect your downside than it is to maximize your upside.
Rarely, if ever, put your whole bank roll at risk.
Pass on marginal deals.
3. Nothing protects you from a bad run of cards like a big pile of sweaty cash.
Have cash or get cash as quickly as possible.
4. Emotion of any type is bad
Don't get excited about deals or disappointed when they don't happen. All emotion (around real estate investing) is bad and will lead you to making mistakes. It's just about the math.
5. You can't hang with the big boys (whomever they are to you, this is a relative term).
You can't make the same moves as the big boys, they are evaluating deals and taking into account variables that you don't even know exist.
They have tools in there inventory you aren't aware of, they can exit deals easier and with less loss than you and they can turn marginal deals into better ones.
Warren Buffett purchased shares of banks during the crisis. If you had done the same you still wouldn't have gotten the same deal. He had the ability to get himself a preferred dividend for his shares that was far higher than you were going to get for yours.
6. If you are in it for the excitement, your playing wrong.
This business is a long-term grind.
7. No matter how successful you are or for how long, you aren't in control of as many variables as you think you are.
Sorry for the bad formatting and unintelligible stream of conscience ramblings. Those are some rough ideas that I have been playing with, in my head, lately.
- Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes10y
Originally posted by @Joe Villeneuve:
Originally posted by @Jacob Sampson:
No cash flow = no way. That just means there is too small a margin for error. I would never buy for appreciation, I buy for cash flow and nothing else. The rest is just icing. Especially if you are planning on buy and hold. If this is flip then appreciation doesn't come into play.
I am still a fan of always buying with cash flow in mind. People talk about always having multiple exit strategies. Great cash flow allows for many exit strategies.
Remember, this is a business, not unlike poker, of making decisions with incomplete data. You want to make the decision that stacks the odds in your favor. Equity, cash flow, location, quality of home are all things you want on your side, to stack the odds. To me the most important two, are equity and cash flow, don't pass on either of those.
I compare REI to poker all the time, but my comparison is that the number one rule is the same for both, "you must stay in the game". You don't throw more chips in with a negative hand, and you don't keep paying your tenant's bills (i.e. negative cf). Both will quickly get you out of their respective games. You can always get your money back, in both games, as long as you're still in them. In poker, your money is temporarily in another pile on the table. In REI, it's in the NEXT property.
definitely don't want you at my poker table! I need more action/fish vs. the "Joe Rock" :)
- Investor · Franklin, MA · Member since 2015 · 47 posts · 22 votes10y
Are you looking for eventual cash flow , hoping for appreciation,or retirement planning?
I'd say nay to the first two scenarios , yay if it's the third . 1st rental market is rising and I believe will continue to, but hoping for possible higher rents is a gamble most places are already rented to what the market will bear . 2nd I'm of the thought that the market may dip again and appreciation is risky . I don't care what my current properties are worth as long as they make me money- cashflow if they were suddenly worth half ,I still make money on rents, so I'm not gambling on appreciation. 3rd If you're buying for a long term future cash out -retirement etc. and you have the time and patience to be a landlord then it's a good option in my opinion.
Good luck with whatever you decide
- Real Estate Agent · Grand Rapids, MI · Member since 2016 · 127 posts · 56 votes10y
Originally posted by @Ryan Rogers:
And broke dead even to begin a deal, in a price point of 500K with (historical likelihood) for 4-5% yearly appreciation.
I remember justifying this same scenario in 2001, and the houses still have not recovered to that value. Granted, it was Michigan, but states like Mass, Cali, NY, will fall some day, and I wouldnt want to leverage myself to that 4-5% appreciation 'hope'. Focus on cash flow.
- Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes10y
Originally posted by @Christopher Stobbart:
Are you looking for eventual cash flow , hoping for appreciation,or retirement planning?
I'd say nay to the first two scenarios , yay if it's the third . 1st rental market is rising and I believe will continue to, but hoping for possible higher rents is a gamble most places are already rented to what the market will bear . 2nd I'm of the thought that the market may dip again and appreciation is risky . I don't care what my current properties are worth as long as they make me money- cashflow if they were suddenly worth half ,I still make money on rents, so I'm not gambling on appreciation. 3rd If you're buying for a long term future cash out -retirement etc. and you have the time and patience to be a landlord then it's a good option in my opinion.
Good luck with whatever you decide
Thanks Chris! I appreciate you taking the time for your 2 cents! :)
- Investor · Boston, MA · Member since 2015 · 95 posts · 32 votes10y
Originally posted by @Jeff Robert:
Originally posted by @Ryan Rogers:
And broke dead even to begin a deal, in a price point of 500K with (historical likelihood) for 4-5% yearly appreciation.
I remember justifying this same scenario in 2001, and the houses still have not recovered to that value. Granted, it was Michigan, but states like Mass, Cali, NY, will fall some day, and I wouldnt want to leverage myself to that 4-5% appreciation 'hope'. Focus on cash flow.
Thanks Jeff!
Originally posted by @Jacob Sampson:
Oh, and no area is going to appreciate 4%-5% long term.
There are a handful of areas that have historically appreciated that much. It might be the case that the factors for immediate cash flow and or long term appreciation fundamentals exist before your invest. One can hope for CF or appreciation. Location selection might be the better back up plan long run. But you are right in that most locations really have no hope for appreciation. So why bother fooling yourself if that is the case.
Since 2000 here are the top 3.
Los Angeles 138%, San Fran 116%, San Diego 115%
- Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes10y
Originally posted by @Matt R.:
Originally posted by @Jacob Sampson:
Oh, and no area is going to appreciate 4%-5% long term.
There are a handful of areas that have historically appreciated that much. It might be the case that the factors for immediate cash flow and or long term appreciation fundamentals exist before your invest. One can hope for CF or appreciation. Location selection might be the better back up plan long run. But you are right in that most locations really have no hope for appreciation. So why bother fooling yourself if that is the case.
Since 2000 here are the top 3.
Los Angeles 138%, San Fran 116%, San Diego 115%
I stand corrected. I wonder if there is a report on areas with the greatest number of investors getting crushed, would it be a similar list of locations. I just don't have big enough balls to play in that game, I guess. I have to have cash flow.
I can tell you that when prices were tanking (not nearly as much in my area) I didn't care one bit because rents stayed the same or improved. In fact, I loved it because my property taxes were also going down. If I had been losing value and not generating cash, I would have been pretty frustrated.
It states that 5-7 years is about how long the run-ups last, on average, I would suggest getting in and out because we are into the 5th year at this point
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes10y
Originally posted by @Christopher Stobbart:
I don't care what my current properties are worth as long as they make me money-
Emboldened for emphasis. Whether the property is worth a million or zero makes no difference if it creates the same cash flow and you don't want/need to sell.
Skyline Properties @Jacob Sampson Probably the same SOCAL overall areas lead in all possibilities good or bad just from a sheer human volume point, but maybe not per capita. Even in the same county during GFC, one location was fine and others lost 60%+.
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes10y
Originally posted by @Ryan Rogers:
Can you all in a major metropolitan city ever see the property not appreciating at inflation. (Long Term)
What if there is no inflation, but deflation? It is not common, but it is possible. The last time was the Great Depression, so long ago that people have forgotten and think it is not possible, but it is. Long term, probably not (or else we're all F#$%ed), but the trick would be to make it to the long term through the deflation ... For a frame of reference, the stock market didn't recover from its 1929 high until the 1950's ... that's what deflation looks like, and it is possible. Ever wonder why your depression era grandparents (or great grandparents) are adverse to debt? That's why ...
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