Looking to deploy capital in markets that meet or exceed the 1% rule! Lets connect!!
Most Popular Reply
Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votesA word of caution………..
The 1% rule, the desirability and amount of cash flow are only a few of multiple criteria you should evaluate when investing.
In my 45 years of real estate investing, I have often seen the following:
1. The rent to price ratio (and therefore ultimately the cash flow) is in an INVERSE proportion to the quality of the asset. As one moves down in quality of the building as one moves down in the quality of the location, the cash flow “appears” to improve in a PROFORMA.
2. The rent to price ratio goes down as quality goes up.
3. The lower the qualify of the asset, the less likely it will perform in “real life” as projected in the proforma. Lower quality assets - older assets - low tenant income and quality - lead to high maintenance costs and greater vacancy and losses.
4. Greater cash flow is available in less desirable locations - where economic growth is slowe or non existent.
One can find greater cash flow in Bakersfield CA than Palo Alto CA.
Does that mean it’s better to invest in Bakersfield? I think not.
While cash flow is great - buying a fourplex might generate $500 to $1000 a month cash flow (at most). That’s not life changing money.
I suggest for consideration, investing for capital growth rather than cash flow early in one’s investing journey may be a better approach. In my opinion, one needs to accumulate a fair amount of capital before life changing cash flow can be generated.
15 Replies
Quote from @Abe Rouz:
Good evening
I am looking to build a team and connect with others in markets that meet or exceed the 1% rule
Looking to build out a team of a real estate agent, lender, contractor, and property manager
Below is my buy box: duple to fourplex, meets 1% rule or more, off marketLooking forward to connecting with others! lets make it happen
on market as well, goal is to cashflow!
Thanks!
- 3yArn CenedellaPro MemberRental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
A word of caution………..
The 1% rule, the desirability and amount of cash flow are only a few of multiple criteria you should evaluate when investing.
In my 45 years of real estate investing, I have often seen the following:
1. The rent to price ratio (and therefore ultimately the cash flow) is in an INVERSE proportion to the quality of the asset. As one moves down in quality of the building as one moves down in the quality of the location, the cash flow “appears” to improve in a PROFORMA.
2. The rent to price ratio goes down as quality goes up.
3. The lower the qualify of the asset, the less likely it will perform in “real life” as projected in the proforma. Lower quality assets - older assets - low tenant income and quality - lead to high maintenance costs and greater vacancy and losses.
4. Greater cash flow is available in less desirable locations - where economic growth is slowe or non existent.
One can find greater cash flow in Bakersfield CA than Palo Alto CA.
Does that mean it’s better to invest in Bakersfield? I think not.While cash flow is great - buying a fourplex might generate $500 to $1000 a month cash flow (at most). That’s not life changing money.
I suggest for consideration, investing for capital growth rather than cash flow early in one’s investing journey may be a better approach. In my opinion, one needs to accumulate a fair amount of capital before life changing cash flow can be generated.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Arn Cenedella:
A word of caution………..
The 1% rule, the desirability and amount of cash flow are only a few of multiple criteria you should evaluate when investing.
In my 45 years of real estate investing, I have often seen the following:
1. The rent to price ratio (and therefore ultimately the cash flow) is in an INVERSE proportion to the quality of the asset. As one moves down in quality of the building as one moves down in the quality of the location, the cash flow “appears” to improve in a PROFORMA.
2. The rent to price ratio goes down as quality goes up.
3. The lower the qualify of the asset, the less likely it will perform in “real life” as projected in the proforma. Lower quality assets - older assets - low tenant income and quality - lead to high maintenance costs and greater vacancy and losses.
4. Greater cash flow is available in less desirable locations - where economic growth is slowe or non existent.
One can find greater cash flow in Bakersfield CA than Palo Alto CA.
Does that mean it’s better to invest in Bakersfield? I think not.While cash flow is great - buying a fourplex might generate $500 to $1000 a month cash flow (at most). That’s not life changing money.
I suggest for consideration, investing for capital growth rather than cash flow early in one’s investing journey may be a better approach. In my opinion, one needs to accumulate a fair amount of capital before life changing cash flow can be generated.
the cost of one standard SFR in Palo Alto is equal many times to a 50 to 75 unit apartment in the mid west.. I wish I still had the two homes I bought in Palo Alto in the mid 80s :) woulda shoulda coulda .. in all seriousness this is an excellent post and Oh so true.
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i'd start in a market in which you can be in person / hands on.
the dream of cheap cash flow monsters in the midwest doesn't work the same with interest rates where they are.
can you house hack? if you can, house hack.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Abe Rouz:
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!I have been involved with OOS west coast investors since about 2003 and still doing it to this day. My main advice to reap the benefits of OOS is to not buy based on first year proformas' either up or down but simply look at a market your interested in.. find out the median price ( if your doing SFR) and make sure you buy as close to median price as you can up or down a tad.. this becomes simply logic really.
If you take a mid west market and say the median is 200k for an SFR but this market also has SFRs for 75k and 500k.. who is living where.. what type of tenant do you think is going to be attracted to a neighborhood with 75k rental houses ??? and how are the schools going to be.. And pretty much for certain these days a vast majority of the 75k homes will be rentals Not enough owner occ's to create a sense of community and pride in up keep etc.. So my advice is try to buy at the median you will have owner occs your schools will be better etc etc.. much more secure long term wealth builder.. NOw if your looking for small multi units thats a different story but they will differentiate based on price and rents. and you want the higher rents and higher price points. Just sayin
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
Yep, I bought 2 SFR in the early and mid eighties and sold one in 2015 and the other in 2017. Both were south of SanFrancisco and the appreciation was like a fire hose! Cash flow can be good in some markets, it is not the best reason to invest in places like Silicon Valley.
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
i can't believe you're on the forums giving out this advice this free day after day =) I'm not the OP but will take the opportunity here to say THANK YOU for your ~39,000 contributions.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Bjorn Ahlblad:
Yep, I bought 2 SFR in the early and mid eighties and sold one in 2015 and the other in 2017. Both were south of SanFrancisco and the appreciation was like a fire hose! Cash flow can be good in some markets, it is not the best reason to invest in places like Silicon Valley.
SF bay area real estate set many people up for life.. no question. Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!I have been involved with OOS west coast investors since about 2003 and still doing it to this day. My main advice to reap the benefits of OOS is to not buy based on first year proformas' either up or down but simply look at a market your interested in.. find out the median price ( if your doing SFR) and make sure you buy as close to median price as you can up or down a tad.. this becomes simply logic really.
If you take a mid west market and say the median is 200k for an SFR but this market also has SFRs for 75k and 500k.. who is living where.. what type of tenant do you think is going to be attracted to a neighborhood with 75k rental houses ??? and how are the schools going to be.. And pretty much for certain these days a vast majority of the 75k homes will be rentals Not enough owner occ's to create a sense of community and pride in up keep etc.. So my advice is try to buy at the median you will have owner occs your schools will be better etc etc.. much more secure long term wealth builder.. NOw if your looking for small multi units thats a different story but they will differentiate based on price and rents. and you want the higher rents and higher price points. Just sayin
I appreciate you taking the time and replying with such important and insightful info. How would you go about assessing out of state multifamily which is what id like to get into to start off?
Do you work with OOS investors to help them locate deals? Whats your role? Would love to connect if so- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Abe Rouz:
Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!I have been involved with OOS west coast investors since about 2003 and still doing it to this day. My main advice to reap the benefits of OOS is to not buy based on first year proformas' either up or down but simply look at a market your interested in.. find out the median price ( if your doing SFR) and make sure you buy as close to median price as you can up or down a tad.. this becomes simply logic really.
If you take a mid west market and say the median is 200k for an SFR but this market also has SFRs for 75k and 500k.. who is living where.. what type of tenant do you think is going to be attracted to a neighborhood with 75k rental houses ??? and how are the schools going to be.. And pretty much for certain these days a vast majority of the 75k homes will be rentals Not enough owner occ's to create a sense of community and pride in up keep etc.. So my advice is try to buy at the median you will have owner occs your schools will be better etc etc.. much more secure long term wealth builder.. NOw if your looking for small multi units thats a different story but they will differentiate based on price and rents. and you want the higher rents and higher price points. Just sayin
I appreciate you taking the time and replying with such important and insightful info. How would you go about assessing out of state multifamily which is what id like to get into to start off?
Do you work with OOS investors to help them locate deals? Whats your role? Would love to connect if so
MF as in 50 to 100 unit or more apartment complex's or 4 plex so you can use govmit backed loans ? - 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesYou can get 3-5% in certain areas of Detroit. Bring your semi automatic weapon.
Quote from @Abe Rouz:
Good evening
I am looking to build a team and connect with others in markets that meet or exceed the 1% rule
Looking to build out a team of a real estate agent, lender, contractor, and property manager
Below is my buy box: duple to fourplex, meets 1% rule or more, off marketLooking forward to connecting with others! lets make it happen
- Looking to start off with multi family up to four units first prior to scaling.
Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!I have been involved with OOS west coast investors since about 2003 and still doing it to this day. My main advice to reap the benefits of OOS is to not buy based on first year proformas' either up or down but simply look at a market your interested in.. find out the median price ( if your doing SFR) and make sure you buy as close to median price as you can up or down a tad.. this becomes simply logic really.
If you take a mid west market and say the median is 200k for an SFR but this market also has SFRs for 75k and 500k.. who is living where.. what type of tenant do you think is going to be attracted to a neighborhood with 75k rental houses ??? and how are the schools going to be.. And pretty much for certain these days a vast majority of the 75k homes will be rentals Not enough owner occ's to create a sense of community and pride in up keep etc.. So my advice is try to buy at the median you will have owner occs your schools will be better etc etc.. much more secure long term wealth builder.. NOw if your looking for small multi units thats a different story but they will differentiate based on price and rents. and you want the higher rents and higher price points. Just sayin
I appreciate you taking the time and replying with such important and insightful info. How would you go about assessing out of state multifamily which is what id like to get into to start off?
Do you work with OOS investors to help them locate deals? Whats your role? Would love to connect if so
MF as in 50 to 100 unit or more apartment complex's or 4 plex so you can use govmit backed loans ? - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Abe Rouz:
Looking to start off with multi family up to four units first prior to scaling.Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
Quote from @Jay Hinrichs:
Quote from @Abe Rouz:
I really appreciate the insight. Since im young in my journey and want to start accumulating wealth long term, i believe one of the things to start doing is acquiring cash flowing assets. Where can one start? what markets? I have that understanding and am looking to invest in C, C+, to B- areas to start off, build a team and learn as I go
Appreciate your time!I have been involved with OOS west coast investors since about 2003 and still doing it to this day. My main advice to reap the benefits of OOS is to not buy based on first year proformas' either up or down but simply look at a market your interested in.. find out the median price ( if your doing SFR) and make sure you buy as close to median price as you can up or down a tad.. this becomes simply logic really.
If you take a mid west market and say the median is 200k for an SFR but this market also has SFRs for 75k and 500k.. who is living where.. what type of tenant do you think is going to be attracted to a neighborhood with 75k rental houses ??? and how are the schools going to be.. And pretty much for certain these days a vast majority of the 75k homes will be rentals Not enough owner occ's to create a sense of community and pride in up keep etc.. So my advice is try to buy at the median you will have owner occs your schools will be better etc etc.. much more secure long term wealth builder.. NOw if your looking for small multi units thats a different story but they will differentiate based on price and rents. and you want the higher rents and higher price points. Just sayin
I appreciate you taking the time and replying with such important and insightful info. How would you go about assessing out of state multifamily which is what id like to get into to start off?
Do you work with OOS investors to help them locate deals? Whats your role? Would love to connect if so
MF as in 50 to 100 unit or more apartment complex's or 4 plex so you can use govmit backed loans ?
PM me and I can give you a few ideas. - 3yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:
https://www.biggerpockets.com/member-blogs/3094/99854-deep-dive-into-metro-detroit-cities-ecorse
Our analysis is a template you can follow for any city, but doubt you'll find this much info for any other market in the US.
So, why would you invest remotely anywhere else?
How can we assist you further?
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