Best passive way to earn cash flow
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Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
2yOne thing that hasn't been mentioned yet is dividend stocks. Most investment vehicles RE-related aren't truly as passive as advertised in my opinion (with syndications you've got to put in the work vetting sponsors (a lot of them are having trouble recently, and it's not passive for the investor when the syndication starts having capital calls or stops distributions...), and with private lending you've still got to have some experience and understanding of the risk, know how to protect your principal investment, know how to set up the loan terms and contracts to protect your capital, and know what to do in case the borrower isn’t able to perform).
51 Replies
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Venkat P.:
Quote from @V.G Jason:
You don't want to buy hard assets if your desired goal is instant cash flow(sub 2 years). Go buy the note behind the property.
Hard assets are the best investment overall, just not in that time frame.
Thanks. I understand that my question purely says cash flow but I am also interested in pushing out my time frame if I could get cash flow along with appreciation. Would your response change if I change my timeframe to 5 years and still aim for 2k/month cash flow?
No, because such a short time frame it's almost impossible to predict what will happen.
Personally, I would not invest in something I would not be willing to weather & hold for at least 7 years. Ideally north of 10 years. The time being is that's usually when you'll see most of an economic cycle. With real estate, I believe the floor should be closer to 15 years but can start trading equity in year 7-8.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @V.G Jason:
Quote from @Venkat P.:
Quote from @V.G Jason:
You don't want to buy hard assets if your desired goal is instant cash flow(sub 2 years). Go buy the note behind the property.
Hard assets are the best investment overall, just not in that time frame.
Thanks. I understand that my question purely says cash flow but I am also interested in pushing out my time frame if I could get cash flow along with appreciation. Would your response change if I change my timeframe to 5 years and still aim for 2k/month cash flow?
No, because such a short time frame it's almost impossible to predict what will happen.
Personally, I would not invest in something I would not be willing to weather & hold for at least 7 years. Ideally north of 10 years. The time being is that's usually when you'll see most of an economic cycle. With real estate, I believe the floor should be closer to 15 years but can start trading equity in year 7-8.
^^^^This right here... B-I-N-G-O....
7e investments53 Reviews - Real Estate Broker · Modesto, CA · Member since 2023 · 192 posts · 77 votes2y
Quote from @Venkat P.:
Quote from @Nick Maugeri:
Quote from @Venkat P.:
My wife and I are just starting in the rental RE. We have purchased a SFR (cash negative) in Sacramento, CA area few months ago. We know that it is currently cash negative but given our income from W2, we are able to cover that for now . The goal then was to build some equity on it long term and refi when the rates go down.
Looking for the next investment suggestions. We do not want to take another cash negative property, so looking for cash positive options. We have reserves to do 20% down on ~500k properties. The goal for us is to scale our investments so we can get around 2k/month in the next 2-3 years
Hi Venkat, I am anxious to help build this out with you. I help a lot of investors in this situation and am fortunate enough to be in a market with good appreciation and rents. I help a lot of investors that get into similar situations get out of them. I have references I am happy to share that are from the Bay Area and surrounding areas. The most recent deal I helped someone purchase will generate around 12K annually for them - duplex.
What you are desiring requires much more underwriting and planning than buying a cashflowing property - especially with that timeline. You need to purchase and build with a 1031 exchange scenario unless you have continued capital to expand. Ensure that you are buying something in a market that is not stale. Happy to connect and will send a DM!
Interesting. Would like to know more about the approach you took with others
It's the 1031 exchange or BRRRR amplified - depends on the market you go in and strategy you want. MTR in Modesto provides good cashflow but a diminished COC because of the capital required. I sent you a DM, feel free to schedule a time for a call and see how I can help
- Member since 2024 · 15 posts · 3 votes2y
Quote from @Nick Maugeri:
Quote from @Venkat P.:
Quote from @Nick Maugeri:
Quote from @Venkat P.:
My wife and I are just starting in the rental RE. We have purchased a SFR (cash negative) in Sacramento, CA area few months ago. We know that it is currently cash negative but given our income from W2, we are able to cover that for now . The goal then was to build some equity on it long term and refi when the rates go down.
Looking for the next investment suggestions. We do not want to take another cash negative property, so looking for cash positive options. We have reserves to do 20% down on ~500k properties. The goal for us is to scale our investments so we can get around 2k/month in the next 2-3 years
Hi Venkat, I am anxious to help build this out with you. I help a lot of investors in this situation and am fortunate enough to be in a market with good appreciation and rents. I help a lot of investors that get into similar situations get out of them. I have references I am happy to share that are from the Bay Area and surrounding areas. The most recent deal I helped someone purchase will generate around 12K annually for them - duplex.
What you are desiring requires much more underwriting and planning than buying a cashflowing property - especially with that timeline. You need to purchase and build with a 1031 exchange scenario unless you have continued capital to expand. Ensure that you are buying something in a market that is not stale. Happy to connect and will send a DM!
Interesting. Would like to know more about the approach you took with others
It's the 1031 exchange or BRRRR amplified - depends on the market you go in and strategy you want. MTR in Modesto provides good cashflow but a diminished COC because of the capital required. I sent you a DM, feel free to schedule a time for a call and see how I can help
Thanks.
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
thanks for the sanity. a lot of posters act like private lending is equivalent to a savings account (it's not) or that it's a beginner strategy (it's not.)
OP is asking for a low risk way to earn $24,000 a year within 2 years on $100,000 in capital. short answer: there isn't one.
there are numerous moderate and high risk ways. lots have been mentioned. if you want to invest directly in RE, do a BRRRR and return all your capital (very difficult, high risk.) buy an STR and get that return (very difficult, high risk).
you need to want one of these strategies and be willing to immerse yourself in it. we'd all love risk free 2k/month.
- Member since 2021 · 13 posts · 30 votes2y
I invested in a 7 year note. My monthly return is 15% with a 5% bonus at the end of the 7 years. This is net since there aren't any monthly expenses. Completely passive. You're not building equity like you would with a home, but with a note you don't have to do any work. I used my solo 401k to pull the cash out, and I have the interest going back into it.
- Member since 2021 · 54 posts · 26 votes2y
Quote from @Stephanie Menard:
I invested in a 7 year note. My monthly return is 15% with a 5% bonus at the end of the 7 years. This is net since there aren't any monthly expenses. Completely passive. You're not building equity like you would with a home, but with a note you don't have to do any work. I used my solo 401k to pull the cash out, and I have the interest going back into it.
You mean you HOPE all that comes to pass over the 7 year period. It’s not so matter of fact as you make it. Notes are risky (even more likely so at 15%) and you are locked in for the duration.
- Member since 2021 · 13 posts · 30 votes2y
Quote from @Bryan H.:
Quote from @Stephanie Menard:
I invested in a 7 year note. My monthly return is 15% with a 5% bonus at the end of the 7 years. This is net since there aren't any monthly expenses. Completely passive. You're not building equity like you would with a home, but with a note you don't have to do any work. I used my solo 401k to pull the cash out, and I have the interest going back into it.
You mean you HOPE all that comes to pass over the 7 year period. It’s not so matter of fact as you make it. Notes are risky (even more likely so at 15%) and you are locked in for the duration.
I know there is a risk as there's a risk for most investments.
- 2yJake AndronicoBusiness MemberRealtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
Welcome! I'm just over the hill in Reno, NV but visit Sac often. There's an off-market duplex for around $500K that we know of that is currently rented for $3,200. That may be an option if Reno is on your radar.
If not, no worries.
To be transparent, 20% down breakeven or cash flow is extremely difficult. We're seeing breakeven around 25-30% on SFR's and small multi. Assuming similar in Sac but there are great agents on here from that area who can give more insight into that market.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
How is @Stephanie Menard 's 7yr Note so bad for being "locked into the duration?" You buy a property you are locked in a for while. You don't know when or how you will be able to sell again. If she is done her homework, that note could work out really well.
The debt market is orders of magnitude bigger than the equity markets. If one needed the cash, just resell the Note.
- Investor · Naples, FL · Member since 2016 · 256 posts · 75 votes2y
@Chris Seveney
This
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Stephanie Menard
Nice
What could create a little controversy is lockup periods
When I speak to higher net worth people they LOVE lockup periods ? Why? Because typically a lockup period is based on a plan for that business AND it makes the investor more disciplined.
A lot of “newer” or inexperienced investors don’t like lockup because they want freedom to control their money. I would bet most who have that freedom end of chasing shiny objects and make less overall
Another way to think about it is stock investing, if you are constantly changing your stock picks versus riding out a specific portfolio my guess is those that do nothing win (in normal economic conditions even like today)
You are far better off picking the right horse and sticking with them than constantly chasing the next shiny object
7e investments53 Reviews - 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
can you explain? he means NET cash flow. no one is getting $2K net unless it's a short term rental. and not with 40K in a market they don't know.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
Is that just a typo? $400k, or $40 ten thousand? I could possible see $400k in the houston market. 2k/mo, perhaps with an all cash deal? Please clarify. Thanks.
- Investor · Houston, TX · Member since 2022 · 24 posts · 9 votes2y
@David M.
sorry，it’s 400k. In some tier A area of houston.
You can get new construction 4-5b at 37-40w. And if you rent to section8 tenants. The max rent you can get for a 5b is $4600. Which will net gain around 2k cash flow a month.
If someone interested. I can help. I’m a investor focus on long term cash flow and have agent license.
- Investor · Berkeley, CA · Member since 2018 · 14 posts · 10 votes2y
Hi looks like you got a lot of sound advice. Here’s my humble advice. If you’re just getting started with RE investing I think you need to readjust your expectations. You can’t buy $500k houses to rent out and expect $2k cashflow in 2-3years unless you’re doing active short term rentals. There is nothing passive about that. If you’re looking to invest in CA passively, you should expect to be cash flow negative for many years, understanding that you’re in it for the appreciation. Im in CA and I invest passively outside of CA, because I wanted cash flow. I started about 6 years ago, so it was a lot easier back then.
I understand that $500k sounds cheap to Bay Area folks (I’m one of them), but it isn’t when it comes to passive real estate investing. You need to pivot your strategy or adjust your expectations. Good luck!!👍🏼
- Investor · Redmond, WA · Member since 2014 · 23 posts · 11 votes2y
Hi @Venkat P. I was in the same boat as you. I've been investing in single family and small multis for 6 years. Equity growth has been great, but even buying well (1% rule etc) the cash flow is very uneven. . You will be disappointed in the cash flow. The other issue is the more properties you own directly, the larger the headache. And now with both high interest rates and high prices, finding cash flow in good neighborhoods is hard. Yes, you can find them, but they are likely to be in worse areas that will create more headaches.
We have been shifting to multi-family syndications. Some of them are in trouble now (as discussed above, but there are still excellent operators and there will be some great deals coming in 2024/2025. Here is one way to get to 2k per month of STABLE cash flow. Invest in 3 separate syndications with $100k each ($300k total but you could start with $100k). Find deals that will get you 8% cash on cash (very doable). $300k x .08 = $24k per year or $2k per month. Plus when they sell the property you get the big equity payoff, meeting both your cash flow and equity goals. It's also 100% passive, although you do have to vet the syndicator and deal upfront like mentioned above.
Also, quick thoughts on note investing (which I have done too). Steady cash flow is great but two issues: 1) When you are paid interest that's taxed as income - so the after tax note income takes a ~30-40% hit. So I put mine in a self directed IRA (but that means I can't access the cash flow for a while). Second is there is no equity upside. Compare that with syndications - the income you get from syndications is usually zero tax due to depreciation (that gets recaptured later but there are ways to defer). And the biggest payoff with syndications is the equity upside down the road.
Happy to discuss more
- 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
How much are you losing per month and how long do you expect to see negative cash flow?
Can you pull any equity out of your current deal? What do you expect the appreciation to be when you exit?
As others have mentioned there are some out of state options that will cash flow better. In Reno Tahoe Nevada we don't see the same cash flow as the Midwest but there are some cash flow properties with 20% down on 500K. It's a much stronger appreciation market over the next 3-5 years which usually a greater pay day when you sell. Where as a place like OH might give you the short term cash flow you are looking for.
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
If you want immediate cash flow right now you're going to have to go to FRESNO bearing in mind that the cheapest segment of the market is typically the highest cash flow AND slowest appreciation. Think condos/mobile homes under 200 if you want to see $$$ coming off it in the first year.
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes2y
Quote from @Lily Wang:
@Venkat P.
It’s possible to buy a house in some parts of houston under 40k and get cash flow close to 2k/month from just one rental.
I don't think that's the case. At least not now. You can't even find $40k/door apartment buildings (even C buildings in C areas). I just went under contract to buy a pretty busted up place and it's $50k/door and $750 rents.
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes2y
FYI if I was in your shoes, I think the best thing to buy right now are some of these NNN retail deals. Stores that have protection against Amazonification.
I have some NNN retail properties in Houston. Small strip center. One of them has a convenience store + barber shop + auto inspection (amazon can't displace those). Another has a scratch-and-dent appliance shop and, lets just say, an adult novelty shop.
Anyway -- neither of them look pretty. But both are right off the freeway and were 8 caps even when I bought them (a few years ago when banks paid 1% on your $ at best).
You can find 8+ cap NNN retail deals that will be as close to "mailbox money" / passive income as you can get. Few things to look out for:
1) Make sure the rents they're paying are under market. You don't want a property that's a high cap rate but if a tenant were to leave, you'd not be able to find someone to pay the same amount
2) Make sure the businesses are something that can't be easily replaced by online
I'm honestly surprised you can still 'get away' with finding such high cap deals. I'd have thought enough demand would be there to drive down returns. I'd buy more of them (vs. apartments) but it's just too hard to find big deals like that. BUt if you have a few hundred grand to put down and can use leverage for the rest -- that's the best bet (IMO) - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Lily Wang:
@David M.
sorry，it’s 400k. In some tier A area of houston.
You can get new construction 4-5b at 37-40w. And if you rent to section8 tenants. The max rent you can get for a 5b is $4600. Which will net gain around 2k cash flow a month.
If someone interested. I can help. I’m a investor focus on long term cash flow and have agent license.
You're about to get checked here. None of that adds up.
Tier A in Houston is Piney Point, River Oaks, West U, Camp Logan. After that you're looking at Museum District, Montrose & the Heights and after that you got Rice Military in Houston. You can't even buy 5000 sq ft for less than $700k in the tier a areas, and less than $400 in latter areas. Go find an open lot in the primo areas of Houston and you'll see it's anchored with an architect to build it. You don't lease to section8 in these areas, too.
You're talking probably Third or Fifth Ward. Which is where the common OOS looks because it's proximity to downtown, but without understanding it's the hood. It's Grade C- at best, more so F for Houston. OOS go airbnb here cause it's close to NRG, Toyota Center, George R Brown, but you go check how little 77004 goes in recessions. East Downtown and the fifth ward have been talked about as the new next thing for over 20 years in Houston. You lease to section 8 here, more so to Sunnyside and less hood as we get into Eado but still hood, for sure.
I feel bad for little Rupert with his little, small $80k downpayment blowing it on a third ward airbnb and asking why his occupancy rate is sub 60% being managed by someone who has 10 units in the area and 4 are theirs, so obvious preference and conflict of interest. I've talked to too many Ruperts about this, in other states, that invested in Houston. Once they hear me, they get real upset about how they got duped. And this is how they get duped.
This is not tier A and completely false advertising. Lots of agents in Houston dupe people into thinking this, but I know Houston well and know better. Agents just running amuck with this nonsense. I know Cody above my post is large MF player in Houston, but SFR wise this is how it is.
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