Cashflow Doesn't Build Wealth?

Cashflow Doesn't Build Wealth?

Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes

While cashflow is key to keep the property safely under control, I seem to find that the larger returns for our portfolio to date come from strategic growth of equity. My wife and I are still fairly small in our investing business and I want to ask if the long-term seasoned investors have found the same to be true, especially in the larger multi families, where value is more closely tied.

Example: A Current Deal We Are Wrapping Up:

My partners and I bought a home in Santa Cruz, CA in May 2011 for 389k and remodeled it. After a cash out refi where we had 108k of our investment left in the deal. Rented the pre-tax profits were $6,840 annually. That is a 6.3% return cash on cash, which in our area is basically a freaking miracle of the crash. I was only expecting 2.8% in my original performa. Haven't seen any deals like that since 2012. The property is being sold and closes in 5 days. For the three+ years we owned it, we basically accumulated $22,550 in rental profits.

In those three years, we saw some serious appreciation. You could call me a speculator, but the indicators were there. A strong job market (thank you silicon valley), a major university, over 3 million tourist annually (to a town of 50k residents), major agricultural center, amazing natural resources / extreme sports meca, a world famous brand and limited room for growth. Houses in a good neighborhood were being sold below replacement cost. I'd call that a strategic acquisition with strong potential for growth. Forcing equity through a remodel provided a nice bit of padding.

We are selling the house for the equivalent of 640k. Net proceeds of the sale minus cash invested is 168k. That is 155% return on investment (37% compounded annualized return). 

Even if I had ended up with a 0% cash on cash, I would still be doing a happy dance. I don't see cashflow deals offering anything in the range of that return

I imagine there may be a day when we need to convert our equity into cashflow. At that point, we will probably pivot again. 

So What Do You Think?

Brandon / Josh often seem to call equity investors gamblers on the BP podcast (although they mostly seem to be warning newbies not to buy stupid), but for those of us looking to build wealth, who are willing to do careful homework, learn the markets, do the deal analysis and make careful strategic plays, make sure we are not upside down or outside our fiscal means, my experience to date says investing in strong equity growth markets, perhaps despite their poor cashflows, seems like the strong play.

Alright, bring on the arguments and tell me where I might be right or wrong (especially as we are moving our portfolio into the larger apartment complexes)!

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Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
12y

I have a few dozen houses at any given time. As @Account Closed stated, one pile pays my bills and puts food on the table, the other pile is for horse trading. Your experience is EXACTLY why buying California property makes the most sense to me. People brag about their $300 cash flow from their dumpy *** $60,000 house out east of the Rockies. Really? I bought a few dozen houses back in 2009-2011. I'm now selling some of them off as they go vacant. The last house I recently sold, I paid $81,000 for it 4 years ago and just sold it for $274,900. On top of that phenomenal gain (approx $150K net), I collected $1,550/month rent from the same tenant all 4 years. 

Now, the naysayers be like "Well, that was the bottom of the market. That can't be done now!" 

I just closed on a nice Riverside house out by UCR. Paid $90K for it. My private lender wired $125K to escrow. I got a $28K refund check from escrow. (Read that as nontaxable income.) Property will rent for $1,700 when I'm done fixing it up. 

Have fun on your airplane ride and staying in Motel 8 naysayers.

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  • Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    12y

    It looks like we have to revisit this same hackneyed argument again.  I find it amazing how normally intelligent people can intellectually delude them self's when it comes to arguing for their own vested interest put forth as unbiased facts.  It must be a magic concurrence of events that the San Francisco crowd with the "appreciation is the only road to real wealth" chimes in on one side and the midwest cashflow posse serendipitously takes the opposite stance every time this issue is raised.  Obviously at some level of consistent cashflow vs. some rate of appreciation the truth of the better investment will become clear mathematically in retrospect.  In the mean time I think people should take some time to acknowledge their own self-deception when they take a hard absolute stances (almost religious) based on their vested local interests.

  • San Jose, CA · Member since 2011 · 160 posts · 167 votes
    12y
    Originally posted by @J Scott:

    In terms of the numbers, consider that a deal that meets the 2% rule and the 50% rule will -- by definition -- have a COC of 12%. Add in a reasonable amount of leverage from a portfolio lender (80% LTV, 6% interest, 15 yr amortization), and it's easy to get those deals to closer to 19% COC.

    That reminds me of some turnkey deals in Memphis. Houses sell for 35k a pop and rented out for 600. Not quite 2% yet. 

    Nothing against getting rich via cash flow. Just want to understand more how people achieve it. So does the 50% rule include bigger ticket items like roof and furnace? Are these deals turnkey or "some assembly required": bought from wholesaler in need of rehab? And what is the price point we are talking about?

    Kathryn also raised a good point. Cash flow is taxed right away but with equity you may never pay anything.

    There are certainly more than one way to skin a cat. Mapping to the financial world we have private equity people, people speculating in currencies, value investors like WB, etc etc. No need to fight any holy wars. Find your niche and excel in it. 

  • Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    12y

    @Albert Bui,

    Yes, this data is for the U.S. as a whole. I know that the net worth data is pretty accurate as the numbers matches of the Millionaire Next Door author, Thomas Stanley and IRS records, but for income I get two sets of data. The 2011 IRS records show the following break down for individual income tax filed.

    Top 1% $388,905
    Top 5% $167,728
    Top 10% $120,136
    Top 25% $70,492
    Top 50% $34,823

     I assume that in a high priced area like San Jose, New York, and LA $500k would put someone in the top 1% income earner, where as a more modest area like Atlanta, Raleigh, the top 1% income earner will be at $388,905, but I am not 100% sure.

     All in all, We need to try to increase our passive income and reduce our earned income as we don't pay FICA taxes of 15.3% on passive income, whereas in earned income we do. Once an investor reaches $100k net of passive income and beyond, It is the beginning of financial freedom. 


    Originally posted by @Albert Bui:
    Originally posted by @James Park:

    @Jon Klaus, Awesome link and article. I totally agree and enjoyed reading the article on "Focus On Building Net Worth Even More Than Growing Income" 

    Here are some additional information that matches the top % of income and networth.

                                                                                                Pecentile:

    Top 20% income : $108k         net worth $416,000           80%
    Top 10% income : $150k         net worth $952,000           90%
    Top 5% income : $210k           net worth $1,820,000        95%
    Top 1% income : $520k           net worth $6,820,000        99%

     HI James,

    Is this for the US as a whole ?

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Manch Hon 

     a 35k home in Memphis will not collect rent more than 6 to 8 months in any given year ... Even the folks that sell Memphis on BP will acknowledge 35k is not a consistent money maker.,  And from my experience owning hundreds of Mid west rentals and maybe 50 rentals in Portland OR.. cash flow is much more consistant on the west coast and repairs are less and we don't have the out right thievery that goes on in the mid west cash flow markets. 

  • San Jose, CA · Member since 2011 · 160 posts · 167 votes
    12y

    @Jay Hinrichs I was briefly tempted by those $35k Memphis houses. :) Thank God I did not pull the trigger. 

    Going back to the 50% rule. I just cannot wrap my head around it. A water heater costs about the same whether in California or Memphis. But rent here is MUCH higher. How can the same 50% rule cover both markets? If I have to repair a roof, I'd much rather repair roof over a 500K house than over a 50K house. The cost won't differ by 10X would it?

  • Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
    12y

    I guess I would be East of the Rockies. Lol.  I see no problem with hoping for appreciation if you can cash flow or have a good sized bank account set away to pay negative cash flow.  We are in an upswing right now with appreciation, but that won't last for forever.  Many different factors could change that like the national economy, interest rates, local laws, builders etc.  Many investors lost everything and went bankrupt betting on appreciation before the housing crisis. If they would have had cash flow, they probably could have survived it.  You see who the real investors are when things start getting bad just like the stock market. Everyone is an expert when it is going up and virtually impossible to guess wrong. 

    I bought 11 houses with about 280k cash the last 3.5 years. They provide about $60,000 a year after all expenses and have increased my net worth by $600,000.  Much of that through buying below market, making repairs and appreciation. If you buy right with cash flow, I see no reason not to go for appreciation too. If you have no cash flow, you better have the emergency fund to cover the costs if things go south.  

  • Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes
    12y

    @Manch Hon you have nailed (among a handful of other reasons) why I find all those % rules are basically deceiving. Each area has its own cost basis, its own nuances, and each owner has their own strategy. Julie & I like what she calls rental chic. Better tenants, more stability, but more cost. The expense of replacing a fridge in a C class apartment where you buy a refurbished white freezer top small sized fridge ($300-400) Vs replacing a side by side stainless steel fridge in a top line vacation rental ($2k+) is not apples to apples. I just trust my spreadsheets and my reserve studies and take the time to put the math in place.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Manch Hon 

      and let me know the next time one of your Bay area rentals gets it air conditioner stolen and when you are going to bar the doors and windows.. Then let me know when your bay area home there in Cupertino gets all its copper ripped out... And when thieves brake in multiple times while your trying to rehab it ( see another BP post of a nice lady experiencing that) and let m know when you have to buy security systems so your houses don't get trashed.. Or when your front door is kicked in because some crack head wants to steal 5 dollars worth of copper.. ETC ETC.. this is reality in the low end markets in the bigger east coast and mid west markets were houses sell for 35k.

    Now you can find mellower towns hey being little satellite towns were this criminal activity is not as acute.. but the rents are still sporadic. I have a duplex in Kokomo IN. no thefts but we pay hell getting the rent every month.. and If I get rent 6 months of he year then that's about what I expect.

    Those that live and work these markets are on them like a hawk and its their business they can make it work but a busy engineer sitting in Palo Alto and relying on a third party that's another story.

    On my thread were I am giving out my e book  on the do's and don't of out of state investing my personal experience's of owning hundreds of these and foreclosing on hundreds more.. I got a ping from one of the prominent  Memphis turn key guys.. And as wet talked it through he said he will not even manage a 35k home ... I mean be logical what PM wants to walk into constant drama constant thefts constant evictions and down right dangerous circumstances.. If I was in those markets in the PM business I would consider those type of properties asset management not PM management and I would charge 200 a month flat fee regardless if I collected rent.. You need the battle pay to put up with this type of inventory

  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    I can vouch and say with certainty that no out of state investor will win long term on homes in the $35k range. It's hard enough for locals to make it work. 

    Curt Davis - KAIZEN Realty538 Reviews
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Mark Ferguson 

      I personally do not consider CO mid west and the correlation between mid west rust belt rentals is not there.. I doubt you can drive down many streets in Denver and see boarded up home after boarded up home.. And buy homes for 5 to 10k or 20 to 30k..

    Your market in my mind is a west coast market just sitting east of the Rockies.. by  the way I spent a lovely year at CMC Leadville in 1974.... LOL

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    12y
    Originally posted by @Manch Hon:

    Going back to the 50% rule. I just cannot wrap my head around it. A water heater costs about the same whether in California or Memphis. But rent here is MUCH higher. How can the same 50% rule cover both markets? If I have to repair a roof, I'd much rather repair roof over a 500K house than over a 50K house. The cost won't differ by 10X would it?

    Are you saying that rents are 10x higher in CA?  The 50% rule is based off of gross rents, and based on my experience, gross rents in the Bay Area are probably about 2.5 - 3x what they are in my current markets.  As for the cost of replacing a roof in the Bay Area, I'd say the cost is likely about 2-3x what I'd pay in my market, so yes, from a capex standpoint, the rule likely holds.

    The big reasons being:

    -  Workers Comp is *RIDICULOUS* in California

    -  Materials are more expensive in California (costs tend to increase as you move north and west)

    -  Labor prices are more expensive in California (contractors have a higher cost of living)

    Put those together, and it's not at all unreasonable that you're paying $400/square for a new roof in CA while I'm paying $150/square for a new roof in Atlanta.

    That's just capex.  In my experience, taxes and insurance are 2-3x higher, property management scales linearly with gross rents, and repairs are likely similar in differential to capex.

    So, the fact that 50% rules scales in CA makes perfect to me...

  • Rental Property Investor · Las Palmas de Gran Canaria · Member since 2014 · 220 posts · 256 votes
    12y

    @Mark Ferguson I've been following the same pattern and have seen our net worth go up nearly 1.5M in the last 3 years. It has been a genuine boon to our family and makes the possibility of retirement real. 

    That said, I am really not a fan of negative cash flows unless you have a clear short term plan to remediate. The risk simply is not worth it. I saw too many people get wiped out in 09/10. The key here is to actually know what your cashflow is an be able to project it accurately. I've met with a few new investors this year and when I look at their pro-formas, I get nauseous. But, once we are truly positive, then I'm pretty happy. 

    Honestly, even if we miss an upswing and have to camp out, as long as I bought in a reasonable community and have good tenants (part of our strategy), then they can buy me the property over time and I will at least beat appreciation. 

  • Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    12y

    I can't talk for everybody but I am saying that APPRECIATION needs to be considered for profitability.  To totally ignore 20-30-40-50-60 years of data is ignorant.  And it dosen't have to be West coast data unless that's your neighborhood because EVERY NBHD has its own appreciation rate.  

    Noobies also need to realise that 2% areas are created because REAL INVESTORS are only willing to invest in those areas at a little over 4 TIMES the gross rents.  WHY?  Because the expenses will consume alot of the income and the ability to collect that income is considered to be very risky!  Can any Immediate CASH FLOW advocate give a better reason?  

  • Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    12y

    I think both cash flow and appreciation is very important. In Real Estate Investing, wealth is built from appreciation, cash flow, amortization of loan, and depreciation. Over time, I have seen that appreciation is where the real wealth is built. 

    Personally, I prefer 10 emerging "A" SFR $200k assets, over 20 "B-" $100k SFR assets, over 40 $50k "C" SFR assets. Honestly some cheap assets in Paulding and Henry County scare me as there are more 30% institutional investors present in each of these two counties.

    The $50k "C" assets remind me of REIT funds like ticker symbol: AGNC and MORT. High dividends with potential of the assets deteriorating in price over time. An emerging "A" asset is like an up and coming Apple stock with great appreciation potential that also pays good dividends. I would like to own 10 emerging "Apple" SFRs and hold them until retirement. As we already had long discussions on this the appreciation topic, I am one of those investors who believes that faster than normal appreciation can be predicted in certain emerging real estate markets with thorough research and demographics studies.

    Also unless you are an investor like @Jay Hinrichs who has more than 35 year of experience in this industry, I am a strong believer of concentrating my real estate investments into 1 or 2  farm markets. No one can be an expert in every real estate market so try to get your PhD in 1 or 2 markets and master that market. I think for a newbie investor, the risks are very high to spread yourself too thin investing in 3-5  turn key markets without doing your home work.

  • Memphis, TN · Member since 2013 · 969 posts · 524 votes
    12y

    @Jay Hinrichs 

    I must respectfully disagree with you on your comment....

    "a 35k home in Memphis will not collect rent more than 6 to 8 months in any given year ... Even the folks that sell Memphis on BP will acknowledge 35k is not a consistent money maker"

    I have consistently made money more than 6 to 8 months in any given year on the homes I sale for $30-$50k... actually I have made money consistently more than 4 to 6 years straight on the homes I sale for $30-$50k!!! I will tell you the #1 reason I have been successful in doing so is I only look for Section 8 Tenants to rent these homes to. I am a PRO section 8 Tenant Landlord/Investor because I have never had to take the government to court due to non-payment of rent!! I respect all your knowledge and experience in real estate and what you bring to the  BP forums because I read a lot of them and you are totally correct on most of them, But this one in my business and professional opinion I am one of the Memphis folks here on BP and I DO NOT acknowledge $35k homes is not a consistent money maker.. It is a VERY VERY consistent money maker for me and my investors and it has allowed me to quit my 6 figure ($150k) 12 year career with Wells Fargo... Please don't take my comments/opinions as offensive because I am not that type of guy.

    @Manch Hon 

    I totally understand your reason for not pulling the trigger on the $35k deal. Different strokes for different folks-We all have to do what makes us feel comfortable in all things we do especially REI.. What company or individual were you looking to purchase it from... Was it a turnkey, individual owned, MLS deal???? Just wondering If you don't mind me asking...

    "It always seems impossible until it's done"

    By: Nelson Mandela

  • Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    12y
    Originally posted by @Manch Hon:

    @Jay Hinrichs I was briefly tempted by those $35k Memphis houses. :) Thank God I did not pull the trigger.   If I have to repair a roof, I'd much rather repair roof over a 500K house than over a 50K house. The cost won't differ by 10X would it?

    But if you had $500,000 worth of $50,000 houses you'd have TEN roofs to replace!  YUCK, who moved my cash flow?

  • San Jose, CA · Member since 2011 · 160 posts · 167 votes
    12y
    Originally posted by @Derrick Craig:

    @Manch Hon 

    What company or individual were you looking to purchase it from... Was it a turnkey, individual owned, MLS deal???? Just wondering If you don't mind me asking...

    I'd rather not rat them out. It's a pretty small turnkey shop. The person seems to have a lot of integrity. You point about Sec 8 rings true. In lower end markets it's safer renting to Uncle Sam.

  • Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    12y
    Originally posted by @Kathryn M.:

    @J Scott  said:

    Let's say someone in my area takes that same $100K and leverages it across multiple properties in an area where he can get 15% leveraged COC return, but only 2% appreciation (assume it holds steady with typical inflation). The $100K invested at 15% COC -- and assuming the cashflow can be reinvested at the same rate, just like your scenario -- will be worth about $813K in 15 years -- for a gain of $713K.

    Hi J. Scott,

    Do you know of a work around for CA investors who lose up to 50% (a little more) on rent re-investment for your second scenario? Whereas appreciation gains stays untaxed until sale (possibly never if held until death).

    There are a lot of ways to reduce the tax bite on this cash flow here are a couple ideas:

    - Contribute to your 401k up to the max limits but then you lose the liquidity on your money till 59.5 yrs old (10% penalty) this will give you a tax deduction on the rental income

    - if feasible and building is large enough it might make sense to complete cost segmentation on the useful life on the building components so you can depreciate them faster. This allows you to claim a larger depreciation loss in the first 5-15 years of your ownership. This is tax deferral not tax free strategy but with 1031's you can defer till you die

    - Find equity growth focused properties to still create a little cash flow or at least break even cash flow wise to use the property's depreciation loss on paper to  offset your other properties net positive cash flow to create a "wash," in taxable income

    Plus you'd have to be at 400k single and 450k married to be near or over the 50% tax bracket (39.6% fed + 10.3% CA + 3.8% obummer tax) @400-450k.

    As for growth while your money is sitting on the side lines there are options available.

    (above is just tax info not tax advice in any way).

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Derrick Craig 

      point taken... although its an art what you do if you get those properties to perform that way and I bet you work as hard if not harder than you ever did at Wells...

    And I agree if I lived in one of the mid west towns  and could get the buys you local guys get I would own 500 of them. have the business scaled and have middle management so I never EVER had to deal with a tenant. What I don't agree with is that someone from out of area is going to create wealth by owning 1 or 2 or half a dozen of these homes compared to nicely purchased assets on the west coast.. again based on my experience of owning rentals in ORegon and a few in CA.  The major thing with the BAy area and it cannot be over looked is that the 500k exemption when you sell a home ( if your married ) Is tax free and that is huge.. I did it 4 times in 30 years.. And I had to live someplace right.. Just would not happen or will never happen in most mid west markets.. Save the better high end areas of Chicago, and New York

    I did that very thing I bought 350 of them they were C and B  I sold my position in Oct Last year.... I like a nice liquidity event as opposed to dripping in income.. But that's just me.

    However you must admit that what I talk about happens every day of the week in your market at those price points.. IE condenser getting stolen.. Needing to cage condensers. and other issues.. Sec. 8 is fine I had 200 of them.. and I agree but its 1k to 2k a year easy to keep those homes in the program...

  • Rental Property Investor · San Marcos, CA · Member since 2014 · 58 posts · 29 votes
    12y

    Why just pick one investment method????

    I own rental homes in both cash flow markets (Kansas City,Texas, and Indianapolis) and appreciation markets (Las Vegas and San Diego).   I believe both have their pros and Cons so rather than try and pick one I diversify. 

    The properties in the Midwest vary from a 26k home that rents for 650/month to a 85k newer build (2003....appraisal for 125k when I bought) that rents for 1200 per month and everything in between. 

    I have had my problems in the appreciation markets (tenants trashed the place and stole all the appliances) and the cash flow markets (hail damage, trees falling on houses/cars etc. )

    I wouldn't say one is "better" than the other, but I do believe I diversify my risk by being in different markets. 

  • Madison Heights, MI · Member since 2014 · 472 posts · 132 votes
    12y
    Originally posted by @Account Closed:
    Originally posted by @Manch Hon:

    @Jay Hinrichs I was briefly tempted by those $35k Memphis houses. :) Thank God I did not pull the trigger.   If I have to repair a roof, I'd much rather repair roof over a 500K house than over a 50K house. The cost won't differ by 10X would it?

    But if you had $500,000 worth of $50,000 houses you'd have TEN roofs to replace!  YUCK, who moved my cash flow?

     It's not so bad. I wouldn't mind having $500,000 worth of $20,000 homes. Sure, you have 25 roofs, but also 25 units paying an average of $700 per month (depending on the city). With a payback period of only a few years, who cares if the roofs need to be changed? A properly installed roof can last for a couple decades or more.

  • San Jose, CA · Member since 2011 · 160 posts · 167 votes
    12y

    @J Scott What is the price range of your Atlanta property? And how much is the property tax rate? What does the rental number look like?

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Wilson Churchill 

      I am all for locals that live in a market loading up on rentals and cheap rentals as they are in a position to make them work and over see them.. The issue comes from those that are out of area and thinking they are going to create some great wealth strategy buying 2 to 5 cheapie rentals... the pain to get to the wealth component usually outweighs the benefits.

    there was a thread a month or so back were a person ask anyone who had own Mid west cash flow rentals for 10 years or more and lived out of state to chime in about their experiences there was either no one or maybe one or two.. the reality is for those living 4 states or 5 states away this is just a really tough road to hoe... There is a thread today on BP of a person who owns a home in MI he owes 44k on it tenant trashed it needs 7k to be rentable yet again.. and he is at last out of money because of this one property, and to make matters worse he financed it with a national lender so his credit is at risk the best offer he can get of course is from a wholesaler for 17k this scenario happens hundreds of times a week in the mid west it JUST DOES  but we never hear about it we only hear about the blue sky and those that sell the dream...

  • San Jose, CA · Member since 2011 · 160 posts · 167 votes
    12y

    @Jay Hinrichs You are the anti-turnkey. LOL

    I agree 100%. There is really no reason for Bay Area investors to invest out of state. If you want to buy cheap and cashflowing houses go take a look at Central Valley. Any town up and down Hwy 99. You can even go fix the toilet if it comes down to that. 

  • Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    12y
    Originally posted by @Wilson Churchill:
    Originally posted by @Account Closed:
    Originally posted by @Manch Hon:

    @Jay Hinrichs I was briefly tempted by those $35k Memphis houses. :) Thank God I did not pull the trigger.   If I have to repair a roof, I'd much rather repair roof over a 500K house than over a 50K house. The cost won't differ by 10X would it?

    But if you had $500,000 worth of $50,000 houses you'd have TEN roofs to replace!  YUCK, who moved my cash flow?

     It's not so bad. I wouldn't mind having $500,000 worth of $20,000 homes. Sure, you have 25 roofs, but also 25 units paying an average of $700 per month (depending on the city). With a payback period of only a few years, who cares if the roofs need to be changed? A properly installed roof can last for a couple decades or more.

     Please show me a NBHD of $20,000 homes that can collect $700 a month regularly.

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