When would you buy a property with a negative cashflow?
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I’ve made to use a scientific/financial term, I’ve made a “boatload” of money on a property with negative $80-/mo cash flow. And not even the easy way where you buy for way under market. (Who wouldn’t buy a negative cash flow property for $100m off?)
I go by actual profit. The principle portion was $1500+ the first month. So I was $700/mo to the good and only getting better. Add a couple hundred a month in rent increases every year and 10 years later I have a paid off $700k property. I put $100k down, an average of say $400/mo or $5k/yr. For 10 years. So another $50k. For $150k I have a paid off $700k property.
All of this was beyond tax free. I paid negative taxes after depreciation until the 7th or 8th year. Your wealth will not come from cash flow. Until a home is paid off all the real wealth will come from appreciation. (Especially when calculated not against it’s value but your cash in the deal.) I’ve said if before and I’ll say it again. If you NEED a property to cash flow $200 to afford it, you’re not ready for real estate. You just aren’t. One major repair, one long vacancy and all your “needed” cash flow is gone.
Treat these rental properties as investments like your retirement accounts. They don’t cash flow ever. But you’re still told by financial experts/advisors to stick hundreds of thousand in to them and pray for appreciation.
Cash flow is only one TINY way rentals make you money. I don’t know why there are only cash flow fanatics. No depreciation, loan pay down, tax advantage fanatics.
Good luck whatever you do but assume most people telling you not to do something haven’t done it themselves. It’s like when your friend says “Ferraris break down all the time…”. When you ask how many they’ve owned, how many their friends own, and how many they’ve repaired, or even seen broken down. You hear a sad little “zero”.
88 Replies
Quote from @Bruce Woodruff:
Only if you could see a guaranteed huge appreciation coming in the next 2-5 years....
Like 200 - 300 %......
What do you think ab the Maricopa county? Because thats where the house is at
Well this is heresy on BP and I'll probably get crucified, but I don't really care whether or not a property cash flows a couple hundred bucks or not. In fact my favorite and best performing property had negative cashflow to the tune of ~$1,000 per month for the first several years. Why did I buy it?
1. Location. It's a Class A property in a great location where I knew there would be steep appreciation and increasing rents. It wasn't speculation, mind you, just good old-fashioned local market knowledge and education on the strong underlying fundamentals (jobs, population growth, desirability, affordability).
2. I bought it for $150k below appraised value.
3. Existing rents were well under market rates.
4. I knew it would rent well, have low vacancy, and be easy to manage (again, great location).
5. My plan is long term wealth building and wealth preservation.
6. I didn't need the cashflow.
7. I liked the property (it's classy).
Now that I've had it a few years, it's cash-flowing $2,500/month thanks to rent increases (good location= steep rent appreciation). That's nice and all but nothing compared to the equity I've gained through appreciation combined with principle pay down, which is now just shy of $1M, which breaks down to $12,000 per month. Subtracting the additional $30k I put in when it had negative cashflow, that's still $11,500/mo. That's not including tax benefits.
So which would you rather have?
1. A few hundred bucks a month in cash flow day one (but not much appreciation over time because you have to buy in a worse location to get that, your property value might increase enough to just barely keep up with inflation or may even be negative because these markets are historically boom/bust)
or 2. Negative $1,000/mo cashflow for 3 years then $2,500/month cash flow after that plus $11,500/month appreciation in year 7 because you bought in a good location?
Different strokes for different folks. Some play checkers, others play chess.
If you need the cashflow to make the payments, then you should stick with cash flowing property. However if your goal is actual wealth building (or wealth preservation), and your investment strategy isn't reliant on whether or not you get a few hundred bucks coming in every month right away, then you might consider buying in a better location where cash flow will be less positive up front but appreciation will be greater. Cash flow will come in time from more rapidly increasing rents and overall performance over time will be much better. Plus less turnover, fewer tenant issues, and less severe headaches.
Not to mention that a lot of these "cash flow markets" don't really cash flow in reality because the cost to maintain these properties often exceeds the rents. These markets are revolving doors with properties being resold every 2-3 years to new green investors looking for cash flow, who don't realize what it costs to maintain a property or that their budget of $50/month for maintenance, repairs and capex is not nearly enough ($300-500 is more like it, that's why rents under $1,500/door typically have no margin for error). Or they only have 5-10% vacancy factored in to the magic cash flow spreadsheet. One non-paying tenant that needs to be evicted or one unexpected capex issue crushes that $200/month cash flow and sends the property negative for years. A big unexpected $30k issue (I've had several) will take decades to recover from. It takes people a few years to realize this before they sell to the next person who doesn't yet realize this. True story.
I'm in a market where actual billionaires buy multifamily properties as 3-caps as soon as they come up for sale (which they rarely do). These buildings don't spin off positive cashflow using the BP calculator even with 50% down. These billionaires aren't stupid. So why do they buy these buildings with no cash flow? Because they don't care about cash flow, they just care about long term wealth building and wealth preservation. It's a location where appreciation has been consistent for the past 60 years (even during the global financial crisis 2008-2010 when many markets crashed by 50%, this market continued going up). If that's speculation, then so is thinking that rent will come in consistently every month. By the way rent is not a guarantee either my friends, ask me how I know. Sophisticated investors look at everything through a lens of risk vs. reward. Properties with just cash flow and little appreciation potential are generally in worse locations and are considered high risk (high cap rates), whereas properties in better locations are low risk. To some people, that's all that matters. They're looking for the least risky place to park their money and preserve their wealth and you see this in the best locations. They are priced for risk.
In my portfolio, the properties with the least cash flow on day one have performed the best over time, while the ones with the best cash flow on day one, I actually ended up selling. They never really cash-flowed as much in reality as they did on paper due to tenant issues and capex. Plus 99% of my headaches came from those buildings. I've seen a lot of others go through this same learning curve. All I care about anymore is location, the price of the property compared to surrounding properties, comps so that I know I'm getting instant equity, being able to force appreciation quickly through value add, and "pride of ownership"/ actually wanting to own the property (which also translates to renters actually wanting to live in the property). Cash flow always comes in a few years thanks to being in a desirable location with increasing rents, and that's cool too. But again my goal is wealth building and wealth preservation primarily. A couple hundred bucks a month in cashflow, whatevs. I've heard it said that cash flow is the cake and appreciation is the icing but it's been the exact opposite for me. Cash flow hasn't really moved the needle much for me financially whereas appreciation has been truly life-altering in the best way possible.
People also say that buying for appreciation is speculation and not real investing... sorry I'm calling b.s. Investing is expending money to eventually achieve a profit. Speculating is not having enough information to make a good decision. We have access to a lot of information these days, it's out there for anyone willing to educate themselves. A well-educated person who knows their market intimately can make a good decision about whether or not a specific location is likely to see appreciation or not. Sure it's never guaranteed but that isn't in the definition of investing, and let's be honest cash flow isn't ever guaranteed either. Estimating what rent will be in a few years is just an educated guess also. If buying for appreciation is speculating then using that same logic, assuming that rent will always stay the same or go up is also speculating. Rents can also go down, especially in crappy locations. Also if rents aren't going up at least as fast as appreciation, you're actually losing money over time even if you're "cash flowing". If you're buying in a bad location just to get cash flow, that's going to turn out to be an inferior investment every time compared to buying just about any other property in a better location.
I know I'm tipping the sacred cow here, but cashflow is checkers, appreciation is chess.
- Real Estate Broker · Reno, NV · Member since 2023 · 267 posts · 297 votes2y100% nailed it.
Quote from @Corby Goade:
All of these posters are wrong. I'm not saying cash flow isn't important and much of that depends on where you are in life, but there are situations where it's much less important. Heck, if all that matters is cash flow, then no one would flip houses- no cash flow in that, it's only betting that you can create future equity and that the market is stable enough to provide that.
If you make a boatload of money and need a cost seg- cash flow doesn't matter one bit. It's a nice bonus, but it's not the focus. If you make $1MM in a year and are writing a $300k check to Uncle Sam and could wipe most of that out by buying a property that breaks even or loses a few hundred bucks per month, that's a pretty good trade.
If you are trying to quit your day job- that's a different story. But when people get in to huge money, it's a different ballgame. Everyone here talks about tax advantages, but when you are truly wealthy, it's ALL about the tax advantages. It's ridiculous to think that all of us amatuers on BP are better investors than someone paying $20MM cash for an apartment building in SF that isn't cash flow positive.
It's not for everyone, but there is a time and a place where cash flow is a bonus, but not the goal.
- Real Estate Broker · Reno, NV · Member since 2023 · 267 posts · 297 votes2y
Appreciation. In our market we helped an investor purchase a new home for $463k for an investment and it did not cash flow positive, actually like -$200/mo. It was the best available in the entire market, so it was a good investment.
Fast forward 2 months and the exact same house by the exact same builder was released for $490k and my clients had to bid out 30 (!) plus buyers to pay $500k for the exact same house. That means overnight in 2 months that property in that neighborhood appreciated $37,000. That’s almost 8% appreciation because the market has moved that fast and the property was that good a deal in November.
So why does the negative cash flow matter? - Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes2y
Quote from @Steve K.:
Well this is heresy on BP and I'll probably get crucified, but I don't really care whether or not a property cash flows a couple hundred bucks or not. In fact my favorite and best performing property had negative cashflow to the tune of ~$1,000 per month for the first several years. Why did I buy it?
1. Location. It's a Class A property in a great location where I knew there would be steep appreciation and increasing rents. It wasn't speculation, mind you, just good old-fashioned local market knowledge and education on the strong underlying fundamentals (jobs, population growth, desirability, affordability).
2. I bought it for $150k below appraised value.
3. Existing rents were well under market rates.
4. I knew it would rent well, have low vacancy, and be easy to manage (again, great location).
5. My plan is long term wealth building and wealth preservation.
6. I didn't need the cashflow.
7. I liked the property (it's classy).
Now that I've had it a few years, it's cash-flowing $2,500/month thanks to rent increases (good location= steep rent appreciation). That's nice and all but nothing compared to the equity I've gained through appreciation combined with principle pay down, which is now just shy of $1M, which breaks down to $12,000 per month. Subtracting the additional $30k I put in when it had negative cashflow, that's still $11,500/mo. That's not including tax benefits.
So which would you rather have?
1. A few hundred bucks a month in cash flow day one (but not much appreciation over time because you have to buy in a worse location to get that, your property value might increase enough to just barely keep up with inflation or may even be negative because these markets are historically boom/bust)
or 2. Negative $1,000/mo cashflow for 3 years then $2,500/month cash flow after that plus $11,500/month appreciation in year 7 because you bought in a good location?
Different strokes for different folks. Some play checkers, others play chess.
If you need the cashflow to make the payments, then you should stick with cash flowing property. However if your goal is actual wealth building (or wealth preservation), and your investment strategy isn't reliant on whether or not you get a few hundred bucks coming in every month right away, then you might consider buying in a better location where cash flow will be less positive up front but appreciation will be greater. Cash flow will come in time from more rapidly increasing rents and overall performance over time will be much better. Plus less turnover, fewer tenant issues, and less severe headaches.
Not to mention that a lot of these "cash flow markets" don't really cash flow in reality because the cost to maintain these properties often exceeds the rents. These markets are revolving doors with properties being resold every 2-3 years to new green investors looking for cash flow, who don't realize what it costs to maintain a property or that their budget of $50/month for maintenance, repairs and capex is not nearly enough ($300-500 is more like it, that's why rents under $1,500/door typically have no margin for error). Or they only have 5-10% vacancy factored in to the magic cash flow spreadsheet. One non-paying tenant that needs to be evicted or one unexpected capex issue crushes that $200/month cash flow and sends the property negative for years. A big unexpected $30k issue (I've had several) will take decades to recover from. It takes people a few years to realize this before they sell to the next person who doesn't yet realize this. True story.
I'm in a market where actual billionaires buy multifamily properties as 3-caps as soon as they come up for sale (which they rarely do). These buildings don't spin off positive cashflow using the BP calculator even with 50% down. These billionaires aren't stupid. So why do they buy these buildings with no cash flow? Because they don't care about cash flow, they just care about long term wealth building and wealth preservation. It's a location where appreciation has been consistent for the past 60 years (even during the global financial crisis 2008-2010 when many markets crashed by 50%, this market continued going up). If that's speculation, then so is thinking that rent will come in consistently every month. By the way rent is not a guarantee either my friends, ask me how I know. Sophisticated investors look at everything through a lens of risk vs. reward. Properties with just cash flow and little appreciation potential are generally in worse locations and are considered high risk (high cap rates), whereas properties in better locations are low risk. To some people, that's all that matters. They're looking for the least risky place to park their money and preserve their wealth and you see this in the best locations. They are priced for risk.
In my portfolio, the properties with the least cash flow on day one have performed the best over time, while the ones with the best cash flow on day one, I actually ended up selling. They never really cash-flowed as much in reality as they did on paper due to tenant issues and capex. Plus 99% of my headaches came from those buildings. I've seen a lot of others go through this same learning curve. All I care about anymore is location, the price of the property compared to surrounding properties, comps so that I know I'm getting instant equity, being able to force appreciation quickly through value add, and "pride of ownership"/ actually wanting to own the property (which also translates to renters actually wanting to live in the property). Cash flow always comes in a few years thanks to being in a desirable location with increasing rents, and that's cool too. But again my goal is wealth building and wealth preservation primarily. A couple hundred bucks a month in cashflow, whatevs. I've heard it said that cash flow is the cake and appreciation is the icing but it's been the exact opposite for me. Cash flow hasn't really moved the needle much for me financially whereas appreciation has been truly life-altering in the best way possible.
People also say that buying for appreciation is speculation and not real investing... sorry I'm calling b.s. Investing is expending money to eventually achieve a profit. Speculating is not having enough information to make a good decision. We have access to a lot of information these days, it's out there for anyone willing to educate themselves. A well-educated person who knows their market intimately can make a good decision about whether or not a specific location is likely to see appreciation or not. Sure it's never guaranteed but that isn't in the definition of investing, and let's be honest cash flow isn't ever guaranteed either. Estimating what rent will be in a few years is just an educated guess also. If buying for appreciation is speculating then using that same logic, assuming that rent will always stay the same or go up is also speculating. Rents can also go down, especially in crappy locations. Also if rents aren't going up at least as fast as appreciation, you're actually losing money over time even if you're "cash flowing". If you're buying in a bad location just to get cash flow, that's going to turn out to be an inferior investment every time compared to buying just about any other property in a better location.
I know I'm tipping the sacred cow here, but cashflow is checkers, appreciation is chess.
This nailed it .
A cash flowing property looks great on paper . Especially in an area like Baltimore city . Until it isnt . Its really gambling . Why anyone would buy in a poor or rough area , because the price is low and it "cash flows" is beyond me . No one factors in tenants completely trashing a house , after not paying rent for 6 months , and the rowhome 4 doors down is abandoned with a hole in the roof and when it rains it floods your basement .
I have always bought in better areas that historically have good to great appreciation . Have higher rents and higher income tenants . Is this a sure thing ? Nope . But it takes a much longer time for a good area to go down hill than it takes a bad area to go up .
Over time the better areas have great appreciation , AND if you manage right you get good cash flow on top of that . I wont say a " Grand Slam " , but more like base hits all day long pushing in the runs .
- 2yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
Quote from @Steve K.:
Well this is heresy on BP and I'll probably get crucified, but I don't really care whether or not a property cash flows a couple hundred bucks or not. In fact my favorite and best performing property had negative cashflow to the tune of ~$1,000 per month for the first several years. Why did I buy it?
1. Location. It's a Class A property in a great location where I knew there would be steep appreciation and increasing rents. It wasn't speculation, mind you, just good old-fashioned local market knowledge and education on the strong underlying fundamentals (jobs, population growth, desirability, affordability).
2. I bought it for $150k below appraised value.
3. Existing rents were well under market rates.
4. I knew it would rent well, have low vacancy, and be easy to manage (again, great location).
5. My plan is long term wealth building and wealth preservation.
6. I didn't need the cashflow.
7. I liked the property (it's classy).
Now that I've had it a few years, it's cash-flowing $2,500/month thanks to rent increases (good location= steep rent appreciation). That's nice and all but nothing compared to the equity I've gained through appreciation combined with principle pay down, which is now just shy of $1M, which breaks down to $12,000 per month. Subtracting the additional $30k I put in when it had negative cashflow, that's still $11,500/mo. That's not including tax benefits.
So which would you rather have?
1. A few hundred bucks a month in cash flow day one (but not much appreciation over time because you have to buy in a worse location to get that, your property value might increase enough to just barely keep up with inflation or may even be negative because these markets are historically boom/bust)
or 2. Negative $1,000/mo cashflow for 3 years then $2,500/month cash flow after that plus $11,500/month appreciation in year 7 because you bought in a good location?
Different strokes for different folks. Some play checkers, others play chess.
If you need the cashflow to make the payments, then you should stick with cash flowing property. However if your goal is actual wealth building (or wealth preservation), and your investment strategy isn't reliant on whether or not you get a few hundred bucks coming in every month right away, then you might consider buying in a better location where cash flow will be less positive up front but appreciation will be greater. Cash flow will come in time from more rapidly increasing rents and overall performance over time will be much better. Plus less turnover, fewer tenant issues, and less severe headaches.
Not to mention that a lot of these "cash flow markets" don't really cash flow in reality because the cost to maintain these properties often exceeds the rents. These markets are revolving doors with properties being resold every 2-3 years to new green investors looking for cash flow, who don't realize what it costs to maintain a property or that their budget of $50/month for maintenance, repairs and capex is not nearly enough ($300-500 is more like it, that's why rents under $1,500/door typically have no margin for error). Or they only have 5-10% vacancy factored in to the magic cash flow spreadsheet. One non-paying tenant that needs to be evicted or one unexpected capex issue crushes that $200/month cash flow and sends the property negative for years. A big unexpected $30k issue (I've had several) will take decades to recover from. It takes people a few years to realize this before they sell to the next person who doesn't yet realize this. True story.
I'm in a market where actual billionaires buy multifamily properties as 3-caps as soon as they come up for sale (which they rarely do). These buildings don't spin off positive cashflow using the BP calculator even with 50% down. These billionaires aren't stupid. So why do they buy these buildings with no cash flow? Because they don't care about cash flow, they just care about long term wealth building and wealth preservation. It's a location where appreciation has been consistent for the past 60 years (even during the global financial crisis 2008-2010 when many markets crashed by 50%, this market continued going up). If that's speculation, then so is thinking that rent will come in consistently every month. By the way rent is not a guarantee either my friends, ask me how I know. Sophisticated investors look at everything through a lens of risk vs. reward. Properties with just cash flow and little appreciation potential are generally in worse locations and are considered high risk (high cap rates), whereas properties in better locations are low risk. To some people, that's all that matters. They're looking for the least risky place to park their money and preserve their wealth and you see this in the best locations. They are priced for risk.
In my portfolio, the properties with the least cash flow on day one have performed the best over time, while the ones with the best cash flow on day one, I actually ended up selling. They never really cash-flowed as much in reality as they did on paper due to tenant issues and capex. Plus 99% of my headaches came from those buildings. I've seen a lot of others go through this same learning curve. All I care about anymore is location, the price of the property compared to surrounding properties, comps so that I know I'm getting instant equity, being able to force appreciation quickly through value add, and "pride of ownership"/ actually wanting to own the property (which also translates to renters actually wanting to live in the property). Cash flow always comes in a few years thanks to being in a desirable location with increasing rents, and that's cool too. But again my goal is wealth building and wealth preservation primarily. A couple hundred bucks a month in cashflow, whatevs. I've heard it said that cash flow is the cake and appreciation is the icing but it's been the exact opposite for me. Cash flow hasn't really moved the needle much for me financially whereas appreciation has been truly life-altering in the best way possible.
People also say that buying for appreciation is speculation and not real investing... sorry I'm calling b.s. Investing is expending money to eventually achieve a profit. Speculating is not having enough information to make a good decision. We have access to a lot of information these days, it's out there for anyone willing to educate themselves. A well-educated person who knows their market intimately can make a good decision about whether or not a specific location is likely to see appreciation or not. Sure it's never guaranteed but that isn't in the definition of investing, and let's be honest cash flow isn't ever guaranteed either. Estimating what rent will be in a few years is just an educated guess also. If buying for appreciation is speculating then using that same logic, assuming that rent will always stay the same or go up is also speculating. Rents can also go down, especially in crappy locations. Also if rents aren't going up at least as fast as appreciation, you're actually losing money over time even if you're "cash flowing". If you're buying in a bad location just to get cash flow, that's going to turn out to be an inferior investment every time compared to buying just about any other property in a better location.
I know I'm tipping the sacred cow here, but cashflow is checkers, appreciation is chess.
Completely agree with literally everything you've shared here. There's no "sacred cow" regarding cash flow- this is a lesson you either never learn or you learn the hard way. People talk about cash flow being the only thing that matters because it's a "guarantee" haven't experienced the power of appreciation and how it can be truly life changing in a way that a 1% deal in Baltimore could never be.
Heck- I have a client that bought a fourplex in Ohio four years ago for $225k. Gross rents were $4500 per month. He held it for four years and over that 48 months TWO were cash flow positive. High vacancy, expensive turnovers, never ending capex and tenants that are desperate- those aren't passive investmentments and they sure as heck aren't "sure things."
That client sold at a net loss and is reinvesting in my market, where break even on year one is a home run deal, and the tax advantages ALONE have put more money in his pocket this year than he made in 4 years on his "cash flowing" deal.
- NORTHRIDGE · Member since 2012 · 54 posts · 15 votes2y
Is there a online calculator online where you can punch in all these numbers and see what the deal would look like now, 10, and twenty years? Also show, cash flow now, later and refi and tax benefits?
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Buying a property with negative cash flow is generally considered risky and contrary to the fundamental goal of real estate investing: to generate positive cash flow and profit. However, there are specific scenarios where an investor might consider a property with negative cash flow, often due to strategic long-term benefits or specific investment strategies. Here are some situations where it might make sense, along with considerations for how long one might wait for the situation to improve and what margins might be acceptable for a flip:
Expectation of Significant Appreciation
Strategic Value or Unique Opportunities
Market Rents Expected to Increase
Fix-and-Flip with No Rental Strategy
Considerations Before Buying with Negative Cash Flow:
Financial Resilience: Make sure you have enough cash on hand to meet the shortfall without endangering your overall financial situation.
exit Strategies: Establish practical, well-defined exit strategies. Market circumstances might change, even if your intention is to flip the property, so think about your choices in case your initial plan doesn't work out.
Market Analysis: To verify your predictions on future appreciation, growth in the rental market, or the effect of renovations on property value, do a comprehensive analysis of the market.
Time frame: Evaluate the opportunity cost of having your cash invested in a non-performing asset and be realistic about how long you're willing to wait for the property to turn a profit.
Investing in a property with negative cash flow can be a calculated risk under the right circumstances, but it requires a higher level of due diligence, market insight, and financial planning. Always weigh the potential rewards against the risks and costs of carrying a negative cash flow property.
NETWORTH BUILDERS5236 Reviews - Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes2y
The answer to this question would obviously depend on the circumstances with many. For me, I only acquire rental property for cash flow. We don't have a W2 and live on rental income. We don't use leverage so that obviously helps guarantee our properties to cash flow. We do all our own renovation and repairs so that helps as well. Rentals are our full time job and we spend 5 or 6 days a week working on them. We live in an area with relatively low prices. We are unwinding our portfolio and selling properties as they become vacant. (and now investing in more passive income streams). So to summarize, I would never buy a property that had negative cash flow.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
You always buy the best deal the market will allow you. Ideally you buy with some cash flow, if necessary with more downpayment to get to a 1.2 DSCR. It's all about the right balance. If you have a strong W2, you'll be better off buying a 350k property with slightly negative cash flow than a 150k property that meets the 1% "rule".
With the latter, you might look at 6k in cash flow, but also a new roof and new windows and you still have a 60 year old kitchen and bath. With the 350k property just your principal pay down alone provides double digit ROI, let appreciation help with the rest. And then compare after 10 years.
Cash flow has never been the real point of RE investing. Another Milwaukee investor asked me at a workshop on REI strategy what he did wrong. He is in his 60s now, has a portfolio in almost 50 doors in a cheap part of the city, which he managed himself for the last 30 years, he does his own handyman work to save money, his tenants drive him nuts and after 30 years he has almost no equity to show for. He had to take out financing to pay for larger capex items.
@Steve K. - well said!
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Mary Jay:
Quote from @Bruce Woodruff:
Only if you could see a guaranteed huge appreciation coming in the next 2-5 years....
Like 200 - 300 %......
What do you think ab the Maricopa county? Because thats where the house is at
Well as you probably know, Maricopa has had a real run the past decade.....in large part due to the huge number of Californians fleeing over here. And most had cash from the sale of their Cali homes and would overpay for the AZ property.
That has stopped as far as most people I know are concerned......they have finally wised up.
And now that AZ prices have gone up, the deals are not as common.....but they are still there. And the possible/probable appreciation is still to be found as well. You just need to be a lot more diligent in your searches. Start driving areas during the day and spend your evenings on Zillow/Realtor/Redfin/Trulio...
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Corby Goade:
Quote from @Steve K.:
Well this is heresy on BP and I'll probably get crucified, but I don't really care whether or not a property cash flows a couple hundred bucks or not. In fact my favorite and best performing property had negative cashflow to the tune of ~$1,000 per month for the first several years. Why did I buy it?
1. Location. It's a Class A property in a great location where I knew there would be steep appreciation and increasing rents. It wasn't speculation, mind you, just good old-fashioned local market knowledge and education on the strong underlying fundamentals (jobs, population growth, desirability, affordability).
2. I bought it for $150k below appraised value.
3. Existing rents were well under market rates.
4. I knew it would rent well, have low vacancy, and be easy to manage (again, great location).
5. My plan is long term wealth building and wealth preservation.
6. I didn't need the cashflow.
7. I liked the property (it's classy).
Now that I've had it a few years, it's cash-flowing $2,500/month thanks to rent increases (good location= steep rent appreciation). That's nice and all but nothing compared to the equity I've gained through appreciation combined with principle pay down, which is now just shy of $1M, which breaks down to $12,000 per month. Subtracting the additional $30k I put in when it had negative cashflow, that's still $11,500/mo. That's not including tax benefits.
So which would you rather have?
1. A few hundred bucks a month in cash flow day one (but not much appreciation over time because you have to buy in a worse location to get that, your property value might increase enough to just barely keep up with inflation or may even be negative because these markets are historically boom/bust)
or 2. Negative $1,000/mo cashflow for 3 years then $2,500/month cash flow after that plus $11,500/month appreciation in year 7 because you bought in a good location?
Different strokes for different folks. Some play checkers, others play chess.
If you need the cashflow to make the payments, then you should stick with cash flowing property. However if your goal is actual wealth building (or wealth preservation), and your investment strategy isn't reliant on whether or not you get a few hundred bucks coming in every month right away, then you might consider buying in a better location where cash flow will be less positive up front but appreciation will be greater. Cash flow will come in time from more rapidly increasing rents and overall performance over time will be much better. Plus less turnover, fewer tenant issues, and less severe headaches.
Not to mention that a lot of these "cash flow markets" don't really cash flow in reality because the cost to maintain these properties often exceeds the rents. These markets are revolving doors with properties being resold every 2-3 years to new green investors looking for cash flow, who don't realize what it costs to maintain a property or that their budget of $50/month for maintenance, repairs and capex is not nearly enough ($300-500 is more like it, that's why rents under $1,500/door typically have no margin for error). Or they only have 5-10% vacancy factored in to the magic cash flow spreadsheet. One non-paying tenant that needs to be evicted or one unexpected capex issue crushes that $200/month cash flow and sends the property negative for years. A big unexpected $30k issue (I've had several) will take decades to recover from. It takes people a few years to realize this before they sell to the next person who doesn't yet realize this. True story.
I'm in a market where actual billionaires buy multifamily properties as 3-caps as soon as they come up for sale (which they rarely do). These buildings don't spin off positive cashflow using the BP calculator even with 50% down. These billionaires aren't stupid. So why do they buy these buildings with no cash flow? Because they don't care about cash flow, they just care about long term wealth building and wealth preservation. It's a location where appreciation has been consistent for the past 60 years (even during the global financial crisis 2008-2010 when many markets crashed by 50%, this market continued going up). If that's speculation, then so is thinking that rent will come in consistently every month. By the way rent is not a guarantee either my friends, ask me how I know. Sophisticated investors look at everything through a lens of risk vs. reward. Properties with just cash flow and little appreciation potential are generally in worse locations and are considered high risk (high cap rates), whereas properties in better locations are low risk. To some people, that's all that matters. They're looking for the least risky place to park their money and preserve their wealth and you see this in the best locations. They are priced for risk.
In my portfolio, the properties with the least cash flow on day one have performed the best over time, while the ones with the best cash flow on day one, I actually ended up selling. They never really cash-flowed as much in reality as they did on paper due to tenant issues and capex. Plus 99% of my headaches came from those buildings. I've seen a lot of others go through this same learning curve. All I care about anymore is location, the price of the property compared to surrounding properties, comps so that I know I'm getting instant equity, being able to force appreciation quickly through value add, and "pride of ownership"/ actually wanting to own the property (which also translates to renters actually wanting to live in the property). Cash flow always comes in a few years thanks to being in a desirable location with increasing rents, and that's cool too. But again my goal is wealth building and wealth preservation primarily. A couple hundred bucks a month in cashflow, whatevs. I've heard it said that cash flow is the cake and appreciation is the icing but it's been the exact opposite for me. Cash flow hasn't really moved the needle much for me financially whereas appreciation has been truly life-altering in the best way possible.
People also say that buying for appreciation is speculation and not real investing... sorry I'm calling b.s. Investing is expending money to eventually achieve a profit. Speculating is not having enough information to make a good decision. We have access to a lot of information these days, it's out there for anyone willing to educate themselves. A well-educated person who knows their market intimately can make a good decision about whether or not a specific location is likely to see appreciation or not. Sure it's never guaranteed but that isn't in the definition of investing, and let's be honest cash flow isn't ever guaranteed either. Estimating what rent will be in a few years is just an educated guess also. If buying for appreciation is speculating then using that same logic, assuming that rent will always stay the same or go up is also speculating. Rents can also go down, especially in crappy locations. Also if rents aren't going up at least as fast as appreciation, you're actually losing money over time even if you're "cash flowing". If you're buying in a bad location just to get cash flow, that's going to turn out to be an inferior investment every time compared to buying just about any other property in a better location.
I know I'm tipping the sacred cow here, but cashflow is checkers, appreciation is chess.
Completely agree with literally everything you've shared here. There's no "sacred cow" regarding cash flow- this is a lesson you either never learn or you learn the hard way. People talk about cash flow being the only thing that matters because it's a "guarantee" haven't experienced the power of appreciation and how it can be truly life changing in a way that a 1% deal in Baltimore could never be.
Heck- I have a client that bought a fourplex in Ohio four years ago for $225k. Gross rents were $4500 per month. He held it for four years and over that 48 months TWO were cash flow positive. High vacancy, expensive turnovers, never ending capex and tenants that are desperate- those aren't passive investmentments and they sure as heck aren't "sure things."
That client sold at a net loss and is reinvesting in my market, where break even on year one is a home run deal, and the tax advantages ALONE have put more money in his pocket this year than he made in 4 years on his "cash flowing" deal.
Bottom line in areas that you can expect ( its not gambling its historic fact) appreciation of a signficant amount not 1 or 2% a year but a 50% run up in 5 to 8 or 10 years. there is absolutly nothing wrong with zero or a tiny negative or a little more than negative and let your tenant pay your mortgage.. the prize at the end of the tunnel is massive equity gains.. Cash flow works for sure as well however you need numbers for it to make sense and you need a very strong team and in the cash flow markets the mistake most investors make is shopping by returns.. you can buy in nicer areas of the "cash flow" markets you dont have to chase yeild and you can have a much better outcome every city has its nicer area.. invest there .. then you have simple logic..
If your median price point in a given MSA you choose is say 175k ( common in the cash flow markets) then what does logic tell you about a 90k property in the same market that looks far better on paper than the 200k one ?? well reality is the 200k has better schools better tenant base to chose from and since your at the median or above not all the homes are being sold landlords the majority is going to owner occupied.. there by making nicer neighborhoods nicer streets and place were those premium tenants will want to live. Life long tenants just stay in the same places and look for housing based on cost along NOT schools not safety etc.
So in my mind and what I have experienced in 20 plus years of doing deals in the cash flow markets if you stick to the better inventory that may not look as great on paper you will have far better outcomes. Still wont be west coast or high priced east cost or North side of Chicago .. or Charleston SC outcomes but much better. Just Sayin :) - 2yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
@Mary Jay one of the things that isn't emphasized enough is that when you buy with negative cash flow, you have to have the money to carry the property to your end game.
Eventually you need to be able to appreciate the value either through value add, increased rent, future prospects, or a have a personal benefit.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesOver the many years I've been on BP I have written many, many strategy examples. What specifically are you looking for?
Quote from @Mary Jay:
Quote from @Joe Villeneuve:
Then don't invest in linear markets.Quote from @Mary Jay:
Quote from @Joe Villeneuve:
Never,...ever.
I see people who invest in linear markets say "Never"... At the same time, the rents in the linear markets dont grow very well, plus the price of the RE is linear... I am not sure how people make money with all breaks/fixing/non paying tenants... Untill the property is paid off... Of course if a person can fix everything himself, then it probably is easier
You always talk about strategies, and they are all smart... but Ive never heard you give an example of your deal. May be I just overlooked...Can you please give an example of your buy and hold (like how much did you buy for, what is your cash flow on it when you bought it, when did you buy it, at what interest, what are the rents on it back then and now, what is your cashflow now on it)...
Sort of like what Bill did earlier, he gave us an example of his scenario...
I own in linear, hybrid and cyclical markets... I can tell they all are very different. I personally prefer cyclical or hybrids because with linear there is not much of cashflow and not much of appreciation...But would be interesting to hear your deal
- Investor · Cleveland, OH · Member since 2021 · 2 posts · 0 votes2y
@Mary Jay "it depends". You have so many upsides to RE investing like depreciation/tax advantages, appreciation, different business models you can run (str, MTR, ltr), long term appreciation. If it's a buy and hold rental, even if you have negative cash flow for the foreseeable future you have to weigh the other benefits, and your opportunity cost of the money you are investing up front as well as on a month basis with a negative cash flow deal. Your tax situation will dictate much of this, but for me, it all comes down to total ROI. The biggest advantage you have with RE is the leverage when you borrow by only putting down 15 - 25 percent. There are some deals out there with new builders where you can put close to zero down even. In these cases, I would look at that as a deferred down payment, so you have time value of money as those funds can sit in a Treasury bill or high yield savings, or be invested elsewhere based on your risk tolerance. Plus with new builds, there is pretty much zero maintenance for a couple of years, which helps your proforma feel more stable.
- Realtor · Baltimore, MD · Member since 2020 · 255 posts · 182 votes2y
Quote from @Steve K.:
Well this is heresy on BP and I'll probably get crucified, but I don't really care whether or not a property cash flows a couple hundred bucks or not. In fact my favorite and best performing property had negative cashflow to the tune of ~$1,000 per month for the first several years. Why did I buy it?
1. Location. It's a Class A property in a great location where I knew there would be steep appreciation and increasing rents. It wasn't speculation, mind you, just good old-fashioned local market knowledge and education on the strong underlying fundamentals (jobs, population growth, desirability, affordability).
2. I bought it for $150k below appraised value.
3. Existing rents were well under market rates.
4. I knew it would rent well, have low vacancy, and be easy to manage (again, great location).
5. My plan is long term wealth building and wealth preservation.
6. I didn't need the cashflow.
7. I liked the property (it's classy).
Now that I've had it a few years, it's cash-flowing $2,500/month thanks to rent increases (good location= steep rent appreciation). That's nice and all but nothing compared to the equity I've gained through appreciation combined with principle pay down, which is now just shy of $1M, which breaks down to $12,000 per month. Subtracting the additional $30k I put in when it had negative cashflow, that's still $11,500/mo. That's not including tax benefits.
So which would you rather have?
1. A few hundred bucks a month in cash flow day one (but not much appreciation over time because you have to buy in a worse location to get that, your property value might increase enough to just barely keep up with inflation or may even be negative because these markets are historically boom/bust)
or 2. Negative $1,000/mo cashflow for 3 years then $2,500/month cash flow after that plus $11,500/month appreciation in year 7 because you bought in a good location?
Different strokes for different folks. Some play checkers, others play chess.
If you need the cashflow to make the payments, then you should stick with cash flowing property. However if your goal is actual wealth building (or wealth preservation), and your investment strategy isn't reliant on whether or not you get a few hundred bucks coming in every month right away, then you might consider buying in a better location where cash flow will be less positive up front but appreciation will be greater. Cash flow will come in time from more rapidly increasing rents and overall performance over time will be much better. Plus less turnover, fewer tenant issues, and less severe headaches.
Not to mention that a lot of these "cash flow markets" don't really cash flow in reality because the cost to maintain these properties often exceeds the rents. These markets are revolving doors with properties being resold every 2-3 years to new green investors looking for cash flow, who don't realize what it costs to maintain a property or that their budget of $50/month for maintenance, repairs and capex is not nearly enough ($300-500 is more like it, that's why rents under $1,500/door typically have no margin for error). Or they only have 5-10% vacancy factored in to the magic cash flow spreadsheet. One non-paying tenant that needs to be evicted or one unexpected capex issue crushes that $200/month cash flow and sends the property negative for years. A big unexpected $30k issue (I've had several) will take decades to recover from. It takes people a few years to realize this before they sell to the next person who doesn't yet realize this. True story.
I'm in a market where actual billionaires buy multifamily properties as 3-caps as soon as they come up for sale (which they rarely do). These buildings don't spin off positive cashflow using the BP calculator even with 50% down. These billionaires aren't stupid. So why do they buy these buildings with no cash flow? Because they don't care about cash flow, they just care about long term wealth building and wealth preservation. It's a location where appreciation has been consistent for the past 60 years (even during the global financial crisis 2008-2010 when many markets crashed by 50%, this market continued going up). If that's speculation, then so is thinking that rent will come in consistently every month. By the way rent is not a guarantee either my friends, ask me how I know. Sophisticated investors look at everything through a lens of risk vs. reward. Properties with just cash flow and little appreciation potential are generally in worse locations and are considered high risk (high cap rates), whereas properties in better locations are low risk. To some people, that's all that matters. They're looking for the least risky place to park their money and preserve their wealth and you see this in the best locations. They are priced for risk.
In my portfolio, the properties with the least cash flow on day one have performed the best over time, while the ones with the best cash flow on day one, I actually ended up selling. They never really cash-flowed as much in reality as they did on paper due to tenant issues and capex. Plus 99% of my headaches came from those buildings. I've seen a lot of others go through this same learning curve. All I care about anymore is location, the price of the property compared to surrounding properties, comps so that I know I'm getting instant equity, being able to force appreciation quickly through value add, and "pride of ownership"/ actually wanting to own the property (which also translates to renters actually wanting to live in the property). Cash flow always comes in a few years thanks to being in a desirable location with increasing rents, and that's cool too. But again my goal is wealth building and wealth preservation primarily. A couple hundred bucks a month in cashflow, whatevs. I've heard it said that cash flow is the cake and appreciation is the icing but it's been the exact opposite for me. Cash flow hasn't really moved the needle much for me financially whereas appreciation has been truly life-altering in the best way possible.
People also say that buying for appreciation is speculation and not real investing... sorry I'm calling b.s. Investing is expending money to eventually achieve a profit. Speculating is not having enough information to make a good decision. We have access to a lot of information these days, it's out there for anyone willing to educate themselves. A well-educated person who knows their market intimately can make a good decision about whether or not a specific location is likely to see appreciation or not. Sure it's never guaranteed but that isn't in the definition of investing, and let's be honest cash flow isn't ever guaranteed either. Estimating what rent will be in a few years is just an educated guess also. If buying for appreciation is speculating then using that same logic, assuming that rent will always stay the same or go up is also speculating. Rents can also go down, especially in crappy locations. Also if rents aren't going up at least as fast as appreciation, you're actually losing money over time even if you're "cash flowing". If you're buying in a bad location just to get cash flow, that's going to turn out to be an inferior investment every time compared to buying just about any other property in a better location.
I know I'm tipping the sacred cow here, but cashflow is checkers, appreciation is chess.
Love this. People are obsessed with cash flow to the point where they get "stuck" and don't take action at all. Sacrifices in the short term will pile up..
Quote from @John Teachout:
The answer to this question would obviously depend on the circumstances with many. For me, I only acquire rental property for cash flow. We don't have a W2 and live on rental income. We don't use leverage so that obviously helps guarantee our properties to cash flow. We do all our own renovation and repairs so that helps as well. Rentals are our full time job and we spend 5 or 6 days a week working on them. We live in an area with relatively low prices. We are unwinding our portfolio and selling properties as they become vacant. (and now investing in more passive income streams). So to summarize, I would never buy a property that had negative cash flow.
Which means your RE is more of a full time job/business rather than a (passive) investment. I think most of us have passive investment in mind which is what Steve's post was addressing.
Quote from @Mary Jay:
Quote from @V.G Jason:
Quote from @Dave Kush:
I would not by a property with negative cash flow. You don't know for sure if rents are going to go up. That is speculation. Speculation is different than investing.
One possible exception, I once bought a property that was already rented out at a below market rent, and it made me slightly cash flow negative until that lease expired. I factored that in as a cost and deducted it from the purchase price when I negotiated. The important part of that purchase was that I knew the rents were already high enough to make the deal cash flow once that tenant vacated.
You deducted $2500 out of the purchase price to keep against the $200 net negative or of the sort? Way to miss the forest for the trees. And investing in really any form is a degree of speculation, let's not act like some real estate investments are a given.
If you don't think rent is going up, or you think it will stand still that's an equal level of speculation. It has a 33.3% chance of doing any of the three; go down, stay flat, go up. It's not linear growth, that's why you invest on a long-term horizon. It likely will go up over the long time, or net deflation happened in a macro sense or you bought a **** location. The former coming with a huge array of other issues and the latter being exactly why you don't focus on a spreadsheet for this.
What happens when rent goes down and your PITI was measured against it? Or your rent stayed the same and your I&T went up? The latter is a reality of today. Investing to mitigate cash flow concerns is a priority today, but the catch is buying great & high quality locations for the long-term horizon on fixed rate debt. Let's not chase pennies and cost ourselves dollars.
To answer the underlying question, you don't want to buy something that's severely OTM. You want to, at worst, buy something that's on a 3-5 year horizon of being ITM assuming a smaller-ish growth scale yet a robust growth area, and that's a sliding scale with the quality of the house & location. If it's a stellar location with an excellent build, but it'll take 3-5 years to catch up on rents to break even. For some, and depending on your means, that's a great investment. For most that's not a legitimate investment, and they define it as speculation. Right now that's the difference in criteria for REI; it's no longer 2012-2022 where a monkey could buy a house and it's intrinsic. You take that risk. Physical assets being intrinsic was a small period of time, that's a rarity in the real sense when you look everywhere else.Thank you!
What is ITM and OTM?
ITM=in the money, like intrinsic.
OTM= out of the money, and what most would view it as non-investment grade. Real estate had it's reckoning and it's timing, if you didn't get into it and you ever invested in physical assets with size(i'm talking infrastructure, energy, etc.) you'll realize most of these assets are never intrinsic(ITM). It's always a bit OTM; but it's in the path of being ITM and it can kill in a good way. For someone to characterize that as speculation, no ****..it's an investment.
- Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes2y
A good slogan to use to understand Cash Flow is:
"The Investment doesn't cash flow.... but the INVESTOR does."
This slogan merely means you can put down ZERO and the Investment will be NEGATIVE but if you buy it without financing it, you will Cash Flow.
You make the Investment Cash Flow.
Also, Cash Flow can be a distraction from much bigger problems.
Buying a Property that you cash flow in a DEPRECIATING Local Market is a set up for failure.
Take Detroit during the decades before it went bankrupt.
You may have bought a Cash Flowing property decades before, but the writing on the wall was that Detroit was going to depreciate when the Domestic Auto Industry was a decades long slow train wreck.
Detroit, at that time, was 90% dependent on Domestic Auto.
There are 2 rules that I follow:
1) ALWAYS buy in Appreciating Markets with a horizon of at least 10 years
2) You (notice, I said YOU) SHOULD Make the Investment at least break even if not some positive cash flow
If you are in an Appreciating Market, your Cash Flow will grow.
For instance, I am in Brooklyn, NY and my first investment was in 1998.
My rents went up over 350% (from $1k for a typical 2 Bedroom apt to $3.5k today) over the 26 years.
Not only do I cash flow from the Rental Price Appreciation but soon my Mortgage will be paid off by the tenants.
The Cash flow will be HUUUGE in about 2 years from now.
Many Investors here seem to not understand that Appreciation is BOTH the Investment's Value and the Rental Price Appreciation. I don't think you can get Appreciation in Value without getting Rental Price Appreciation.
Go after the gold and get BOTH Value and Rental Price Apprecation!
Anything else is just silver.
- Member since 2024 · 6 posts · 1 vote2y
Hey Mary Jay! I totally get your dilemma. I'd consider a property with negative cash flow if I'm banking on future rent hikes, maybe give it a year or two to catch up with the mortgage.
Flipping could work too, but I'd need a solid margin as a safety net. No way I'd dive in without a good buffer. It's all about playing the long game or having a killer backup plan. Cheers!
- Member since 2024 · 6 posts · 1 vote2y
Hey Mary Jay! I totally get your dilemma. I'd consider a property with negative cash flow if I'm banking on future rent hikes, maybe give it a year or two to catch up with the mortgage.
Flipping could work too, but I'd need a solid margin as a safety net. No way I'd dive in without a good buffer. It's all about playing the long game or having a killer backup plan. Cheers!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
When you look through the posts here you can see a pattern. Investors who have been doing this for a long time have a differnt view point than their newer peers.
It's almost like Maslov's hirachy of needs - once tha basics are taken care of (food, shelter,..) you have higher aspirations. So for investors, this may look like this:
1.) Year 1 cash flow
2.) Instant equity
3.) Long term appreciation
4.) Wealth preservationWhen you start out, it's all about cash flow. The thought of negative cash flow is terrifying, buying a property with negative cash flow feels like an anchor on your financial life that wants to drag you down. With a little more experience and a small portfolio the focus seems to shift to equity, because that will allow you to refi and grow. Once your cash flow needs are met, you start to think more about your net worth, the headaches comming from tenants etc - the focus is to optimize for more long term revenue and less work. When you reach the point of generational wealth, its more about what you leave for kids and grandkids, you buy top tier locations.
That's my theory, anyway.
- Investor · Columbus, OH · Member since 2024 · 41 posts · 32 votes2yAbsolute legend.
Quote from @Bill B.:
I’ve made to use a scientific/financial term, I’ve made a “boatload” of money on a property with negative $80-/mo cash flow. And not even the easy way where you buy for way under market. (Who wouldn’t buy a negative cash flow property for $100m off?)
I go by actual profit. The principle portion was $1500+ the first month. So I was $700/mo to the good and only getting better. Add a couple hundred a month in rent increases every year and 10 years later I have a paid off $700k property. I put $100k down, an average of say $400/mo or $5k/yr. For 10 years. So another $50k. For $150k I have a paid off $700k property.
All of this was beyond tax free. I paid negative taxes after depreciation until the 7th or 8th year. Your wealth will not come from cash flow. Until a home is paid off all the real wealth will come from appreciation. (Especially when calculated not against it’s value but your cash in the deal.) I’ve said if before and I’ll say it again. If you NEED a property to cash flow $200 to afford it, you’re not ready for real estate. You just aren’t. One major repair, one long vacancy and all your “needed” cash flow is gone.
Treat these rental properties as investments like your retirement accounts. They don’t cash flow ever. But you’re still told by financial experts/advisors to stick hundreds of thousand in to them and pray for appreciation.
Cash flow is only one TINY way rentals make you money. I don’t know why there are only cash flow fanatics. No depreciation, loan pay down, tax advantage fanatics.
Good luck whatever you do but assume most people telling you not to do something haven’t done it themselves. It’s like when your friend says “Ferraris break down all the time…”. When you ask how many they’ve owned, how many their friends own, and how many they’ve repaired, or even seen broken down. You hear a sad little “zero”.
OP; yes. I look at the overall return of a deal and also factor in time required, risk, and upside.
If I can capture equity by buying at a discount, I might be willing to CF negative a little bit (like -$100-$200 a month, no more), after 20% down. This is after factoring in vacancy, repairs, and CapEx.
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