Are there any situations under which you would buy a property with a negative cashflow?
May be if you know the rents will go up in the future... Then how long would you be willing to wait till the rents catches up with the mortgage? One year? 2 years?
(If lets say you would buy a property with the negative cash flow but you dont worry about the cash flow, because you will be flipping the property, what margin would you need in order to buy it if you know you cant rent it out as a back out strategy)...
Thank you!
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”.
@Mary Jay Real Estate Investing is a long-term investment. You really have to calculate what your return is over the life of the investment. If you only plan to hold it for a short time, I would never go with a negative cash-flowing property. But if you plan to hold it for 10, 20, 30 or more years, just project what you think you will be making. If you buy a property that is losing $100/month, that's $1,200/year or $12,000 over 10 years. If you look at the median home price over a 10-year period do you ever see where it dropped $12,000 over 10 years? Additionally, I don't think rents over a 10-year period have ever gone down, so your $100/month loss is probably less than that.
However, is that the best use of your money? Are you getting the best return you can get with your money? Generally I feel you could probably be doing better with your money and get a better return, but I don't know where you are investing.
Let me tell you a story of mine where I had a negative cash-flowing property. When I bought the property it was cash-flow positive, but the crash of 2008 hit and I was underwater on my loan and rent dropped so much I was negative cash-flow. Because I was underwater, and had the income to support paying the extra, I kept the property. I still have it today and provides almost more cash-flow than any other property I have. It's gone back up in value so much I pulled an equity line of credit from it that I use to fund repairs on my BRRRRs or flips. I looked at the property as a long-term investment and have done very well with it.
Just curious Bryan about that property of your held long term. Did you ever compare it to stocks to see which one comes out ahead?
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
If you could provide an example of a recent deal you made with a positive cash flow that would be great. Something like Bill Brand does... Something like: bought in 2024 for such price, interest is such and such, rent is such and such... If you provide numbers for a recent deal (2024 or the end of 2023) that would be helpful! Thank you
I've given many, many examples of deals (there's an echo in here) over the years. Every example I give to describe a strategy or REI principle, I use numbers to show how and why,...and they all come from real deals.
However, I'll give you an example of one we just got (I have a partner) in a western suburb of Detroit. Like I said, I have a partner, so I'm not going to give you an exact location in order to protect my partner. So please don't ask:
Buy using seller financing - $120k
DP (10%) - $12k
SF - $108k
Terms (7%/25 yrs) Pmt - $763/m
T/I - $325/m
Rent $1600/m
CF - $512/m
That means we sill recover our cost in less than 2 years.
Bought about $15k under Comps because seller had tenant in and wouldn't CF enough at full price using traditional financing. With interest added to the sale price, seller will be making almost $230k, and will have about the same CF they had when they owned it...without having to deal with the tenants. They have a lien on the property if we ever defaulted.
Joe, I got few questions (I am new to REI).
Why did the seller sell when he seem to be cash flowing well? Not dealing with tenant the reason?
What was the actual comp of the property? I assume you just took over the remaining payment of $120K left on his mortgage while the property was valued much higher that the current cash flow of $1600 would qualify for traditional financing? Which means you bought with big equity built in?
I am trying to understand the deal. The why of it. You already wrote the how of it. Thank you.
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
If you could provide an example of a recent deal you made with a positive cash flow that would be great. Something like Bill Brand does... Something like: bought in 2024 for such price, interest is such and such, rent is such and such... If you provide numbers for a recent deal (2024 or the end of 2023) that would be helpful! Thank you
I've given many, many examples of deals (there's an echo in here) over the years. Every example I give to describe a strategy or REI principle, I use numbers to show how and why,...and they all come from real deals.
However, I'll give you an example of one we just got (I have a partner) in a western suburb of Detroit. Like I said, I have a partner, so I'm not going to give you an exact location in order to protect my partner. So please don't ask:
Buy using seller financing - $120k
DP (10%) - $12k
SF - $108k
Terms (7%/25 yrs) Pmt - $763/m
T/I - $325/m
Rent $1600/m
CF - $512/m
That means we sill recover our cost in less than 2 years.
Bought about $15k under Comps because seller had tenant in and wouldn't CF enough at full price using traditional financing. With interest added to the sale price, seller will be making almost $230k, and will have about the same CF they had when they owned it...without having to deal with the tenants. They have a lien on the property if we ever defaulted.
Joe, I got few questions (I am new to REI).
Why did the seller sell when he seem to be cash flowing well? Not dealing with tenant the reason?
What was the actual comp of the property? I assume you just took over the remaining payment of $120K left on his mortgage while the property was valued much higher that the current cash flow of $1600 would qualify for traditional financing? Which means you bought with big equity built in?
I am trying to understand the deal. The why of it. You already wrote the how of it. Thank you.
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
If you could provide an example of a recent deal you made with a positive cash flow that would be great. Something like Bill Brand does... Something like: bought in 2024 for such price, interest is such and such, rent is such and such... If you provide numbers for a recent deal (2024 or the end of 2023) that would be helpful! Thank you
I've given many, many examples of deals (there's an echo in here) over the years. Every example I give to describe a strategy or REI principle, I use numbers to show how and why,...and they all come from real deals.
However, I'll give you an example of one we just got (I have a partner) in a western suburb of Detroit. Like I said, I have a partner, so I'm not going to give you an exact location in order to protect my partner. So please don't ask:
Buy using seller financing - $120k
DP (10%) - $12k
SF - $108k
Terms (7%/25 yrs) Pmt - $763/m
T/I - $325/m
Rent $1600/m
CF - $512/m
That means we sill recover our cost in less than 2 years.
Bought about $15k under Comps because seller had tenant in and wouldn't CF enough at full price using traditional financing. With interest added to the sale price, seller will be making almost $230k, and will have about the same CF they had when they owned it...without having to deal with the tenants. They have a lien on the property if we ever defaulted.
Joe, I got few questions (I am new to REI).
Why did the seller sell when he seem to be cash flowing well? Not dealing with tenant the reason?
What was the actual comp of the property? I assume you just took over the remaining payment of $120K left on his mortgage while the property was valued much higher that the current cash flow of $1600 would qualify for traditional financing? Which means you bought with big equity built in?
I am trying to understand the deal. The why of it. You already wrote the how of it. Thank you.
Thanks for the explanation. I got it except the part that it wouldn't cash flow with traditional financing. By that what % DP are you referring to and are you basing it on 140K? What would the PI payment come to if it was 'traditional financing' in this case?
@Mary Jay Real Estate Investing is a long-term investment. You really have to calculate what your return is over the life of the investment. If you only plan to hold it for a short time, I would never go with a negative cash-flowing property. But if you plan to hold it for 10, 20, 30 or more years, just project what you think you will be making. If you buy a property that is losing $100/month, that's $1,200/year or $12,000 over 10 years. If you look at the median home price over a 10-year period do you ever see where it dropped $12,000 over 10 years? Additionally, I don't think rents over a 10-year period have ever gone down, so your $100/month loss is probably less than that.
However, is that the best use of your money? Are you getting the best return you can get with your money? Generally I feel you could probably be doing better with your money and get a better return, but I don't know where you are investing.
Let me tell you a story of mine where I had a negative cash-flowing property. When I bought the property it was cash-flow positive, but the crash of 2008 hit and I was underwater on my loan and rent dropped so much I was negative cash-flow. Because I was underwater, and had the income to support paying the extra, I kept the property. I still have it today and provides almost more cash-flow than any other property I have. It's gone back up in value so much I pulled an equity line of credit from it that I use to fund repairs on my BRRRRs or flips. I looked at the property as a long-term investment and have done very well with it.
Just curious Bryan about that property of your held long term. Did you ever compare it to stocks to see which one comes out ahead?
I have not specifically analyzed it against stocks, but when I bought it, it was outperforming stocks. If I sold it once I went negative cash flow I would have had to pay out of pocket probably $30k-$50k. If I lost that capital I would not have been able to invest in the stock market and even more I would not have been able to invest in my next real estate deal, which is now grossing me over $1,000 per month. By holding on to the property long term, even through negative cash flow, I think I am in a better financial position than I would have been in if I just cut my losses and ran.
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
If you could provide an example of a recent deal you made with a positive cash flow that would be great. Something like Bill Brand does... Something like: bought in 2024 for such price, interest is such and such, rent is such and such... If you provide numbers for a recent deal (2024 or the end of 2023) that would be helpful! Thank you
I've given many, many examples of deals (there's an echo in here) over the years. Every example I give to describe a strategy or REI principle, I use numbers to show how and why,...and they all come from real deals.
However, I'll give you an example of one we just got (I have a partner) in a western suburb of Detroit. Like I said, I have a partner, so I'm not going to give you an exact location in order to protect my partner. So please don't ask:
Buy using seller financing - $120k
DP (10%) - $12k
SF - $108k
Terms (7%/25 yrs) Pmt - $763/m
T/I - $325/m
Rent $1600/m
CF - $512/m
That means we sill recover our cost in less than 2 years.
Bought about $15k under Comps because seller had tenant in and wouldn't CF enough at full price using traditional financing. With interest added to the sale price, seller will be making almost $230k, and will have about the same CF they had when they owned it...without having to deal with the tenants. They have a lien on the property if we ever defaulted.
Joe, I got few questions (I am new to REI).
Why did the seller sell when he seem to be cash flowing well? Not dealing with tenant the reason?
What was the actual comp of the property? I assume you just took over the remaining payment of $120K left on his mortgage while the property was valued much higher that the current cash flow of $1600 would qualify for traditional financing? Which means you bought with big equity built in?
I am trying to understand the deal. The why of it. You already wrote the how of it. Thank you.
Thanks for the explanation. I got it except the part that it wouldn't cash flow with traditional financing. By that what % DP are you referring to and are you basing it on 140K? What would the PI payment come to if it was 'traditional financing' in this case?
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
If you could provide an example of a recent deal you made with a positive cash flow that would be great. Something like Bill Brand does... Something like: bought in 2024 for such price, interest is such and such, rent is such and such... If you provide numbers for a recent deal (2024 or the end of 2023) that would be helpful! Thank you
I've given many, many examples of deals (there's an echo in here) over the years. Every example I give to describe a strategy or REI principle, I use numbers to show how and why,...and they all come from real deals.
However, I'll give you an example of one we just got (I have a partner) in a western suburb of Detroit. Like I said, I have a partner, so I'm not going to give you an exact location in order to protect my partner. So please don't ask:
Buy using seller financing - $120k
DP (10%) - $12k
SF - $108k
Terms (7%/25 yrs) Pmt - $763/m
T/I - $325/m
Rent $1600/m
CF - $512/m
That means we sill recover our cost in less than 2 years.
Bought about $15k under Comps because seller had tenant in and wouldn't CF enough at full price using traditional financing. With interest added to the sale price, seller will be making almost $230k, and will have about the same CF they had when they owned it...without having to deal with the tenants. They have a lien on the property if we ever defaulted.
Thank you!
Looks like still good cashflow is available, even with these interest rates...
How much do you calculate for capex and tenant turnover?
Thank you! As far as your expenses when a tenant moves out, how much would u say you spend? Most of my tenants were clean and after they moved out I had to only pay a cleaning lady $400 to clean. That is after 18 years of investing in RE.. But the last couple of tenants (in 2023), after they moved out I had to change the carpets, paint, there were dirty hands imprints on the walls, it was a disaster! I spent 10k and 15 k on those 2 properties to make them rentable again...
In Areas of Phoenix .
Scottsdale, Gilbert, SanTan Valley, Queen Creek.
House's have double in price in 3-5 years.
Who cares $200 negative first 6-12 months than positive cash flow.
This is why people from all over the nation love this place. 😀