Is Relying on Cash Flow Feasible?
Member since 2023 · 73 posts · 31 votes
Is Relying on Cash Flow Feasible?
Most Popular Reply
Arn CenedellaPro Member
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votesYou hit the nail on the head.
The “retire on real estate cash flow” gurus sell the dream of quick retirement from cash flow.
Buy two houses a year that each cash flow $1000 a month and retire in 5 years, they preach.
Or invest passively in real estate syndications and financial freedom will soon be yours, they promise.
What they don’t tell you is:
In order to owner enough real estate to generate say $10,000 a month income let’s say, you need at least $2M of capital invested in YES cash flowing real estate.
Let’s say one could buy rental real estate that provides a 6% annual cash on cash return. It could be either single family or multifamily. And truth be told, a 6% ConC return year one is hard to find but let’s stipulate to that return.
To get $10,000 a month, $120,000 a year off 6% annual cash on cash, how much capital does one need invested?
$120,000/0.06 equals $2,000,000.
So in my mind the target should NOT be cash flow but rather building net worth.
Despite what the gurus say, sufficient cash flow to be financially free can only come once one has sufficient capital to invest.
Let’s be clear I only buy apartment propeties that cash flow but immediate cash flow to put spendable dollars in my pocket is NOT the primary goal. The primary goal is appreciation adding value building equity and therefore net worth.
I’ve been at this “game” 46 years and there is no magic bullet.
It takes time, discipline and consistent effort.
But it can be done in 10 years.
Of course this means living below one’s means - ie spend less than they make - to develop and build cash and capital that can be invested and then watch ot grow over time.
Hope this helps.
Arn
59 Replies
- Real Estate Agent · Cleveland, OH · Member since 2025 · 60 posts · 54 votes1y
I have properties in all neighborhood classes. On paper, my C rentals have amazing cash flow. The reality at the end of the year is always much different. I get way more vacancies and repairs. In these neighborhoods it's just much harder to rent the units to somebody who will not wreck it on the way out. My B+ rentals are a different story. I get repair calls maybe once or twice a year, and tenants often stay years at a time. The C rentals still cash flow better, but the difference is marginal and honestly not worth the extra headache. 90% of my gains have been through appreciation and forcing equity through value add. I'm at a point now where I am able to live off of my cash flow, but it took me a lot more units than I thought it would. Honestly if you are trying to retire off the income just purchase value adds in the best neighborhoods you can afford. Rents will increase and you can pull equity out of these homes when they go up in value.
On the other hand, you can flip in any neighborhood as long as you are buying at a steep discount below ARV.
- 1yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
There are different ways that people invest. I think of rentals as a long term plan. Over time, your tenant pays off your mortgage. Others get equity in the home (through appreciation or renos or mortgage being paid down) and then pull out their equity. If you keep borrowing against the property, when you do go to sell, you won't see as much return (but you are using the money for other things).
Cash flow isn't going to be a lot unless you have the house paid off or have a small mortgage.
Here in AZ, generally it's not feasible to expect substantial or sometimes even any cash flow. Possibly negative . There are exceptions, but if you invest in average SFH in decent neighborhoods, it's all about the appreciation. When interest rates bottomed out, and the property had time to appreciate, cash out refinancing allowed me to acquire more.
i think multi-family options are likely to cash flow better.
- 1yArn CenedellaPro MemberRental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
You hit the nail on the head.
The “retire on real estate cash flow” gurus sell the dream of quick retirement from cash flow.
Buy two houses a year that each cash flow $1000 a month and retire in 5 years, they preach.
Or invest passively in real estate syndications and financial freedom will soon be yours, they promise.
What they don’t tell you is:
In order to owner enough real estate to generate say $10,000 a month income let’s say, you need at least $2M of capital invested in YES cash flowing real estate.
Let’s say one could buy rental real estate that provides a 6% annual cash on cash return. It could be either single family or multifamily. And truth be told, a 6% ConC return year one is hard to find but let’s stipulate to that return.
To get $10,000 a month, $120,000 a year off 6% annual cash on cash, how much capital does one need invested?
$120,000/0.06 equals $2,000,000.
So in my mind the target should NOT be cash flow but rather building net worth.
Despite what the gurus say, sufficient cash flow to be financially free can only come once one has sufficient capital to invest.
Let’s be clear I only buy apartment propeties that cash flow but immediate cash flow to put spendable dollars in my pocket is NOT the primary goal. The primary goal is appreciation adding value building equity and therefore net worth.
I’ve been at this “game” 46 years and there is no magic bullet.
It takes time, discipline and consistent effort.
But it can be done in 10 years.
Of course this means living below one’s means - ie spend less than they make - to develop and build cash and capital that can be invested and then watch ot grow over time.
Hope this helps.
Arn
- Rental Property Investor · Bow, NH · Member since 2016 · 216 posts · 185 votes1y
@Christopher Morris
You got alot of great insight already. I'll add that every successful real estate investor i know personally has a w2 job and none intend to get rid of it anytime soon.
Making real estate your primary income source isn't passive unless you have access to significant capital. Not debt but YOUR money. The example that Arn gave you probably gets a whole lot more expensive when you give 8% of gross to a manager to make it passive.
- Member since 2023 · 73 posts · 31 votes1yThanks for the response, Dan. I am definitely aware that real estate is nowhere near passive but I like that it can be more freeing than a full time W2 - therefore I’m not opposed to the grind of long term real estate.
Quote from @Dan Thomas:
@Christopher Morris
You got alot of great insight already. I'll add that every successful real estate investor i know personally has a w2 job and none intend to get rid of it anytime soon.
Making real estate your primary income source isn't passive unless you have access to significant capital. Not debt but YOUR money. The example that Arn gave you probably gets a whole lot more expensive when you give 8% of gross to a manager to make it passive.
I’m in sales so I have enough control of my income which is the type of freedom that I like, but at the same time it bothers me with every sale I make I just make the executives more wealthy and they are truly the ones building the freedom.
That’s where I think being a flipper where I turn 4-10 properties a year could be beneficial. For flipping, I am in the learning phase so I’ll be doing a lot more research and asking people with experience at meetups. - Member since 2023 · 73 posts · 31 votes1yThanks for the insight Arn! Agreed, have to be in this for the long game to truly build long term wealth.
Quote from @Arn Cenedella:
You hit the nail on the head.
The “retire on real estate cash flow” gurus sell the dream of quick retirement from cash flow.
Buy two houses a year that each cash flow $1000 a month and retire in 5 years, they preach.
Or invest passively in real estate syndications and financial freedom will soon be yours, they promise.
What they don’t tell you is:
In order to owner enough real estate to generate say $10,000 a month income let’s say, you need at least $2M of capital invested in YES cash flowing real estate.
Let’s say one could buy rental real estate that provides a 6% annual cash on cash return. It could be either single family or multifamily. And truth be told, a 6% ConC return year one is hard to find but let’s stipulate to that return.
To get $10,000 a month, $120,000 a year off 6% annual cash on cash, how much capital does one need invested?
$120,000/0.06 equals $2,000,000.
So in my mind the target should NOT be cash flow but rather building net worth.
Despite what the gurus say, sufficient cash flow to be financially free can only come once one has sufficient capital to invest.
Let’s be clear I only buy apartment propeties that cash flow but immediate cash flow to put spendable dollars in my pocket is NOT the primary goal. The primary goal is appreciation adding value building equity and therefore net worth.
I’ve been at this “game” 46 years and there is no magic bullet.
It takes time, discipline and consistent effort.
But it can be done in 10 years.
Of course this means living below one’s means - ie spend less than they make - to develop and build cash and capital that can be invested and then watch ot grow over time.
Hope this helps.
Arn
- Member since 2023 · 73 posts · 31 votes1yThank you! This was helpful. I’m starting to learn that forcing appreciation is more of a key factor than I originally thought.
Quote from @Sofia Komrskova:
I have properties in all neighborhood classes. On paper, my C rentals have amazing cash flow. The reality at the end of the year is always much different. I get way more vacancies and repairs. In these neighborhoods it's just much harder to rent the units to somebody who will not wreck it on the way out. My B+ rentals are a different story. I get repair calls maybe once or twice a year, and tenants often stay years at a time. The C rentals still cash flow better, but the difference is marginal and honestly not worth the extra headache. 90% of my gains have been through appreciation and forcing equity through value add. I'm at a point now where I am able to live off of my cash flow, but it took me a lot more units than I thought it would. Honestly if you are trying to retire off the income just purchase value adds in the best neighborhoods you can afford. Rents will increase and you can pull equity out of these homes when they go up in value.
On the other hand, you can flip in any neighborhood as long as you are buying at a steep discount below ARV.
Now I have to figure out how to play with equity that I build up and use it for more investments. - 1yJohn WilliamsBusiness MemberProperty Manager · Clarksville, TN · Member since 2018 · 443 posts · 210 votes
You'll never retire from flipping because that is active income. If you stop flipping, your income stops. Unless you are turning the profits into buy-and-hold rentals of course!
Cash flow is still possible, just more difficult than it was a couple of years ago! By buying down your rate and placing a larger down payment, you can still achieve true cash flow.
Rent My Home - Property Management4.8209 Reviews - Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes1y
All of mine cashflow. Because I'm in a higher income bracket from my W2, I chose to put it all back into the properties to add value. My goal while I'm working is to always report a break even or loss until I retire. If you know how and what to buy, you will be fine. Those people you are talking to I assume say Class C and D are impossible, so they try for all Class A. Thats all well and good but as I have become experienced, I know how to manage properties anywhere and I know what to buy. In addition to having cashflow to add value and push equity, I still have had decent appreciation. Now if we are talking about getting enough to quit your job and live on, I think it's rare. I know a handful who do but I don't feel it's not that common.
@Christopher Morris
I am one of the fortunate ones that has retired from my w-2 and now do real estate full time. But I’m 16 years into the game and did all of the maintenance, renovations and management myself for the first 10 years. It very common for my wife and I to work 7 days a week
Between rentals and our real estate business. But now we are both full time real estate investors. We do have a full time maintenance man, and still self
Manage. So it’s possible but you have to be willing to sacrifice for years.
- Investor · Cleveland, OH · Member since 2013 · 120 posts · 77 votes1y
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
- 1yPaul TacorontePro MemberBaltimore, MD · Member since 2017 · 7 posts · 2 votes
There are realities about making money that apply to lending and Cash Flow. As the risk goes up the cost of money goes up. In the class category it works to your favor the higher the risk the greater the CF.
I am 58 y/o I have been in Rental Real estate Market for 7 years with the major focus on generating income for retirement. It is possible if you are willing to buy good Class C properties with your own cash in the right market with financial partners. I have green lighted projects earning cash. 9 properties generating $7,200 monthly.
I look for like minded investors interested in maximizing every invested dollars. I try not to involve banks (the cheapest money) you end up losing 45% of Potencial CF.
New here but if your able to contact me we can talk more about creating Cash Flow. I invest in all my projects I don't sell you anything I won't invest in myself.
- 1yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Christopher Morris I’ve got close to $3MM under ownership but then I’ve got some debt on it. I “cash flow” about $7,000/month but because I’m not mechanically inclined I source out my maintenance which costs me roughly $4,000 of my cash flow each month. So it’s not technically cash flow.
I’ve got a deal with my contractor where I pay him around $4,000 every 4-6 weeks and he does my plowing, my mowing, and all the maintenance he can do. If I need a sub contractor for anything specific that’s extra.
I work my W-2 part time based upon what I want to work when shifts are available. This ends up supplementing my income about $1,000/month give or take.
I’m making it work and am super happy to be only working part time as I want to.
I’m not sure it’s the best long term investment strategy though because it’s definitely harder to save up for the next down payment this way.
- Member since 2021 · 107 posts · 82 votes1y
I'm on year two, own 21 doors, on paper I should cashflow but I am in the negatives month after month right now. I'm still spending money on capex items and remodels plus getting rents to market so I'm in the "stabilizing" phase. I hope next year I can start relying on some cash flow.
Quote from @Andre Brock:
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
I know of no RE investor that had RE before the crash that did not exit that would agree with your statement including this investor.
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes1y
Quote from @Dan H.:
Quote from @Andre Brock:
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
I know of no RE investor that had RE before the crash that did not exit that would agree with your statement including this investor.
I think every investor who takes the time to read and understand what he said would agree with @Andre Brock.Andre was talking about someone relying on something to live on. Not simply building wealth in additional to whatever else they have going on to support them. For many people real estate is more about wealth building than generating an income to live on and for them appreciation is important.
However, this post is about an income to live on and the appreciation/equity in your properties can disappear. You can't access that value to live on if it disappears!
So, if you have a property that generates little/no cash-flow and the market value drops the property cannot help you support yourself.
Conversely, if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
What RichDad does not tell you is that it takes a driven personality to build a portfolio and if you have that type of personality you will not enjoy a retired state. It does however give you a degree of independence to choose what you want to do.
As your portfolio grows you'll also feel the weight of future capex responsibility more, which ironically points you to growing more cash flow through more real estate.
The other issue is that you are chasing a moving goalpost. The number you feel would be enough to retire on will keep moving. But that will be your decision and at least you have options. It may take you 10 years to get there, real estate is slow, but it works reliably and it's not rocket science.
- Member since 2023 · 73 posts · 31 votes1yAgreed Marcus. I’m about to be 29 and I’m hoping this really takes effect in my life in my 40’s. I’m aware it’s never about quick cash or retiring in the matter of years.
Quote from @Marcus Auerbach:
What RichDad does not tell you is that it takes a driven personality to build a portfolio and if you have that type of personality you will not enjoy a retired state. It does however give you a degree of independence to choose what you want to do.
As your portfolio grows you'll also feel the weight of future capex responsibility more, which ironically points you to growing more cash flow through more real estate.
The other issue is that you are chasing a moving goalpost. The number you feel would be enough to retire on will keep moving. But that will be your decision and at least you have options. It may take you 10 years to get there, real estate is slow, but it works reliably and it's not rocket science.
im just trying to figure out the ways to retire earlier than 60 and not working for someone else making them wealthier at my expense.
Good advice! Quote from @Kevin Sobilo:
Quote from @Dan H.:
Quote from @Andre Brock:
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
I know of no RE investor that had RE before the crash that did not exit that would agree with your statement including this investor.
I think every investor who takes the time to read and understand what he said would agree with @Andre Brock.Andre was talking about someone relying on something to live on. Not simply building wealth in additional to whatever else they have going on to support them. For many people real estate is more about wealth building than generating an income to live on and for them appreciation is important.
However, this post is about an income to live on and the appreciation/equity in your properties can disappear. You can't access that value to live on if it disappears!
So, if you have a property that generates little/no cash-flow and the market value drops the property cannot help you support yourself.
Conversely, if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!
I disagree with so much of this reply. First look what he said.
>Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
“Any investor” is clear that it is any investor. I was an RE investor at great recession. I still consider appreciation great and i know of no investor that did not exit at the great recession that does not think that appreciation is great. In fact i will speculate the opposite as i believe virtually any investor who has held investment RE since the great recession highly values appreciation.
>if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!I am unsure what control you think you have on market rents. My market, and many markets, had little or no rent decline at the great recession so there was zero need to sell as the tenant, by paying the rent, was paying the mortgage. In my market, the fore closures were mostly not RE investors because the income did not decline (we only had 7 rentals at that time, not one had a reduction in rent). However there were other markets like Detroit, las vegas, much of arizona, much of the midwest that had large loss of rental income from a combination of higher vacancy and falling rent. If you were in one of those markets, your cash flow vanished and in many cases the rents were insufficient to pay the mortgage. I suspect the LLs in these markets wish they could affect market rents/vacancy but there was little they could do. Not sure how you believe they could control their cash flow.
Your take away on the great recession is different than mine. My take away is cash flow is not guaranteed. The Investors who purchased in higher initial cash flow markets in general were more prone to reduction in cash flow. My next takeaway is that if you are not overly leverage such that you have to sell at or near the low, the value will come back and typically fairly fast. There were quite a few years not long after the great recession that average appreciation in my market was above 20% and a couple years far above 20%.
As a RE investors at the great recession, i highly value appreciation. I intentionally minimize my cash flow (try to maintain high LTV, use accelerated depreciation to our advantage, etc) because it gets taxed annually. I plan to never pay tax on the appreciation with the current tax rules (1031, die with step up basis, etc).
Best wishes
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes1y
Quote from @Dan H.:
Quote from @Kevin Sobilo:
Quote from @Dan H.:
Quote from @Andre Brock:
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
I know of no RE investor that had RE before the crash that did not exit that would agree with your statement including this investor.
I think every investor who takes the time to read and understand what he said would agree with @Andre Brock.Andre was talking about someone relying on something to live on. Not simply building wealth in additional to whatever else they have going on to support them. For many people real estate is more about wealth building than generating an income to live on and for them appreciation is important.
However, this post is about an income to live on and the appreciation/equity in your properties can disappear. You can't access that value to live on if it disappears!
So, if you have a property that generates little/no cash-flow and the market value drops the property cannot help you support yourself.
Conversely, if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!
I disagree with so much of this reply. First look what he said.
>Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
“Any investor” is clear that it is any investor. I was an RE investor at great recession. I still consider appreciation great and i know of no investor that did not exit at the great recession that does not think that appreciation is great. In fact i will speculate the opposite as i believe virtually any investor who has held investment RE since the great recession highly values appreciation.
>if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!I am unsure what control you think you have on market rents. My market, and many markets, had little or no rent decline at the great recession so there was zero need to sell as the tenant, by paying the rent, was paying the mortgage. In my market, the fore closures were mostly not RE investors because the income did not decline (we only had 7 rentals at that time, not one had a reduction in rent). However there were other markets like Detroit, las vegas, much of arizona, much of the midwest that had large loss of rental income from a combination of higher vacancy and falling rent. If you were in one of those markets, your cash flow vanished and in many cases the rents were insufficient to pay the mortgage. I suspect the LLs in these markets wish they could affect market rents/vacancy but there was little they could do. Not sure how you believe they could control their cash flow.
Your take away on the great recession is different than mine. My take away is cash flow is not guaranteed. The Investors who purchased in higher initial cash flow markets in general were more prone to reduction in cash flow. My next takeaway is that if you are not overly leverage such that you have to sell at or near the low, the value will come back and typically fairly fast. There were quite a few years not long after the great recession that average appreciation in my market was above 20% and a couple years far above 20%.
As a RE investors at the great recession, i highly value appreciation. I intentionally minimize my cash flow (try to maintain high LTV, use accelerated depreciation to our advantage, etc) because it gets taxed annually. I plan to never pay tax on the appreciation with the current tax rules (1031, die with step up basis, etc).
Best wishes
You are way off topic. You think you are saying something when you aren't. Saying investors who held money since the great recession value appreciation says NOTHING! You didn't talk about how they managed to use real estate to pay their bills during the great recession!
I NEVER said an investor has control over MARKET RENTS! I said they have SOME control over cash-flow.
Just because SOME landlords planned poorly and weren't prepared to make moves to preserve their cash-flow doesn't mean good landlords could not.
A landlord who is not over-leveraged to begin with may simply refinance their loan even when prices go down just to re-amortize the loan and lower the payment to preserve cash-flow.
A landlord who isn't trying to get the top dollar amount for their unit to begin with has competitive advantages when things go awry.
Again, you haven't said anything so far. You talk about what you like but haven't mentioned how a typical investor can replace their income with it especially when things get rough. Quote from @Kevin Sobilo:
Quote from @Dan H.:
Quote from @Kevin Sobilo:
Quote from @Dan H.:
Quote from @Andre Brock:
For me that’s the only thing to rely upon is the cash flow. Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
I know of no RE investor that had RE before the crash that did not exit that would agree with your statement including this investor.
I think every investor who takes the time to read and understand what he said would agree with @Andre Brock.Andre was talking about someone relying on something to live on. Not simply building wealth in additional to whatever else they have going on to support them. For many people real estate is more about wealth building than generating an income to live on and for them appreciation is important.
However, this post is about an income to live on and the appreciation/equity in your properties can disappear. You can't access that value to live on if it disappears!
So, if you have a property that generates little/no cash-flow and the market value drops the property cannot help you support yourself.
Conversely, if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!
I disagree with so much of this reply. First look what he said.
>Appreciation is great until the market turns and you see that appreciation vanish ask any investor that was in the business before the crash.
“Any investor” is clear that it is any investor. I was an RE investor at great recession. I still consider appreciation great and i know of no investor that did not exit at the great recession that does not think that appreciation is great. In fact i will speculate the opposite as i believe virtually any investor who has held investment RE since the great recession highly values appreciation.
>if a property that makes ample cash-flow drops in value you are still able to use that cash-flow to support yourself. You have a lot more control over cash-flow as an investor than you do market appreciation!I am unsure what control you think you have on market rents. My market, and many markets, had little or no rent decline at the great recession so there was zero need to sell as the tenant, by paying the rent, was paying the mortgage. In my market, the fore closures were mostly not RE investors because the income did not decline (we only had 7 rentals at that time, not one had a reduction in rent). However there were other markets like Detroit, las vegas, much of arizona, much of the midwest that had large loss of rental income from a combination of higher vacancy and falling rent. If you were in one of those markets, your cash flow vanished and in many cases the rents were insufficient to pay the mortgage. I suspect the LLs in these markets wish they could affect market rents/vacancy but there was little they could do. Not sure how you believe they could control their cash flow.
Your take away on the great recession is different than mine. My take away is cash flow is not guaranteed. The Investors who purchased in higher initial cash flow markets in general were more prone to reduction in cash flow. My next takeaway is that if you are not overly leverage such that you have to sell at or near the low, the value will come back and typically fairly fast. There were quite a few years not long after the great recession that average appreciation in my market was above 20% and a couple years far above 20%.
As a RE investors at the great recession, i highly value appreciation. I intentionally minimize my cash flow (try to maintain high LTV, use accelerated depreciation to our advantage, etc) because it gets taxed annually. I plan to never pay tax on the appreciation with the current tax rules (1031, die with step up basis, etc).
Best wishes
You are way off topic. You think you are saying something when you aren't. Saying investors who held money since the great recession value appreciation says NOTHING! You didn't talk about how they managed to use real estate to pay their bills during the great recession!
I NEVER said an investor has control over MARKET RENTS! I said they have SOME control over cash-flow.
Just because SOME landlords planned poorly and weren't prepared to make moves to preserve their cash-flow doesn't mean good landlords could not.
A landlord who is not over-leveraged to begin with may simply refinance their loan even when prices go down just to re-amortize the loan and lower the payment to preserve cash-flow.
A landlord who isn't trying to get the top dollar amount for their unit to begin with has competitive advantages when things go awry.
Again, you haven't said anything so far. You talk about what you like but haven't mentioned how a typical investor can replace their income with it especially when things get rough.There is a tight coupling between appreciation and the cash flow over a long hold. The long hold cash flow coupling with appreciation is much stronger correlation than there is between initial cash flow and the cash flow over a hold. All of my rentals at the great recession maintained their positive cash flow that was the result of market rent increases that was tightly coupled to the appreciation.
So purchase with poor or no cash flow in an appreciation market and the cash flow will come with the appreciation. Appreciation virtually always results in rent appreciation which results in increased cash flow.
Case shiller used to publish a ranking of large cities based on total residential return since the year 2000. The large coastal California cities were ranked very high in appreciation (not surprising) but also were ranked very high for their cash flow (this could surprise some who do not recognize the coupling of appreciation and cash flow).
Initial cash flow has a poor correlation to actual cash flow over a long hold. This is not by chance as there are many factors that determine a market’s RE price. Two key ones are expected appreciation and expected rent growth. In general the best initial cash flow markets have poor appreciation and poor rent growth outlook. Note the market with higher rent growth will virtually always produce the better cash flow over a long hold. Appreciation with its tight coupling to rent growth, results in cash flow.
An example from my market, a few years ago core logic indicated the average rent increase in my market was ~$600/month. Imagine what that type of average rent increase does to cash flow.
i recommend all new investor start in a market near them, regardless of initial cash flow or appreciation outlook. I believe success can be achieved in both markets. However, in general the appreciation market will produce the higher return and historically on long holds much of that return can be from cash flow.
good luckI tried to skim most of the replies so I wouldn’t repeat what’s already been said but here’s my response to OP about real estate and retirement.
Treat it like a retirement plan, in fact I replaced my retirement contributions with real estate. This means…
Don’t count on it to cashflow, your 401k or your ROTH doesn’t cash flow, they never have. And yet every retirement expert tells you to sink every dollar you can afford in to these accounts.
From 2015-2020 everyone on BP was cash flow, cashflow, cashflow. Cashflow is guaranteed, Appreciation is gambling, blah blah blah. Then in 2020 it turned out cashflow wasn’t guaranteed, the government could burn your cashflow to the ground and you could lose everything. To me this was always a false narrative. All my rentals were in Vegas during the Great Recession. You tell me a market that was hit harder than Vegas? Well. I never made more money than that time period. Rents were skyrocketing, 10-20% annually. I had waiting lists of tenants for the first and only time in my career.
Personally I don’t think you are ready or that you should buy real estate if you NEED the cashflow. Especially if it’s less than $1,000/months per property. It’s just too easy for it to go away. In fact I went out of my way to get 15 year mortgages because I knew that even if I had zero or even negative cashflow I was literally making more money as my interest expense was lower. I care about income waaaay more than cashflow. I sank every dollar my rentals provided back in to paying off debt and acquiring more properties. (You know, zero cashflow, just like a retirement account.)Even today with only paid off properties generating a boatload of cashflow I generally make more every year on appreciation.
Sure, it took almost 10 years to retire, but compared to the 30-40 year plan most people use it was a dream come true. And none of that counts the 10’s of thousands in tax advantages I reap without any advanced skills or planning, the government just hands them out.
It’s not a binary on/off choice. Not convinced? Buy a new primary every 2-5-10 years, whatever you can afford. Keep it as a rental and I GUARANTEE your life will be better in 20-30 years than if you ignore me and the simple get slow plan. After all, if your 5% down properties only double in 20 years you’ll have 40x your money. And that extra $40-$50k a year will be life changing. Every single new investor wants to say it was easier “back then” or “it’s too hard/impossible today” so they don’t have to start today. When I was buying 1/2 price homes not ONE person I talked to said it was smart. EVERY single one said “aren’t you afraid they’ll keep dropping?” Now they tell me I was lucky I bought back then. I was buying homes for $100k with $25k of my money, and the mortgage was paid off by the tenants. Did they really think 3 year old Vegas homes would drop below $25k? Now they’re hoping they’ll drop below $525k.
You’re surrounded by a support group I never had, and that’s a positive. But I also didn’t have all the negative Nancys (sorry Nancys of the world) saying it was too risky too late or couldn’t be done. Maybe that’s why it was easier doing it alone. I literally didn’t know a person that owned 2 homes, much less a rental. I just did the math and it was obviously better than stock account retirement. And experts said that was a good idea. So if this was better it couldn’t be a bad idea. Get started and look back on today in 5-10 years with all your new knowledge. Keep asking questions. And Good luck. Sorry again to rant but I never plan my response beyond the first paragraph and I’m sure it shows.
- Member since 2023 · 73 posts · 31 votes1y
Quote from @Bill B.:
I tried to skim most of the replies so I wouldn’t repeat what’s already been said but here’s my response to OP about real estate and retirement.
Treat it like a retirement plan, in fact I replaced my retirement contributions with real estate. This means…
Don’t count on it to cashflow, your 401k or your ROTH doesn’t cash flow, they never have. And yet every retirement expert tells you to sink every dollar you can afford in to these accounts.
From 2015-2020 everyone on BP was cash flow, cashflow, cashflow. Cashflow is guaranteed, Appreciation is gambling, blah blah blah. Then in 2020 it turned out cashflow wasn’t guaranteed, the government could burn your cashflow to the ground and you could lose everything. To me this was always a false narrative. All my rentals were in Vegas during the Great Recession. You tell me a market that was hit harder than Vegas? Well. I never made more money than that time period. Rents were skyrocketing, 10-20% annually. I had waiting lists of tenants for the first and only time in my career.
Personally I don’t think you are ready or that you should buy real estate if you NEED the cashflow. Especially if it’s less than $1,000/months per property. It’s just too easy for it to go away. In fact I went out of my way to get 15 year mortgages because I knew that even if I had zero or even negative cashflow I was literally making more money as my interest expense was lower. I care about income waaaay more than cashflow. I sank every dollar my rentals provided back in to paying off debt and acquiring more properties. (You know, zero cashflow, just like a retirement account.)Even today with only paid off properties generating a boatload of cashflow I generally make more every year on appreciation.
Sure, it took almost 10 years to retire, but compared to the 30-40 year plan most people use it was a dream come true. And none of that counts the 10’s of thousands in tax advantages I reap without any advanced skills or planning, the government just hands them out.
It’s not a binary on/off choice. Not convinced? Buy a new primary every 2-5-10 years, whatever you can afford. Keep it as a rental and I GUARANTEE your life will be better in 20-30 years than if you ignore me and the simple get slow plan. After all, if your 5% down properties only double in 20 years you’ll have 40x your money. And that extra $40-$50k a year will be life changing. Every single new investor wants to say it was easier “back then” or “it’s too hard/impossible today” so they don’t have to start today. When I was buying 1/2 price homes not ONE person I talked to said it was smart. EVERY single one said “aren’t you afraid they’ll keep dropping?” Now they tell me I was lucky I bought back then. I was buying homes for $100k with $25k of my money, and the mortgage was paid off by the tenants. Did they really think 3 year old Vegas homes would drop below $25k? Now they’re hoping they’ll drop below $525k.
You’re surrounded by a support group I never had, and that’s a positive. But I also didn’t have all the negative Nancys (sorry Nancys of the world) saying it was too risky too late or couldn’t be done. Maybe that’s why it was easier doing it alone. I literally didn’t know a person that owned 2 homes, much less a rental. I just did the math and it was obviously better than stock account retirement. And experts said that was a good idea. So if this was better it couldn’t be a bad idea. Get started and look back on today in 5-10 years with all your new knowledge. Keep asking questions. And Good luck. Sorry again to rant but I never plan my response beyond the first paragraph and I’m sure it shows.
Thanks for this Bill. Some great insight here.
When you say “I generally make more every year on appreciation.” Are you putting these profits back into RE or somehow extracting this income to live off. Is this via cash out refi / heloc or some other method? I’ve heard this statement before and am never sure what it means exactly. Hey Christopher, congratulations on making it through that mess.
I have a dozen properties. They generate about $300k in rent, I get to keep about $250k of that in cashflow. But, ON AVERAGE those properties appreciate about $325-$400k per year. No, I do not extract that income to live on because I don’t even need the $250k to live a pretty extravagant (To me a boring Midwest guy who never made more than $60k/yr while working. Plus with no state income tax, cheap insurance, and very low property taxes, I’m probably starting $20k ahead of most people, and that’s a tax free $20k.). Then think about writing off your cellphone, your internet, you car, your home office, your tax prep, etc etc etc. And there’s another $20k tax free head start I have over the “worker bee”.
It’s like I have a bunch of clones out earning money for me. (Others would be more boring and say it’s just my money earning money. But it’s also saving me taxes. :-))
But yes, I could take a $200k or $300k tax free loan every year on the appreciation if I couldn’t manage to make ends meet at $20k/mo. But to me that would be a spending problem, not an income problem.
Imagine something as simple as deciding tomorrow to spend 3-6 months in Australia because it’s too cold here, or I haven’t been, or a friend dared me. Most people couldn’t afford to do that. Either they don’t have the money, or more likely they don’t have the freedom. They’re a slave to their job. If they stop going the income stops. More importantly to me. Most of the people who could would just do it, leaving their home empty. I would rent out my primary and end up making more than I spend living in Australia. And it wouldn’t even be ONLY profit motivated. To me, having my home sit empty is wasteful. It’s the reason the lake front “retirement” home I bought on Lake Minnetonka in MN has had a tenant in it for the last 10 years. The idea of it sitting empty caused me emotional damage.
I think a lot of it is mindset, or personality or whatever it is that controls how you act in certain situations. My classic example is:
The richest man in the world works harder and longer hours AFTER becoming rich than almost anyone else is willing to work to become rich. It has to be a personality trait. People talk about being a rush to retire early on $1-5-$10 million. Here’s a guy with 400,000 billion working his butt off. And the world’s a better place for it. Don’t be wasteful and try to make the world the better place while generating income and it won’t even seem like work.
And I’ve rambled on again. Hopefully you found a nugget in there somewhere. And congratulations if you made it to the end again.
Ps. Can you believe how much time and information Tax, 1031 exchange, accounting, and financial experts give away here? Many of them have already “made it” and do it just to make the world a little better. So I try to thank them every time for providing information I would have to pay for, if I knew who to ask and who to trust. They are a more local and relatable example.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.