Is Relying on Cash Flow Feasible?
Member since 2023 · 73 posts · 31 votes
Listening to all of the podcasts and reading the BP books / Rich Dad Poor Dad types makes it seem like building a portfolio and scaling smart could lead to early retirement and living on cash flow that ultimately replaces your income.
But, talking to real life investors at RE meetups seems to come with a different answer. Many investors told me cash flow is a myth that all of it just goes right back into the property for repairs, vacancies, etc.
I’m sure it’s a combination of both - but what should we believe as newer investors? Many investors seem to flip houses or have another form of income coming in (not a W2). I’ve been much more interested in flipping but I’m curious if that’s the common way to retire with RE on top of long-term holds with cash flow.
Thoughts?
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
i tend to think of 'cash flow' as a function of an entire portfolio rather than any individual property, or any specific month. here are some ways to get cash flow:
-tax savings on other sources of income from your real estate shielding it
-selling an underperforming property and doing something with the proceeds
-raising the rent on a property that was breaking even
-refinancing a property when rates fall and using the tax free income
so again, you need to have a broader view than "property X made $37 after all expenses in March."
hope this helps
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.
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.
You've got time on your side at age 29, so you can definitely retire earlier. But there are so many milestones in between, the first one is when you realize REI works and you are now actually a real estate investor. Another one is when you start to feel a little weight off your shoulders because you don't depend entirely on your boss. And then your REI income matches your W2 income the first time etc
To your question: equity is the name of the game. Cash flow is basically a function of equity. The more equity you have, the more cash flow. Equity first comes in the form of down-payment, but you can also force it into existence with rehab or wait for it with appreciation.
This is why it is so important that you re-invest your cash flow into more equity. It's like full dividend re-invest on an index fund. It grows so much faster and that early growth compounds over time, so having a little more invested early on is worth more than a ton invested later.
There is a metric called cash on equity return. It is typically lower than cash-on-cash and you can put it somewhere around 6% conservatively. So for every million dollar in equity you'll get about $60,000 in net cash flow.
Play around with a BP calculator, plug in a million worth of RE with 20% down and see what happens over time. Change some of the variables, it will give you an intuitive feel for where you need to focus next given the opportunities at hand.
Finally, the ultimate combination is having a business AND invest in real estate. Flipping is a production business. But it could also be a coffee shop or an etsy store and the cash flow goes into real estate. Even part-time is fine. Any type of business income will supercharge your investing.
I was lucky that I started in Milwaukee in 2008, but I was always trying to sail downwind", so whatever the market provided. When foreclosures dried up, we went after short sales and when those dried up we started to focus on properties with mold or foundation issues and learned how to fix those and when that started to become too difficult and the rehab was not worth it anymore I had to pivot again and we buy properties in good shape that fell through with another buyer. Today I would probably figure out to make money online with AI, that's an opportunity that did not exist in this form.
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.
You've got time on your side at age 29, so you can definitely retire earlier. But there are so many milestones in between, the first one is when you realize REI works and you are now actually a real estate investor. Another one is when you start to feel a little weight off your shoulders because you don't depend entirely on your boss. And then your REI income matches your W2 income the first time etc
To your question: equity is the name of the game. Cash flow is basically a function of equity. The more equity you have, the more cash flow. Equity first comes in the form of down-payment, but you can also force it into existence with rehab or wait for it with appreciation.
This is why it is so important that you re-invest your cash flow into more equity. It's like full dividend re-invest on an index fund. It grows so much faster and that early growth compounds over time, so having a little more invested early on is worth more than a ton invested later.
There is a metric called cash on equity return. It is typically lower than cash-on-cash and you can put it somewhere around 6% conservatively. So for every million dollar in equity you'll get about $60,000 in net cash flow.
Play around with a BP calculator, plug in a million worth of RE with 20% down and see what happens over time. Change some of the variables, it will give you an intuitive feel for where you need to focus next given the opportunities at hand.
Finally, the ultimate combination is having a business AND invest in real estate. Flipping is a production business. But it could also be a coffee shop or an etsy store and the cash flow goes into real estate. Even part-time is fine. Any type of business income will supercharge your investing.
I was lucky that I started in Milwaukee in 2008, but I was always trying to sail downwind", so whatever the market provided. When foreclosures dried up, we went after short sales and when those dried up we started to focus on properties with mold or foundation issues and learned how to fix those and when that started to become too difficult and the rehab was not worth it anymore I had to pivot again and we buy properties in good shape that fell through with another buyer. Today I would probably figure out to make money online with AI, that's an opportunity that did not exist in this form.
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.
Do you mind if I DM you to ask a bit about your C rentals? I'm thinking about diving into those sorts of rentals, and would really like to connect with people who have actual experience doing it.
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.
Do you mind if I DM you to ask a bit about your C rentals? I'm thinking about diving into those sorts of rentals, and would really like to connect with people who have actual experience doing it.
Sure Zach!
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.
What class of property/neighborhood did you primarily invest in? Seems like you have done quite well and I'd really like to learn from you.
Listening to all of the podcasts and reading the BP books / Rich Dad Poor Dad types makes it seem like building a portfolio and scaling smart could lead to early retirement and living on cash flow that ultimately replaces your income.
But, talking to real life investors at RE meetups seems to come with a different answer. Many investors told me cash flow is a myth that all of it just goes right back into the property for repairs, vacancies, etc.
I’m sure it’s a combination of both - but what should we believe as newer investors? Many investors seem to flip houses or have another form of income coming in (not a W2). I’ve been much more interested in flipping but I’m curious if that’s the common way to retire with RE on top of long-term holds with cash flow.
Thoughts?
I believe you have to be creative in real estate to live off cash flow and by that, you do what others aren't doing. For instance, using bank financing to buy in expensive places like California, Washington, New York or Illinois are really tough to cash flow. People that buy in those places say they make up the negative cash flow in appreciation. Maybe. But you still have to eat today.
Buying in Ohio, Indiana, Missouri, and Michigan might be cheap and you can make a little cash flow but, the trouble with vacancies, trashed properties and evictions off sets a lot of that.
What I have found, is that by buying decent properties in decent areas, before they even get listed and taking over the current financing at 3% or 4% provides cash flow in almost any situation. It's just that you have to have some money to do these, they are not zero down. So to make money, you need money. I started off by doing flips, built my "bank" and real estate knowledge and started looking for "off market" properties, which has turned out quite nicely. Yes, it can be done and it can be done correctly. Not like the hype on Youtube which will eventually get you into trouble.
Thanks Kevin great post..
I agree with Dan!
I have invested for 17 years.
APPRECIATION and the 1031 exchange are the keys to real estate
Hey Christopher,
It’s definitely a bit of both. Cash flow is real, but it’s often a long-term play. When you’re just starting out, the numbers can feel tight because a lot of the cash flow gets eaten up by repairs, vacancies, and other unexpected expenses. But over time—think 5-10 years—it grows as rents increase, loans amortize, and you get a better handle on operational costs.
I've got a 12-door portfolio in Detroit that I built mostly between 2019-2021 using the BRRRR strategy. My initial goal was to net $150-$200 per door after ALL expenses. At first, it wasn't glamorous, but today, those 12 doors produce about $90,000/year in net cash flow. That's thanks to a combination of rent increases, successfully appealing property taxes (highly recommend if you understand the process), and just giving the portfolio time to stabilize.
One thing I'll say is that a lot of people underestimate how much capital it takes to scale quickly. I was working with about $300k between savings, a HELOC, and 401k loans. It's tough to pull off something similar with $50k-$100k in a short period—it's just not realistic. If you're patient and methodical, though, cash flow can absolutely become a reliable income stream.
Hope that helps! Let me know if you want to dive into any specifics. I openly share the historical performance of my Detroit rentals for anyone interested.
Listening to all of the podcasts and reading the BP books / Rich Dad Poor Dad types makes it seem like building a portfolio and scaling smart could lead to early retirement and living on cash flow that ultimately replaces your income.
But, talking to real life investors at RE meetups seems to come with a different answer. Many investors told me cash flow is a myth that all of it just goes right back into the property for repairs, vacancies, etc.
I’m sure it’s a combination of both - but what should we believe as newer investors? Many investors seem to flip houses or have another form of income coming in (not a W2). I’ve been much more interested in flipping but I’m curious if that’s the common way to retire with RE on top of long-term holds with cash flow.
Thoughts?
Cash flow is real but often overstated, as many profits go toward expenses like repairs and vacancies. Flipping generates quick cash, while rentals build long-term wealth but take time to scale into significant income. Most investors combine strategies—using flips or other income to fund rentals—until their portfolio supports full financial freedom.
Listening to all of the podcasts and reading the BP books / Rich Dad Poor Dad types makes it seem like building a portfolio and scaling smart could lead to early retirement and living on cash flow that ultimately replaces your income.
But, talking to real life investors at RE meetups seems to come with a different answer. Many investors told me cash flow is a myth that all of it just goes right back into the property for repairs, vacancies, etc.
I’m sure it’s a combination of both - but what should we believe as newer investors? Many investors seem to flip houses or have another form of income coming in (not a W2). I’ve been much more interested in flipping but I’m curious if that’s the common way to retire with RE on top of long-term holds with cash flow.
Thoughts?
I believe you have to be creative in real estate to live off cash flow and by that, you do what others aren't doing. For instance, using bank financing to buy in expensive places like California, Washington, New York or Illinois are really tough to cash flow. People that buy in those places say they make up the negative cash flow in appreciation. Maybe. But you still have to eat today.
Buying in Ohio, Indiana, Missouri, and Michigan might be cheap and you can make a little cash flow but, the trouble with vacancies, trashed properties and evictions off sets a lot of that.
What I have found, is that by buying decent properties in decent areas, before they even get listed and taking over the current financing at 3% or 4% provides cash flow in almost any situation. It's just that you have to have some money to do these, they are not zero down. So to make money, you need money. I started off by doing flips, built my "bank" and real estate knowledge and started looking for "off market" properties, which has turned out quite nicely. Yes, it can be done and it can be done correctly. Not like the hype on Youtube which will eventually get you into trouble.
All 1800-2400sf, 3-5bd, 2-7 year old (when I bought them), stucco sided, tile roofed, SFR without lawns. Basically zero maintenance. With a dozen properties over 25 years I have yet to spend a dollar on a roof or painting a house exterior. (Other than wood trim.)
People move in and they stay 6-12 years. It’s their home. They have a yard, they have laundry and a garage. Apartments aren’t an alternative to these people. My vacancy is probably under 1/2 of 1%? (A couple weeks for 1 property every year or two? (5 tenants are original tenants, having been in the homes since I purchased them 9-12 years ago when I was doing more buying.)
My last purchase was a 1031 exchange in September of 23 for a new build.
We follow a similar model as @Bill B. and with similar results, except our properties are from the 60s, so we gut them and rehab from the studs up, basically resetting the clock.
There was a time when I had multi-family FOMO. I felt like I needed to "graduate" and we spent some time looking at medium size apartment buildings. There is a solid argument of course for MF investing and scaling based on NOI. But I did not like what I saw, anything under what Costar would rate 4 stars did not appeal to me. And management is a LOT more intense, just turnover rates alone!
You just can't beat the simplicity and it is the most hands-off business model I can think of maybe short of just holding the note.
@Christopher Morris I get the sense that your falling into the all-too common fallacy of absolutes.
Let's re-frame this to help better understand.
Real Estate Investing is for the vast majority of time not classical "investing", it's a business. And with much more in commonality with starting and running say a restaurant.
With running this "business" there will be operational input costs. Things wear out over time, require updating, upgrading, replacement etc.. If let it get outdated and go into disrepair, well, that will dictate the clientele we can attract right.
Does that operational aspect have to devour all cash-flow, no not necessarily but it could, all depending on situation specifics right.
And over time, as those assets to make our product we sell had a fixed price, the dollar does not sit fixed, our cost of product increases meaning increased cash-flow. Or the market get's better, the product we sell get's more scarce etc etc..
Now if your thinking location jumps out as a big factor to all this, you hit the nail on the head, location location LOCATION.
This is why very often "buying for cash-flow" has less than desirable outcomes. Because the often dynamics of those locations. It's often C-class or worse areas meaning not a place anyone really wants to be and more people get stuck having to be, that's not a recipe for appreciation.
@Christopher Morris I get the sense that your falling into the all-too common fallacy of absolutes.
Let's re-frame this to help better understand.
Real Estate Investing is for the vast majority of time not classical "investing", it's a business. And with much more in commonality with starting and running say a restaurant.
With running this "business" there will be operational input costs. Things wear out over time, require updating, upgrading, replacement etc.. If let it get outdated and go into disrepair, well, that will dictate the clientele we can attract right.
Does that operational aspect have to devour all cash-flow, no not necessarily but it could, all depending on situation specifics right.
And over time, as those assets to make our product we sell had a fixed price, the dollar does not sit fixed, our cost of product increases meaning increased cash-flow. Or the market get's better, the product we sell get's more scarce etc etc..
Now if your thinking location jumps out as a big factor to all this, you hit the nail on the head, location location LOCATION.
This is why very often "buying for cash-flow" has less than desirable outcomes. Because the often dynamics of those locations. It's often C-class or worse areas meaning not a place anyone really wants to be and more people get stuck having to be, that's not a recipe for appreciation.
@Christopher Morris I get the sense that your falling into the all-too common fallacy of absolutes.
Let's re-frame this to help better understand.
Real Estate Investing is for the vast majority of time not classical "investing", it's a business. And with much more in commonality with starting and running say a restaurant.
With running this "business" there will be operational input costs. Things wear out over time, require updating, upgrading, replacement etc.. If let it get outdated and go into disrepair, well, that will dictate the clientele we can attract right.
Does that operational aspect have to devour all cash-flow, no not necessarily but it could, all depending on situation specifics right.
And over time, as those assets to make our product we sell had a fixed price, the dollar does not sit fixed, our cost of product increases meaning increased cash-flow. Or the market get's better, the product we sell get's more scarce etc etc..
Now if your thinking location jumps out as a big factor to all this, you hit the nail on the head, location location LOCATION.
This is why very often "buying for cash-flow" has less than desirable outcomes. Because the often dynamics of those locations. It's often C-class or worse areas meaning not a place anyone really wants to be and more people get stuck having to be, that's not a recipe for appreciation.
Well it all depends, it's all in what kind of business a person want's to shape. There is a million options one can take it in.
For example, let's look at the "Burger King". There about volume, and only way to scale that is in more volume. To add volume requires more locations.
Now take a Wolfgang Puck. He scaled with quality, going full-on luxury top-shelf. To do that you can't just quadruple your prices, you have to quadruple the experience.
While similar these 2 operate vastly differently, are positioned wildly differently.
So in Real Estate, say your doing a "volume model", let's say sec8 housing. Your going to have a slew of staff, it's a very active business model with a lot of inputs. So to have the revenues to hire a GM, your gonna have to scale. As you scale up more locations, staffing scales not just per location but also via that middle management which declines bottom line net so have to scale more to offset.
Can it be done, heck yeah but it's a specific business model and does not operate as say a good running STR business.
On other extreme let's look at that, a "good" STR business.
Say you position in great locations where the experience is highly sought and highly valued with limited offerings. You can achieve gross revenues at a multiplier per location vs that sec8 volume model.
So now how you scale is a lot "shorter". But the requirements are way different. Quality of everything is very heavily weighted, and penalized for failing at it. And up-front costs to deliver quality are not cheap.
But if you do it right, yes, getting to a net revenue place to afford a GM is achievable in less volume of locations.
Ironically the invested capital is often very similar for either. because your either investing capital in # of locations to scale, or investing capital in higher quality ie higher cost assets and operational items.
But how each operates and scales is vastly different, an ocean apart.
To add to what @James Hamling said, it also depends how much you need every last $ of income, how much more money you can make doing something else (W-2), or how much you value your time.
I added a PM when I bought my 4th property. At the time I could make more money working (Even at only $60k/yr) than managing the properties. Plus, I’m not a “people person” and I know my weaknesses. When I retired 15+ years ago I valued my time more than the extra income. The $20k+ I pay a PM means with a dozen properties I literally spend less than an hour a month on a dozen properties. And 1/2 of that is accounting that I could farm out too, but I enjoy it.
Some people look at PM fees as “wasted” or something they could do themselves. But using that mindset, so is landscaping, plumbing, or clean out during turnover. And the are people that are so poor they have to do that work, and some that enjoy it. Like I do the accounting. But there are some that just can’t see it’s a waste of their time. They’re buying themselves a job. (I used to own some franchises like James talked about. Computer Renaissance, also based out of MN.) You can’t believe how many franchises are started by people who need a job for themselves or their kids.
Ps. Side benefits or PM besides free time. They keep you legal in regards to screening, notices, and so on. They have vendors that count on their business as a large portion of their business. So repairs are done at a fair price the same day/night. You don’t have to deal with the repair calls or the sob stories. They probably do a better job of screening than you would. They charge and collect the late fees you might let slide. They raise rents more often than you might/would. They have a better finger on the pulse of “market rent”. Tenants tend to expect to get away with stuff when dealing with an owner/manager they wouldn’t try with a property manager. To me, it’s money well spent.
Pps. Because of special circumstances I have one property I self manage. It’s on MN (out of state to me.) and I had to get a pair of garage door springs replaced. A simple easier like that sucked. It took me 5 calls, 2 days, and 2 different vendors to go out before I paid at least market rates. When they’re done in Vegas I see a line item on my PM statement. It broke day 1, it was fixed day 1, here’s a bill for 75% of what I paid to handle it myself.
@Christopher Morris I get the sense that your falling into the all-too common fallacy of absolutes.
Let's re-frame this to help better understand.
Real Estate Investing is for the vast majority of time not classical "investing", it's a business. And with much more in commonality with starting and running say a restaurant.
With running this "business" there will be operational input costs. Things wear out over time, require updating, upgrading, replacement etc.. If let it get outdated and go into disrepair, well, that will dictate the clientele we can attract right.
Does that operational aspect have to devour all cash-flow, no not necessarily but it could, all depending on situation specifics right.
And over time, as those assets to make our product we sell had a fixed price, the dollar does not sit fixed, our cost of product increases meaning increased cash-flow. Or the market get's better, the product we sell get's more scarce etc etc..
Now if your thinking location jumps out as a big factor to all this, you hit the nail on the head, location location LOCATION.
This is why very often "buying for cash-flow" has less than desirable outcomes. Because the often dynamics of those locations. It's often C-class or worse areas meaning not a place anyone really wants to be and more people get stuck having to be, that's not a recipe for appreciation.
To expand on this, and to peg when a person can just be "The Owner" and wash hands of being IN the day-2-day....
Say's it whatever active REI model. Wholesaling, sec8, whatever. This will require a GM.
To get a GM, we need to pay a GM wage. It needs to be enough $ incentive to get them to stay, that's important. Because hiring a GM is far from simple, they literally run everything so how they do directly impacts everything, in a big way.
And, imaging having one in running it all and "poof" then there gone, holly-heck that's a nightmare right. So it's not just enough $ to attract, but to also KEEP.
And that goes to support staff. Nobody wants to be a "GM" in a company of 1, right. So, they are going to expect and want support staff, to delegate to. And most likely, upward mobility because any good "GM" is also ambitious.
All this is why, I believe, it's a rare thing in the REI industry.
The vast majority go it the outsourced route; Property Management.
Unfortunately there is no outsourced options for a home flipping or wholesaling type biz, even STR is not really viable in that aspect but it does exist. So in general, to outsource forces being a Landlord.
But even being a Landlord and outsourcing that staffing via Property Management still requires someone to manage the managers.
So that presses the question, how out of the day-2-day do you mean when say out of the day-2-day? Are we talking ABSOLUTE out-OUT of it, or is managing the managers out enough?
Because if were talking out-OUT, well, back to start right, who wants to be a GM in a company of 1, without upward mobility they can directly impact and influence.
The mirage of get into Real Estate Investing, make ton's of money, get passive, do nothing, sip cocktails on the beach and professionally vacation the rest of your days sounds great, unfortunately it's a mirage.
Now going the outsourced route, yes there is ways a person can design that "manage the managers" to be least or maximal impact and requirements. Back to sec8, should be easy to see that's a fast-pass to time-suck-city.
On other side of coin, doing AAA; A-class assets, A-class tenants, A-class area..... Ok, that could be as minimal as literally hours per year, like <10 per property. Keyword "could be".
This is why in my opinion the most viable WEALTH CREATION model in REI is the AAA Strategy with property management. It's a "get rich slow" formula.
The trick is getting from 0 too that $1m+ equity that returns 10%+ net annual in cash-flow.
You’re absolutely right. Building a portfolio and scaling smart can eventually replace your income, but it’s not as simple as podcasts make it seem. Cash flow is tricky, especially early on, because so much of it gets eaten up by repairs, vacancies, and reserves.
That said, some asset classes—like laundromats—can provide more immediate cash flow if structured well. They’re a different kind of play than rentals but can complement long-term holds by creating steady income streams without waiting for a portfolio to mature.
Flipping is another great option, especially if you’re looking for chunks of capital to reinvest, but it’s a different game with higher risk and shorter timelines. A lot of investors I know mix strategies: flips, cash-flowing assets, and long-term holds to get that balance of growth and income.
It really comes down to what fits your goals and risk tolerance. Thoughts?
Hi Chris, I really think you make most of your money from the tax benefits and later appreciation that comes from real estate. We do cash flow from our property, which may help in paying off a property or saving for a down payment on the next home.
Right now in AZ I have a few strategies that will get you cash flow positive, not going to retire you in the next year or 2 but strong long term growth potential. In this market I'd say if you can find something that is cash flow positive you're doing really well, it mainly comes from rehabbing a sfh or small mfh, renting and refinancing.
It really depends on the market on what strategy or property type is best to get cash flow, but right now at least in AZ you're really just trying to get the asset stabilized and wait for the rents to grow yearly and gain more cash flow over time as well as refi and get as much back out of the deal as you can so you can scale quicker.