Less cash flow than all the hype would suggest.
Most Popular Reply
Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votesLTRs are defintiely a marathon- slim margins in B or better areas for the first few years will just get sweeter and sweeter...not so much in C and D areas. My advice is simple- buy nicer properties in nicer areas with the expectation that the first few years will be slim, and then all of the sudden you will be a millioniare. It takes patience.
Properties that perform well out of the gate, at least on paper, are often not great long term bets. Ironically, the opposide is true for the ones that don't look great for years 1-5 or so.
42 Replies
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.Joe, go with the "Buy Off Market", using "Subject To" selling on "Lease Option" (BOMSTLO) format. The cash flow is great and you get the "down payment" up front. Mississippi is a great market for this (Not TX, as we've discussed) but try MS, AL, AR, even LA. You understand what you're doing, I know from our conversations, but if you want help on the (BOMSTLO) method, buy a month of coaching and let's get going. You could do this in IN and OH and GA and it'd work there too. You're working too hard. ;-)
Folks in CA have no idea what they are missing and they are overthinking things too.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Joe S.
Every investor has paper returns - meaning it looks great on paper, unfortunately many use bad data. When people look at occupancy rates, yea large MF may be at 95% but if you have a single family in a B or C area most tenants do not stay long and will have higher turnover = greater vacancy rates
Also under estimating repairs and capex as well based on a percentage vs looking at life expectancy and cost.
But it all looks good on paper
7e investments53 Reviews - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Thanks for sharing. You have extensive experience and are a great contributor to the forums. Below is a similar post.
https://www.biggerpockets.com/forums/48/topics/1159104-overl...
I try to focus on adding value and investing in growth areas to insulate against risk. Built in equity mitigates risk, and value and rents increase with time.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes2y
I've been investing for 23 years in the SFR arena and have no regrets. We used to buy over a large swath of Texas but now focus on the Texas Gulf Coast where we live. As you said, having the ability to utilize a number of investing strategies has been key for us too. Flips, rentals, sub-to, wraps, O.F., etc has allowed us to weather the good times and the bad. Surprisingly, we've had great luck with rentals but only because we almost always get them with financing in place (O.F. or sub-to) so the cash flow has been solid. Taxes are indeed high but we have to consider the landlord/tenant environment here in Texas versus other states. I'm also a licensed broker so in addition to using my license to save money when selling my flips, I can still list a few properties each year for other investors for an easy additional income source. And my assistant and A+ contractor make my life much easier.
- 2yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
LTRs are defintiely a marathon- slim margins in B or better areas for the first few years will just get sweeter and sweeter...not so much in C and D areas. My advice is simple- buy nicer properties in nicer areas with the expectation that the first few years will be slim, and then all of the sudden you will be a millioniare. It takes patience.
Properties that perform well out of the gate, at least on paper, are often not great long term bets. Ironically, the opposide is true for the ones that don't look great for years 1-5 or so.
Quote from @Account Closed:
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.Joe, go with the "Buy Off Market", using "Subject To" selling on "Lease Option" (BOMSTLO) format. The cash flow is great and you get the "down payment" up front. Mississippi is a great market for this (Not TX, as we've discussed) but try MS, AL, AR, even LA. You understand what you're doing, I know from our conversations, but if you want help on the (BOMSTLO) method, buy a month of coaching and let's get going. You could do this in IN and OH and GA and it'd work there too. You're working too hard. ;-)
Folks in CA have no idea what they are missing and they are overthinking things too.
My properties in Mississippi are with a property management company. When I lived in the geographical area, I did mostly lease options. Sometimes people actually got their own loan and cashed me out. :-)
My concern with doing a lease option out of the area is that if I did at least option, my property management company would want to keep the option fee and would take it upon themselves to possibly not do the normal check ups on the tenants. We know an option is simply an option, but in a lot of tenants mind , they feel like the home is theirs. If I lived in the geographical area still, I think I would fill all of my properties with lease options tenants. Those big option fees you referred to though is not something that I have been familiar with receiving.- Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes2y
Folks in CA have no idea what they are missing and they are overthinking things too.
Speaking as a native Californian who has lived in Mississippi for twenty years, yes there are great opportunities here, but buying there can be very tricky if you don't know what you are doing. Some of the prices now are unsustainable and it is easy to think you're getting a great deal only to see the neighborhood totally disintegrate. Too often I've tried to talk Californians out of deals where I knew they were going to get burned. At least run the deal past someone who is local if you can.
- If you're buying strictly for cash flow you'll miss the forest for the trees.
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.
But yes conventional buying will lead to limit cash flow, likely cash loss against the paper gains. You buy to keep your money out of cash. That thesis with a long-term view will yield it's true impact. And that's why it's important to keep healthy reserves. Most people expect instant cash the real yield in SFH fully leveraged will show up year 8 probably exponentially growing every year after that. Anything sub that time isn't worth investing, but it's better to be even more conservative and think 12 years + - 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Joe S. very common challenge when you don't use proper estimation when buying.
Example: everyone on BP recommends using a 5% Vacancy Factor - no matter the property Class.
That's illogical!
In our opinion, Vacancy Factor should also INCLUDES tenant nonperformance -> breaking leases and evictions.
You don't get a lot of that in Class A, so 5% can work in a strong rental market. You may want to increase it with Days On Market averages increasing - more than 45 days, 75 days, etc.
We recommend at least 10% for Class B properties and 15-20% for Class C. We don't touch Class D.
What Vacancy Factor have you been using?
Logical Property Management4.9455 Reviews Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.HMM I just picked up 7 more, SF ( I can provide 100s of examples) all in 80k or less, I have others that are all in 65k, ALL rents are from 1100- 1400, All have taxes of not more then 1500, So all net about 9- 10k, not really sure if we can get better. I do have one all in 45k, rent is 875, No these are not in war zones, Its all about knowledge,
All the best and Merry Christmas
Quote from @Michael Smythe:
@Joe S. very common challenge when you don't use proper estimation when buying.
Example: everyone on BP recommends using a 5% Vacancy Factor - no matter the property Class.
That's illogical!
In our opinion, Vacancy Factor should also INCLUDES tenant nonperformance -> breaking leases and evictions.
You don't get a lot of that in Class A, so 5% can work in a strong rental market. You may want to increase it with Days On Market averages increasing - more than 45 days, 75 days, etc.
We recommend at least 10% for Class B properties and 15-20% for Class C. We don't touch Class D.
What Vacancy Factor have you been using?
Very common challenge when you do use proper estimation when buying as well. Lol.
- How long do you keep them? Unless you keep them and rehab them between tenants you’re missing part of the educational process. :-)
Quote from @Bob S.:
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.HMM I just picked up 7 more, SF ( I can provide 100s of examples) all in 80k or less, I have others that are all in 65k, ALL rents are from 1100- 1400, All have taxes of not more then 1500, So all net about 9- 10k, not really sure if we can get better. I do have one all in 45k, rent is 875, No these are not in war zones, Its all about knowledge,
All the best and Merry Christmas
- 2yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
Single family homes are going to be far less efficient to operate than multi-family or mix-use assets where you have multiple units under one roof, one sewer lines, lower turn over costs etc. Within the single family asset class, the lower price point homes tend to perform even worse over time despite the appearance of cash flow in a pro-forma. Those who I've found to be most successful in the single family rental business are investors who acquire homes in markets that experience appreciation and lead to re-sale to an owner occupant. It's not the cash flow that makes the investment successful.
- Member since 2022 · 119 posts · 52 votes2y
Quote from @Bob S.:
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.HMM I just picked up 7 more, SF ( I can provide 100s of examples) all in 80k or less, I have others that are all in 65k, ALL rents are from 1100- 1400, All have taxes of not more then 1500, So all net about 9- 10k, not really sure if we can get better. I do have one all in 45k, rent is 875, No these are not in war zones, Its all about knowledge,
All the best and Merry Christmas
Hey Bob - Where are you purchasing these properties at? What markets?
Quote from @Amby Bhagtani:
Quote from @Bob S.:
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.HMM I just picked up 7 more, SF ( I can provide 100s of examples) all in 80k or less, I have others that are all in 65k, ALL rents are from 1100- 1400, All have taxes of not more then 1500, So all net about 9- 10k, not really sure if we can get better. I do have one all in 45k, rent is 875, No these are not in war zones, Its all about knowledge,
All the best and Merry Christmas
Hey Bob - Where are you purchasing these properties at? What markets?
Cleveland and Jackson MS. Wes used to pay about 35k all in but pricing has doubled tripled or more
RE investors that started post Great Recession (GR) started at an incredible time and should have generated significant return even with aggressive under writing and not great purchases.
The RE environment is different now. The rate increase has increased the cost of purchases for high leverage purchases. The sales volume is down significantly. Rents are starting to level out.
Many recent RE purchases were purchased relying on appreciation and/or rent growth with aggressive underwriting. Some of these investors could be in for a bumpy ride.
I always recommend conservative underwriting. The goal is not to own properties; the goal is to make money. Some RE investors seem to have the goal incorrect.
good luck- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
your answer is there : flipping ! totally agree.
everywhere is the same, either LTR STR syndication etc etc....they are all make money only from either flip or appreciation.
never from cash-flow itself...
in theory we do not need cashflow, we could just simply buying land (lets say hypothetically with mortgage) and then just wait for 8 years before selling.no capex to maintain, no opex, and still yield the same return from single family with tenant
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Joe S., I had a conversation about this once with my friend that actually got me started in buying rentals back in 2011. He now owns north of 200 properties around Dayton, OH (a common high cash flow area). He will not buy in war zone areas, but "war zone" just like class A, B, C is all very subjective. He is a buy and hold guy that started buying in college in 2006. He and his wife self manage with one handyman employee.
His take, after 17 years of owning properties, he is 40 yrs old and his equity is worth north of $10mm in the properties. He does not make much money at all. He lives a comfortable, but frugal lifestyle. The only thing he pays himself is once a mortgage is paid off, he will keep the "mortgage payment". But near everything else ends up in a roof, new doors, furnaces, a tenant that did far more damage than their security deposit covers, etc. I can say the same thing. If you hold long enough, renovations to keep the quality tenants interested will take out years of cash flow. The equity build up is likely there, but the cash flow in my experience, sounds like yours, and for most long term investors is mostly fictional.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Evan Polaski:
@Joe S., I had a conversation about this once with my friend that actually got me started in buying rentals back in 2011. He now owns north of 200 properties around Dayton, OH (a common high cash flow area). He will not buy in war zone areas, but "war zone" just like class A, B, C is all very subjective. He is a buy and hold guy that started buying in college in 2006. He and his wife self manage with one handyman employee.
His take, after 17 years of owning properties, he is 40 yrs old and his equity is worth north of $10mm in the properties. He does not make much money at all. He lives a comfortable, but frugal lifestyle. The only thing he pays himself is once a mortgage is paid off, he will keep the "mortgage payment". But near everything else ends up in a roof, new doors, furnaces, a tenant that did far more damage than their security deposit covers, etc. I can say the same thing. If you hold long enough, renovations to keep the quality tenants interested will take out years of cash flow. The equity build up is likely there, but the cash flow in my experience, sounds like yours, and for most long term investors is mostly fictional.
it's always the same story, the folks that purchased multiple properties during the biggest run-up in 2010-2015 is the one that makes the most profit, especially when they're also local. And they make it through selling/refinancing after certain years of equity build-up and appreciation which typically happened between year 9 to year 14.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.also I believe you do a good job Joe. Flipping activity in my market can generate half million in gross profit for single family,that's just one for example. The flips that I do is also doing good although haven't reach 500k level yet lol lol, but yea since you know the trick, maybe in your business you can allocate certain fund and activity towards more flip , lets say 80% and the remaining 20% for cash-flows.
Recently the appreciation market in cash-flow area has been good, very good, that I can make 50% IRR after appreciation from cash-flow properties. But well yes I could just keep flip and live in the flip for two years with conventional lending , i found it's the fastest way to make profit in conservative way also.
- Attorney · Columbus, OH · Member since 2023 · 193 posts · 145 votes2y
Quote from @Joe S.:
I have been investing for years, so I may know a little something…
In my experience, at least in Texas the taxes increased faster than rent increase. However, I do have properties in Mississippi. Taxes are not so bad there. Turnovers, repairs, property management fees, vacancies, and evictions all but eat up the cash flow.
Are there any properties that make money ….. well sure, but not quite like is being Marketing from those that have a financial stake in the game of making it sound easy..
The reason I’ve made it as an investor is because we have done flips etc. to offset not being able to depend upon the rentals. Keep in mind this is from a single-family property standpoint. I’m not experienced in apartments.
Just sharing my viewpoint and I don’t have anything to sell anyone so it could make my viewpoint a lot less glamorous.It sounds like you already have significant experience investing out of state. Here in Columbus, Ohio we have a large amount of opportunities that will maximize your cash on cash return and appreciation. We also have resources readily available make this experience hassle free.
- Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes2y
Flip to pay down properties, expenses have been so volatile. If you remove the mortgage, you will have REAL cash flow. Partner up with a few local investors and start a pm company that manage only partners' units. You can reduce your pm cost from 11-12% all in (incl leasing and maintenance markup) to maybe 6%.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @Evan Polaski:
@Joe S., I had a conversation about this once with my friend that actually got me started in buying rentals back in 2011. He now owns north of 200 properties around Dayton, OH (a common high cash flow area). He will not buy in war zone areas, but "war zone" just like class A, B, C is all very subjective. He is a buy and hold guy that started buying in college in 2006. He and his wife self manage with one handyman employee.
His take, after 17 years of owning properties, he is 40 yrs old and his equity is worth north of $10mm in the properties. He does not make much money at all. He lives a comfortable, but frugal lifestyle. The only thing he pays himself is once a mortgage is paid off, he will keep the "mortgage payment". But near everything else ends up in a roof, new doors, furnaces, a tenant that did far more damage than their security deposit covers, etc. I can say the same thing. If you hold long enough, renovations to keep the quality tenants interested will take out years of cash flow. The equity build up is likely there, but the cash flow in my experience, sounds like yours, and for most long term investors is mostly fictional.
it's always the same story, the folks that purchased multiple properties during the biggest run-up in 2010-2015 is the one that makes the most profit, especially when they're also local. And they make it through selling/refinancing after certain years of equity build-up and appreciation which typically happened between year 9 to year 14.
I am very confused by your response, Carlos. I don't know whether you are talking about my own purchases (bought in the run up) or my friend (also bought a lot in the run up), and yet I am stating how even those, over the long term, are not creating any real cash flow. I can create cashflow through deferred maintenance. Or I can continue to improve my property and keep it in good repair, but then I will make very little by way of cash flow.
From an appreciation standpoint, yes, buying SFRs in 2011 was a great time to buy. And the appreciation was great. In fact I sold most rentals because of the continual maintenance costs eating nearly all my cash flow, and the fact that appreciation was growing faster than rents, so every year my return on equity was lower and lower. I could refi to tap into that equity, but then my slim cash flow disappears and I would have to find another property worth buying that would likely also have almost no cash flow short term or long term due to same maintenance and repair issues that will continually arise, even on newer properties.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Evan Polaski:
Quote from @Carlos Ptriawan:
Quote from @Evan Polaski:
@Joe S., I had a conversation about this once with my friend that actually got me started in buying rentals back in 2011. He now owns north of 200 properties around Dayton, OH (a common high cash flow area). He will not buy in war zone areas, but "war zone" just like class A, B, C is all very subjective. He is a buy and hold guy that started buying in college in 2006. He and his wife self manage with one handyman employee.
His take, after 17 years of owning properties, he is 40 yrs old and his equity is worth north of $10mm in the properties. He does not make much money at all. He lives a comfortable, but frugal lifestyle. The only thing he pays himself is once a mortgage is paid off, he will keep the "mortgage payment". But near everything else ends up in a roof, new doors, furnaces, a tenant that did far more damage than their security deposit covers, etc. I can say the same thing. If you hold long enough, renovations to keep the quality tenants interested will take out years of cash flow. The equity build up is likely there, but the cash flow in my experience, sounds like yours, and for most long term investors is mostly fictional.
it's always the same story, the folks that purchased multiple properties during the biggest run-up in 2010-2015 is the one that makes the most profit, especially when they're also local. And they make it through selling/refinancing after certain years of equity build-up and appreciation which typically happened between year 9 to year 14.
I am very confused by your response, Carlos. I don't know whether you are talking about my own purchases (bought in the run up) or my friend (also bought a lot in the run up), and yet I am stating how even those, over the long term, are not creating any real cash flow. I can create cashflow through deferred maintenance. Or I can continue to improve my property and keep it in good repair, but then I will make very little by way of cash flow.
From an appreciation standpoint, yes, buying SFRs in 2011 was a great time to buy. And the appreciation was great. In fact I sold most rentals because of the continual maintenance costs eating nearly all my cash flow, and the fact that appreciation was growing faster than rents, so every year my return on equity was lower and lower. I could refi to tap into that equity, but then my slim cash flow disappears and I would have to find another property worth buying that would likely also have almost no cash flow short term or long term due to same maintenance and repair issues that will continually arise, even on newer properties.
I am talking about your friend that accumulate 200 properties ( I guess they bought at 40k-80k) price during 2010-2015 era. These are the only window to make profit from the appreciation or refinancing. It's rare to see investor making money from cashflow alone. The cash-flow portion is literally used only for us to be able to pay the mortgage lender, but not significant enough to give stable income to the investor.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.