Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
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.
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.
I bought all of my properties between 2012-2019. In Mississippi it took the pandemic to drive prices up much.
so nationwide price is rising within two years for something that should happen only after 7 to 9 years. We have massive acceleration during 2020-2022 era, because of that and 2023 is also rising. I'm thinking conservatively that we would see flat growth for the next three to five years, I could be wrong but inventory is seems moving back to 2019-2021 curves in some area which may indicate flat to slow growth market.
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
I'll make one correction. Tenants stay a long time (our typical single family resident stays 4.8 years). All other points are spot on. When there is turn over, it typically costs a lot of money and costs at least a month of lost rent. I've owned 50+ SF rental homes, so this isn't just happen stance.
In a typical year, we are cash flowing $8k/month on an average single family home. The issue is the off years, which tend to happen quite often on some properties. Roof replacements, water heaters, furnaces, AC's, appliances, etc, plus the random eviction.
If you're buying strictly for cash flow you'll miss the forest for the trees.
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.
Some of us got into this without a lot of cash to begin with. I went in with my mother to buy our first property. The property cost 15K but needed about 30K worth of work. My mother put up the 15K and I put the other 30K on my credit cards. After the property was rehabbed and rented we got a first-place HELOC (WF used to have these for rental properties) and used the money to buy the next house. I now own seven properties with one mortgage and two first-place HELOCs. If I had been trying to keep my money out of cash, I'd have none. In Mississippi you buy for cash-flow because you can't count on appreciation in most areas.
If you're buying strictly for cash flow you'll miss the forest for the trees.
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.
Some of us got into this without a lot of cash to begin with. I went in with my mother to buy our first property. The property cost 15K but needed about 30K worth of work. My mother put up the 15K and I put the other 30K on my credit cards. After the property was rehabbed and rented we got a first-place HELOC (WF used to have these for rental properties) and used the money to buy the next house. I now own seven properties with one mortgage and two first-place HELOCs. If I had been trying to keep my money out of cash, I'd have none. In Mississippi you buy for cash-flow because you can't count on appreciation in most areas.
You literally just bought more houses to not keep that cash-- that is my point. You could've chose to to keep the money, but you bought more houses with it.
You cash flow because you have little debt and yes you're buying really cheap properties, but that's another subject on where to invest and it's not in Jackson, MS, from a fundamentals standpoint. It is for a cash flow only standpoint. The fundamentals of growing wealth to is to take cash, make it make more cash for you, and take that cash and have make it even more. At no point do you really actually keep the cash if you see this cycle, you keep some earmarked for protection.
Once my cash flow from my properties started to exceed my salary, what I did was max out my retirement funds. Some of it did go into a solo401K but I only have one house left in that account.
The first property I bought in Mississippi was a 4/2 I bought from HUD to live in but during the recesson I found to my horror it was underwater. I could either cry about that or buy up the neighborhood. I ended up wth six houses on just that street. I've since sold the 4/2.
Jackson, MS may not make sense from your "fundamentals standpoint" but for me I went from more debts than assets (including retirement funds) during the recession to over a million in assets over debts by the time I retired. Mind you, my salary was just short of 60K when I retired. Yes, I made more money when I sold my condo in Tahoe than any property I sold in Mississippi, but I never could have qualified for mortgage in California if I did not have all that rental income from those other properties. Point is money can be made off of PIGs or PALs. It is really a matter of what you need for what purpose. In Mississippi you can only make money off of PIGs in California it is PALs that will create the most wealth. For me the latter seems more risky, maybe because I've always done things on a shoestring.
If you're buying strictly for cash flow you'll miss the forest for the trees.
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.
Some of us got into this without a lot of cash to begin with. I went in with my mother to buy our first property. The property cost 15K but needed about 30K worth of work. My mother put up the 15K and I put the other 30K on my credit cards. After the property was rehabbed and rented we got a first-place HELOC (WF used to have these for rental properties) and used the money to buy the next house. I now own seven properties with one mortgage and two first-place HELOCs. If I had been trying to keep my money out of cash, I'd have none. In Mississippi you buy for cash-flow because you can't count on appreciation in most areas.
There are definitely pros and cons in Mississippi. The bar of entry is definitely lower, but so is the appreciation.
I agree 100%. Most of the people on here are selling bs, real life real estate gives a small net cashflow and very strong appreciation long term. I try to be honest with clients and a lot are turned off by my realistic cashflow % expectations I tell them. Many are using percents for cap ex when its really a fixed cost that actually goes up on cheaper properties due to worse tenants not down. They read this fake numbers from turnkey providers, etc. who put like $40 cap ex a month on a cheap house lol when anyone who owns one knows its really 4-5x that averaged out.
I've yet to see turnkey providers whose properties weren't way over-priced.
100% correct. That's the business model. They make the money on the spread from when they bought and when they sold to a turnkey buyer. Guess who is on the wrong side?
The PM and fees is just the re-occuring fees that keep the juice flowing. The passivity is almost incomprehensible given it's a physical asset but people love the idea.
I agree. As a Tx investor in LTR for a while now, you really have to be at some scale for the cash flows to add up to anything worth while. Yes you have the other profit centers, but those are all secondary, tertiary or backend benefits; not cash today that you can utilize. And rentals are NOT all that passive anyways. A lot more active items than generally promoted. As an investor seeking passive investment income, I’ve pivoted more towards syndications and commercial investments via a real estate investment club. IMO, I’ve found it to be a much better way to deploy my active income, put money to work, and generate truly passive returns.
PIGs stands for Passively Income Generators meaning they make money from day one, usually via rental income. PALs stands for Passively Activity Losses. On paper at least, your investments may be losing money in the latter case, but they may provide tax write-offs. Normally these properties do appreciate at least whereas PIGs may not. Most of us likely have a combination of PIGs and PALs. I don't deliberately buy PALs but some properties turn out that way, anyhow.
In a typical year, we are cash flowing $8k/month on an average single family home.
Something is wrong with this comment. $8K a month????
$8k/year - Good catch
Where are these homes located?
Twin Cities, MN. I bought all of them between 2008 and 2015 and have really low debt service. I can't imagine if I bought them over the past 5 years. Maybe on paper they would make a few bucks, but when the rubber hits the road, they would lose money.
To your original post, our large apartments and large commercial are what make money the most consistently.