Rent declines and negative cash flow
Rental Property Investor · Dallas · Member since 2021 · 84 posts · 22 votes
Rent declines and negative cash flow
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesThe more cash you put in, the more the property costs you. With positive CF, the tenant is paying the interest, not you. The total cost of the property isn't equal to the total cost to the REI,...or at least it shouldn't be.
Buying equity isn't making money. All you're doing is moving your cash to the property. It's the same money, you just froze it. Profit is made after you recover your costs...which is ONLY your cash you put in. You recover that cash from your CF. The more cash you put in, the more cash you have to recover, and the longer it takes.
On the other hand, 100% owner financing with no interest is great. That means you got the property for nothing.
33 Replies
Where are rents declining? Definitely not in my market.
- Rental Property Investor · CA · Member since 2023 · 25 posts · 27 votes1y
Quote from @Wesley W.:
Where are rents declining? Definitely not in my market.
All the markets I own in Southern California ( Rancho Cucamonga, Loma Linda ) Arizona ( Scottsdale, Gillbert ) and Ohio ( Columbus ). But not by much.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Alex Moazeni:
I am wondering what would be the best approach since rent is declining and leading to the negative cash flow in this supper slow market?
Maybe just deal with it until the market gets better and the rates then refinancing?
What are your thoughts?
Let's discuss.
You’re right to zoom out and look at the broader market trends. Real estate investing is just as much about understanding the local economic drivers and future outlook as it is about the numbers on a deal today.
If rents are declining and you're experiencing negative cash flow, the first step is to ask: Is this a temporary market correction or a longer-term shift? In some markets, this could be a short-term oversupply issue or interest rate pressure on buyers that will ease with time. In others, it could signal deeper issues like population decline or economic stagnation.
Holding and refinancing later could be a good strategy if you're confident the market will rebound and you can absorb the cash flow shortfall in the meantime. But if the fundamentals in the area do not support recovery, like job growth, demand, and population trends, it might be time to reevaluate.
In our business, we often say buying the right asset in the wrong market is still the wrong investment. Real estate is not just about property. It is about the location’s trajectory.
What market are you in, and what indicators are you watching to guide your decision?
7e investments53 Reviews - Rental Property Investor · Dallas · Member since 2021 · 84 posts · 22 votes1y
@Wesley W. DFW
- Rental Property Investor · Dallas · Member since 2021 · 84 posts · 22 votes1y
@Chris Seveneyi am in DFW
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
I pay cash for my LTRs so I'm not going to ever see negative cash flow.
Also there is about 30 people a day moving to GSP so rents are steadily increasing.
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesYes you are. You have the highest NCF. By paying all cash upfront, all you are doing is paying ALL your negative CF upfront.
Quote from @John Underwood:
I pay cash for my LTRs so I'm not going to ever see negative cash flow.
Also there is about 30 people a day moving to GSP so rents are steadily increasing.
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesI am getting mind boggling super deals that I can buy fast and not I am not paying interest or points related to financing.
Quote from @Joe Villeneuve:
Yes you are. You have the highest NCF. By paying all cash upfront, all you are doing is paying ALL your negative CF upfront.Quote from @John Underwood:
I pay cash for my LTRs so I'm not going to ever see negative cash flow.
Also there is about 30 people a day moving to GSP so rents are steadily increasing.
So, I am definitely not paying for negative cashflow upfront the way I am doing it.
Sometimes I even get 100% owner financing with no interest. - Rental Property Investor · Chicago, IL · Member since 2016 · 92 posts · 23 votes1y
@John Underwood how do you swing seller financing and no interest? I just proposed a seller financing deal yesterday for 3.5% I went with that because the last time it sold that's what the interest rates were
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesI just ask. I Don't mention interest rate and if they don't either it is zero.
Quote from @Patrick Moore:
@John Underwood how do you swing seller financing and no interest? I just proposed a seller financing deal yesterday for 3.5% I went with that because the last time it sold that's what the interest rates were
- Rental Property Investor · Chicago, IL · Member since 2016 · 92 posts · 23 votes1y
@John Underwood I wish I read this before yesterday! Haha
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @John Underwood:
I just ask. I Don't mention interest rate and if they don't either it is zero.Quote from @Patrick Moore:
@John Underwood how do you swing seller financing and no interest? I just proposed a seller financing deal yesterday for 3.5% I went with that because the last time it sold that's what the interest rates were
I give them a number they are happy with and they give me terms.
A cash price would be a much smaller number.
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
The more cash you put in, the more the property costs you. With positive CF, the tenant is paying the interest, not you. The total cost of the property isn't equal to the total cost to the REI,...or at least it shouldn't be.
Buying equity isn't making money. All you're doing is moving your cash to the property. It's the same money, you just froze it. Profit is made after you recover your costs...which is ONLY your cash you put in. You recover that cash from your CF. The more cash you put in, the more cash you have to recover, and the longer it takes.
On the other hand, 100% owner financing with no interest is great. That means you got the property for nothing.
- Palm Beach - Chicago · Member since 2024 · 17 posts · 15 votes1y
Quote from @Joe Villeneuve:
The more cash you put in, the more the property costs you. With positive CF, the tenant is paying the interest, not you. The total cost of the property isn't equal to the total cost to the REI,...or at least it shouldn't be.
Buying equity isn't making money. All you're doing is moving your cash to the property. It's the same money, you just froze it. Profit is made after you recover your costs...which is ONLY your cash you put in. You recover that cash from your CF. The more cash you put in, the more cash you have to recover, and the longer it takes.
On the other hand, 100% owner financing with no interest is great. That means you got the property for nothing.
Agree 100%. Give him a minute, let it sink in.
- 1yMackaylee BeachPro MemberReal Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
It's understandable to feel uncertain in a slow market, especially when rental income isn't meeting expectations. Here are a few strategies you might consider:
**Reevaluate Expenses:** Take a closer look at your current expenses to identify areas where you could reduce costs. This might include negotiating better rates with service providers or finding more cost-effective ways to manage property maintenance.
- **Enhance Property Appeal:** Consider making minor improvements or updates to your property to attract more tenants. Enhancements like fresh paint, modern fixtures, or upgraded appliances can make a significant difference.
- **Flexible Lease Terms:** Offering flexible lease options, such as shorter lease periods or incentives for long-term tenants, might help attract renters in a competitive market.
- **Diversify Income Streams:** Explore additional revenue opportunities, such as offering furnished rentals or adding amenities that could justify a higher rent.
- **Consult a Financial Advisor:** Speaking with a financial advisor or real estate expert can provide personalized strategies tailored to your situation and help you make informed decisions.
Ultimately, patience and strategic adjustments can guide you through challenging market conditions.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
As @Joe Villeneuve says if the only way a deal provides positive cash flow is if you put a LOT of money in or pay all cash it probably isn't a good deal. The way to put a number on what Joe is saying is calculate your internal rate of return IRR. Joe often has incredible insights on how to look at things in a realistic light. He cuts through the BS many others here provide
However in @John Underwoods defense some deals are so good it is fine to pay all cash. I have bought multiple deals for $25k or less cash all in after repairs. These properties rent for $1000 - $1250. I am putting no more in that if I bought at market price and financed at 80%. I bet john does the same kind of deals.
@Alex Moazeni sadly at t his point there is not much you can do. You can tighten your belt and cut exposes to the min, You can also sell - which might be a matter of cutting your losses. What you are describing is a very real risk in real estate. This is despite the bogus claims the market always goes up.
Because of the high risk in real estate it is important do do good deals not just do marginal deals for the sake of doing deals. It is also vital to have cash reserves
- 1ySeth McGatheyBusiness MemberReal Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 254 votes
@Ned Carey I agree with almost everything you said. The one caveat is that the market does seem to always go up. That is, over a long enough timeline it always goes up. Obviously there are ups and downs, but if you look ten years out, it is almost guaranteed that a property will be worth more than it is now, besides some local disaster. This can be a physical disaster like a flood, fire, hurricane, etc or economic disaster, like a major business shutting down in that area. But besides those special cases, real estate essentially always goes up if you zoom out far enough.
Seth McGathey - Shorewest Realtor4.912 Reviews
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
I also buy houses in my self directed ROTH IRA and skip the tax part.
- Rental Property Investor · CA · Member since 2023 · 25 posts · 27 votes1y
Quote from @John Underwood:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
I also buy houses in my self directed ROTH IRA and skip the tax part.
Tell me more! Can you purchase these assets under an LLC?
- 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Amish Patel:
Quote from @John Underwood:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
I also buy houses in my self directed ROTH IRA and skip the tax part.
Tell me more! Can you purchase these assets under an LLC?
Yes I always do.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
"I buy $150k to 200k houses all the time for 30k."
There is nothing, absolutely nothing realistic, consistent or scalable about that what-so-ever.
99.9% of people are operating in a space I like to call "reality", where there not able to obtain, on demand, properties for pennies on the dollar. - 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesIs he leaving out the cost of rehab, or other added costs? Where and how? How about examples?
Quote from @James Hamling:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
"I buy $150k to 200k houses all the time for 30k."
There is nothing, absolutely nothing realistic, consistent or scalable about that what-so-ever.
99.9% of people are operating in a space I like to call "reality", where there not able to obtain, on demand, properties for pennies on the dollar. - 1yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @James Hamling:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
"I buy $150k to 200k houses all the time for 30k."
There is nothing, absolutely nothing realistic, consistent or scalable about that what-so-ever.
99.9% of people are operating in a space I like to call "reality", where there not able to obtain, on demand, properties for pennies on the dollar.My portfolio would say otherwise. I don’t even want or need any more houses, but I can't turn down a deal when they keep falling in my lap.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Joe Villeneuve:
Is he leaving out the cost of rehab, or other added costs? Where and how? How about examples?Quote from @James Hamling:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
"I buy $150k to 200k houses all the time for 30k."
There is nothing, absolutely nothing realistic, consistent or scalable about that what-so-ever.
99.9% of people are operating in a space I like to call "reality", where there not able to obtain, on demand, properties for pennies on the dollar.Giving the benefit of the doubt, I think he's talking in hyperbolic terms of the best deals and leaving out lots and lot's of details.
For example buying a tax lien, going through all the steps to get people out, take full possession and for whatever reason the people were just dumb as day is long n let it go vs, ya know, selling the thing themself to clear the lien.
And then the reno, and then and then and then.
I've had some big wins over the years but it sure as hell isn't the weekly norm, and it sure as heck isn't on demand.
Nobody with half an ounce of intelligence is gonna give away a property for even a 30% discount just because you said it real nice or other BS, more or less 50% or 70% etc..
Getting a 25yr outdated place that needs $30k+ of reno and with that gain a nice 30% equity position after the fact because seller just wanted it done n gone as-is, sure THAT's realistic.
But just a "oh hey, I'll give you $30k for your $175k property".... Nobody is buying that BS.
And then question is, is he accounting for his time, labor etc etc or is it another "cooked books" accounting like where a guy says he "made" $50k on doing a flip buuuuut he did most of the work, didn't pay himself, had various parts at home and didn't factor paying for that and and and.....
So many in this biz operate via "cooked books" accounting that it's just astonishing.
I know one guy who does his own PM, about 20hrs a week. When looking at hiring a PM he said "Man, it's just hard for me to choke down that price when it's FREE right now". I asked if he'd come over n do some landscaping for me, maybe do an addition, and a few other things. That I'd be happy to match what he's getting paid now, $0.00.
After it started to sink in and he gave himself a wage rate, he looked at that same Pm cost and said "dang, that's way less then what I'd be paying myself". And when took what he's willing to pay and time he's doing, less than minimum wage.......
Some people just refuse to do the full math because the ignorance feels so much better.
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesI loved reading this. It reminded me of a person going to the Casino, and saying they won $10k. However, the more you pressed them, you find out they started with $5k, got it up to $15k (hence the $10k winnings), then walked away with $3k,...but they won $10k.
Quote from @James Hamling:
Quote from @Joe Villeneuve:
Is he leaving out the cost of rehab, or other added costs? Where and how? How about examples?Quote from @James Hamling:
Quote from @John Underwood:
Quote from @James Hamling:
@John Underwood to take what @Joe Villeneuve is explaining a step further:
Say you buy a property for $100k all in, and you pay all cash so it's "free & clear".
Say that grosses $1k per month.
No, $1k is NOT your cash-flow. Gross, yes, but not NET.
Let's say your awesome on keeping all the assorted expenses down so end of day all operational expenses are at or under 20%.
PM, cap-x, maintenance, tenant placements, system, prop tax's, all these things add up fast and 20% is low compared to many. Many are at or over 10% on just PM alone after factoring in tenant placement, not to mention vacancy.
So that revenue is now $9,600.
But what about Uncle Sam????
Now we are at say $6,720 net per year.
BUT AGAIN that isn't your NET...... This is your investment recapture.
You put $100k into it, and now got back $6,720 or 6.72%
At that rate it will be 15 years to have the $100k back and finally be into net profit. Until that point it's all just capitol pay-back.
Now say gross rents go down 10, 15, 20%. And all of a sudden that 15 years turns into 20, 25.
So the all-cash person IS being hit by it, it's just more hidden. Because as Joe said, you pre-paid it.
Now, if a person wants to be really accurate they will factor in inflation because spending $10k today and getting $10k back in 10 years is NOT the same thing, it's less $ as the purchasing power has declined. So a person should use an inflation adjustment and with that will quickly see that 15 years turn into 23.
All-cash never beats proper leverage use, NEVER. The math is clear on this.
But all-cash is a lot easier to operate, a lot easier to feel as though one is doing good, a lot easier to keep going while making nothing because that's exactly what it is until you have your invested capitol back, 0 profit.
If a person has a giant pile of cash to start with, sure it has a beautiful simplicity to it. But don't fool self into thinking it's more profitable because it isn't, it's just simpler.
If each of us have $1m in cash and do same investing of same properties in same market just you all cash and me with leverage, I will do a multiple of your returns within 36 months. And from there the multiple just get's bigger and bigger.
Again, PROPER use of leverage. Those who think over-leveraging is "proper" are wrong if not a lot more wrong because they risk loosing everything and then some. All-cash only risks lower returns over longer time.
I buy $150k to 200k houses all the time for 30k.
I can get my principal back in a few years. I could also do a cash out refi and pull out more than I put in on the property.
I also don't loose deals like you might waiting on a closing to happen. I can buy a property and own it in hours.
So if you still think you can do better than me on growing your Net worth and cash flow then I just can't explain finances to you.
"I buy $150k to 200k houses all the time for 30k."
There is nothing, absolutely nothing realistic, consistent or scalable about that what-so-ever.
99.9% of people are operating in a space I like to call "reality", where there not able to obtain, on demand, properties for pennies on the dollar.Giving the benefit of the doubt, I think he's talking in hyperbolic terms of the best deals and leaving out lots and lot's of details.
For example buying a tax lien, going through all the steps to get people out, take full possession and for whatever reason the people were just dumb as day is long n let it go vs, ya know, selling the thing themself to clear the lien.
And then the reno, and then and then and then.
I've had some big wins over the years but it sure as hell isn't the weekly norm, and it sure as heck isn't on demand.
Nobody with half an ounce of intelligence is gonna give away a property for even a 30% discount just because you said it real nice or other BS, more or less 50% or 70% etc..
Getting a 25yr outdated place that needs $30k+ of reno and with that gain a nice 30% equity position after the fact because seller just wanted it done n gone as-is, sure THAT's realistic.
But just a "oh hey, I'll give you $30k for your $175k property".... Nobody is buying that BS.
And then question is, is he accounting for his time, labor etc etc or is it another "cooked books" accounting like where a guy says he "made" $50k on doing a flip buuuuut he did most of the work, didn't pay himself, had various parts at home and didn't factor paying for that and and and.....
So many in this biz operate via "cooked books" accounting that it's just astonishing.
I know one guy who does his own PM, about 20hrs a week. When looking at hiring a PM he said "Man, it's just hard for me to choke down that price when it's FREE right now". I asked if he'd come over n do some landscaping for me, maybe do an addition, and a few other things. That I'd be happy to match what he's getting paid now, $0.00.
After it started to sink in and he gave himself a wage rate, he looked at that same Pm cost and said "dang, that's way less then what I'd be paying myself". And when took what he's willing to pay and time he's doing, less than minimum wage.......
Some people just refuse to do the full math because the ignorance feels so much better.
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes1y
I loved reading this. It reminded me of a person going to the Casino, and saying they won $10k. However, the more you pressed them, you find out they started with $5k, got it up to $15k (hence the $10k winnings), then walked away with $3k,...but they won $10k.
"The person" that's every person. No one every comes back from a casino weekend telling you they lost their shirt, watch, wife, and house. Everyone's a winner. Vegas didn't build 50 4000 room hotels and give free drinks and dinners on everyone going away a winner.
Hi Alex in Dallas, Texas-
You are wondering what to do in a declining rental rate market leading to negative cashflow.
I am sorry to hear you are facing this but you are not alone and I have faced this exact problem in the past.
The thing to do is get creative as pressure fuels creativity.
Basically, you have two levers if you want to keep the property-increase income and reduce expenses.
Unfortunately, most expenses are fixed and increasing for landlords.
I recommend focusing on the income side.
Here are some ideas to get through this situation.
1. Rent by the room, if you are able to locally, to increase cashflow.
2. Rent the garage separately or storage space like a shed or similar to existing tenants or others-make sure your insurance covers this.
3. Rent the basement for storage as well.
4. Turn the property into a mid-term or short-term rental if you are allowed locally.
5. Consider doing a lease option. Non-refundable option payment. Higher than market rents. You can offer a monthly rent credit toward purchase. A purchase price at the end equal to or higher than market for the risk. Use a local attorney to paper this up correctly.
To Your Success!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
@Alex Moazeni Step 1 is thought mapping.
Get into a quiet space, where you will have absolutely 0 interruptions.
Set a time, call it 1hr. Set a timer.
Next, blank paper, pen, and GO!
You literally write out every potential, not probable, not smart, not normal, just EVERY potential thing you could do.
You could sell.
You could ignore it, suck it up and keep renting.
You could STR.
You could sell it C4d.... lease option..... mid-term rental......
Use that set time and literally just thought vomit every potential anything you can think of.
Step 2: Scoring.
Again, set a time. Yes, it needs to be timed.
Go through that list and on a scale of 1-10, 10 being slam-dunk 100% this would work 0-doubts, too 1 being a "Even Elon would struggle to pull this one off".
Rate every one. Don't over think it, go with your instinct, just rate them.
Once done with viability scoring, now your going to do a second scoring for what connects with YOU. What you like, what you hate. Yes it matters, maybe STR seems cool and would like that, or maybe it sounds like your version of hell, everyone has there own flavor of things.
Go through, and score 1-10.
Now add up the 2 for each one. Now you have a ranked listing.
Take you top ranked 50%, put them on a separate list in order form top ranked to lowest.
Now you do a new list for each of these. Top 5 pro's, top 5 con's.
You should have a minimum of 5-10 ranked items on this list. Yes, do pro & con list for each.
When get done, review. Your going to eliminate this list down to just 3 top ideas. Which 3 have the most pro's and fewest cons. Which 3 jump out as best?
If can't sort that do it backwards, pick the worst, cross it off, and the next and next until have top 3.
Ok, now we got our top 3 ideas. Time to get to work.
Start fleshing each out, start down the rabbit hole of who, what, when, why, where, how. Pursue things as if you've done decided your doing it. For all 3.
In that process, something should come together to show a clear path.
I can't say what will be best for you and there is like 101 things you could do. The only thing that matters is what's right for YOU and your situation, that you can do.
I personally think sitting on your hands doing nothing is the single worst thing to do. At least try, something, anything, at least try right.
Who knows, maybe something as stupidly simple as adding inn free internet and cable is the secret sauce that get's you a better tenant tier and 10% better rents. Maybe doing "Rent-2-Buy" becomes your jam, IDK, but try something.
- Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes1y
Once all this new build apartment inventory burns off we should be in rent growth mode again. I exect by the end of the year and then for the next 4-5 years or longer if interest rates don't drop. I just can see a Powell or a new Fed President listening to Trump tell them to lower interest rates and them following his lead. They'll do it on their mandate. Now Bessent has some tricks up his sleeve and it will be interesting to see if he uses them to bypass the Fed and expand the money supply.
Hold out...refinance probably doesn't work right now. Maybe add more capital if your lender will reduce payments. FIght your taxes every year, and shop your insurance. Keep your tenants happy. Gift baskets in order for the holidays this year for sure. Don't let them move out.
You guys are all cracking me up. And you're right too. I'm sitting on so much equity it blows my mind, but I'm done, no more buying. I could leverage myself into the stratosphere but no, keeping it simple, like a simpleton should :) I see a lot of apt buildings going up in Seattle, if I was in apts I might be concerned but my gig is houses only, and those rates are up and stable. Since the Seattle landlord bloodbath, houses have really disappeared. Smaller landlords sold out/got out, and those homes become owner occupied. Ads everywhere "looking for private landlord". That's because most availability here is coprporate owned now, and the screening brutal. It has to be because the region is so anti-landlord. I don't know your market Alex, I hope you can hang in there. Keep expenses down, but most of all keep your screening criteria as high as possible, you don't need a deadbeat. Maybe try some inexpensive touches that can raise your appeal? Good luck.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
@Alex Moazeni , I can't imagine how declining rents can not be your real problem. How much have they declined? The internet is telling me that rents declined 1.6% in DFW. That is basically a rounding error in your 10-year investment analysis.
What might be hurting you much more is vacancies or accepting bad tenants out of a desperate attempt to keep rents high and accepting a marginally qualified tenant, who is desperate himself.
Zoom out on your long-term goals and ignore short-term fluctuations.
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