Rental Property Investor · Los Angeles, CA · Member since 2019 · 25 posts · 52 votes
Hi BP,
I've just bought a property in Rancho Cucamonga in California and rent it out from last year. Since I live in Southern California, the price of real estate is kind of high. Therefore , although I've already put 25% for my down payment and the value of the house is about $500k , I've still got month negative cash flow. I rent it for $ 2,200 but my expense is around $2,500 ( included tax , property management fees, insurance and mortgage). I would like to listen to your advise how to make cashflow break even or become positive. Thank you
Investor · Cary, NC · Member since 2012 · 214 posts · 194 votes
7y
Vinh,
what you've done is invest in a 'growth' market Vs an 'income' (cash flow) market. so, your value/gain would come with the higher appreciation potential of SoCal. That said, appreciation is never a sure thing and sure prices have risen since 2010 and economy looks strong right now but, but let's face it California can be more volatile than many areas and so you may net our fine on appreciation in the near term or you may not...
In general, it's best to at least be break even cash flow, then even if appreciation doesn't happen you haven't been burning cash to own the property.
he is not cash flow investing. he is investing for appreciation. if in the right location, it works well. many in CA have had this work well for them. you buy in an appreciating, growing area. you make negative cash flow at first. eventually you break even or get positive cash flow. some time in the future you are sitting on a huge amount of equity. this is the "get rich slow" method, it is tough, but can often work.
Investor · Huntington Beach, CA · Member since 2018 · 20 posts · 2 votes
7y
@Vinh Huynh my personal thought is your loosing a few hundred a month and the home value rises over 1-2k a month hold onto it that home will be worth 1m in the near future
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@Vinh Huynh perhaps you can rent it out as a STR in the future or put multiple tenants in there and rent it per room, for example to students. Rent appreciation is very likely to tilt the numbers. Do you really think your property will rent for the same amount in 5 years in Rancho? Meanwhile your tenants are paying down the mortgage AND your property is appreciating. Hold onto it and find a way to squeeze more income out of it. Time and market appreciation will take care of the rest.
he is not cash flow investing. he is investing for appreciation. if in the right location, it works well. many in CA have had this work well for them. you buy in an appreciating, growing area. you make negative cash flow at first. eventually you break even or get positive cash flow. some time in the future you are sitting on a huge amount of equity. this is the "get rich slow" method, it is tough, but can often work.
This seems beyond the comprehension of some. At a modest 5% appreciation over 15 years the property will be worth $1,053,613, after investing $100K and $300/mo for a little while. And it will be cashflowing long before 15 years are up. Of course the OP should self manage, but that begs the larger question.
Rental Property Investor · Los Angeles, CA · Member since 2019 · 25 posts · 52 votes
7y
@Johann Jells I am even more “modest” than you with 3-4 % is ok for me. But yeah , everybody has their opinion and I got so many good advices so far. Thank you all .
he is not cash flow investing. he is investing for appreciation. if in the right location, it works well. many in CA have had this work well for them. you buy in an appreciating, growing area. you make negative cash flow at first. eventually you break even or get positive cash flow. some time in the future you are sitting on a huge amount of equity. this is the "get rich slow" method, it is tough, but can often work.
This seems beyond the comprehension of some. At a modest 5% appreciation over 15 years the property will be worth $1,053,613, after investing $100K and $300/mo for a little while. And it will be cashflowing long before 15 years are up. Of course the OP should self manage, but that begs the larger question.
A modest appreciation, you are assuming all trees grow to the sky.
If a house in Rancho Cucamonga hits over a million we are all in big trouble. That means the dollar has been debased to almost nothing, interest rates are at 1% or less and everyone is making $300k per year. Economic shambles
Cant assume that figure what so ever - in my opinion
I do not feel we will have a crash like 2008 but more like a flat line and slight decline until prices align with wages - and wage growth has been flat for 30 years.
Rental Property Investor · Los Angeles, CA · Member since 2019 · 25 posts · 52 votes
7y
@Rob Massopust Hi Rob, thanks for your idea. If everything you have mentioned is correct , my property that I live in Monterey Park in Cali still $40k -50k something instead of $700k or $750k now . I do agree that house appreciation is not always true , but I know for sure after 20-30 years it will more expensive than today. We all know that living expense now is way different in 1989 and minimum wage too. So let’s see what happen . At least, my house will keep it up with the inflation.
@Rob Massopust Hi Rob, thanks for your idea. If everything you have mentioned is correct , my property that I live in Monterey Park in Cali still $40k -50k something instead of $700k or $750k now . I do agree that house appreciation is not always true , but I know for sure after 20-30 years it will more expensive than today. We all know that living expense now is way different in 1989 and minimum wage too. So let’s see what happen . At least, my house will keep it up with the inflation.
Rental Property Investor · Red Bank, NJ · Member since 2017 · 1k+ posts · 1k+ votes
7y
The original poster said “help I am cash flow negative, how do I fix this?”
When someone says that then they are not “investing for appreciation,” they are investing for cash flow and they have failed, they know it and they want to fix it. The correct answer is then to rework (Airbnb) or sell this money losing business and move on.
But no, everyone has instead convinced him that he is a brilliant “investor for appreciation” and he is going to hit a million dollar pay day!
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
7y
@Joe Villeneuve too much BS. Can’t sell me on it. OP sounds like he ain’t sold either. Does he need to tweak the investment? Yes That’s why he’s here He wants to help the cash flow Not change his investing strategy
Good luck. In ten years I think his one house will lap your 7 time and again. 20-30 years?
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
7y
Just so @John Hickey. Not all neighborhoods are created equal. Some are mature and static, others going up or down in their demographics. There are places that appreciate slightly faster than average, and then there are those "rocketships". Portland, Oakland, Brooklyn, and my own Jersey City are among the latter, driven by real gentrification and demographic change.
But you have to be able to distinguish these places from simple speculation bubbles like S Florida in the middle of the last decade. Have those Houston neighborhoods that have boomed changed, or are the same people simply paying more? I see that in some of the solid NYC suburbs, no change, just people struggling to pay more. That seems unstable to me.
Rental Property Investor · Montreal, QC · Member since 2018 · 47 posts · 3 votes
7y
@Vinh Huynh you can also buy a cheap dish washer install it of you don't already have it and raise rent 50$ a month I'm sure there is similar strategies I'd love to hear some
Did you know when you sell (unless 1030 exchange) all the depreciation you had need to pay?
I'm sorry, I didn't get that. If you're arguing not to want appreciation because you'll have to pay capital gains, that's idiotic. Whether you take your gains as income monthly or as a sale, the taxman gets his bite. FWIW my plan is to retire on my plentiful cashflow in my cost free apartment and leave worrying about capital gains to my kids after I'm dead.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
7y
@Vinh Huynh nobody would fault you for putting 300-1000 per month into the market but negative cash flow is a no no. You must have tax benefits that equal your out of pocket. Buy another and in time they will be paid off and you have a million in todays dollars.
Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
7y
I just do not get this "cash flow" model of "investing". The issue is NOT cash flow! It's return on investment. For example, I put a large amount of money into a property, say 2 million. It produces a positive cash flow of $100/month. Woohoo!!! I have positive cash flow! But my return on investment is $1200/yr on 2 million dollars. This is less than 0.01% return on investment. This is the worst investment ever.
Or, I buy a property with that 2 million dollars that has positive cash flow of $200,000/yr, or a ten percent return on investment/yr. Not bad.
You can never be sure whether the value of a property is going to increase or not. So you're best off choosing properties with the best return on investment possible, in markets that you hope are going to increase in price (and rent). That way, even if the market doesn't increase, and rents don't go up, you still are making money.
@Joe Villeneuve too much BS. Can’t sell me on it. OP sounds like he ain’t sold either. Does he need to tweak the investment? Yes That’s why he’s here He wants to help the cash flow Not change his investing strategy
Good luck. In ten years I think his one house will lap your 7 time and again. 20-30 years?
Your houses will keep up with inflation.
His will be a rocket ship
"In ten years I think his one house will lap your 7 time and again. 20-30 years?"
How do you figure? I take my appreciation out in 5-7 years, and invest in in the next house(s), so my appreciation is growing too. By pulling out my cash, and reinvesting it with the added profits from the inflated equity (appreciation), I'm increasing the amount of money I have invested. My money is working overtime for me.
I'm expanding my cash flow, increasing the number of properties (or property values with the same number of properties), and eliminating/reducing my CAPEX/maint. costs. This increased cash flow (which you don't have with a negative CF property) is added investment money. This means I am going to be already at the destination your "rocket ship" is heading for...waiting for you.
A primary factor that will impact future real estate growth in most of CA is the fact that wage increases are not keeping up with appreciation or rental rates. The questions is whether there will be a tipping point or will business growth at some point in time move away from or out of state causing a stagnation in growth. Some large companies are showing a slight move to relocate outside of CA already. The question is will this continue and will it effect appreciation 5, 10, 15 years into the future. Will property tax laws be changed at some point in time. With the passing of the present generation of home owners will the taxes cause a downward pressure on values.
Is the present upward motion sustainable indefinitely or are income/wages, business investment and taxes at some point in time going to take effect.
@Joe Villeneuve too much BS. Can’t sell me on it. OP sounds like he ain’t sold either. Does he need to tweak the investment? Yes That’s why he’s here He wants to help the cash flow Not change his investing strategy
Good luck. In ten years I think his one house will lap your 7 time and again. 20-30 years?
Your houses will keep up with inflation.
His will be a rocket ship
"In ten years I think his one house will lap your 7 time and again. 20-30 years?"
How do you figure? I take my appreciation out in 5-7 years, and invest in in the next house(s), so my appreciation is growing too. By pulling out my cash, and reinvesting it with the added profits from the inflated equity (appreciation), I'm increasing the amount of money I have invested. My money is working overtime for me.
I'm expanding my cash flow, increasing the number of properties (or property values with the same number of properties), and eliminating/reducing my CAPEX/maint. costs. This increased cash flow (which you don't have with a negative CF property) is added investment money. This means I am going to be already at the destination your "rocket ship" is heading for...waiting for you.
I made a million dollars off 30k investment recently. I’m pretty happy with that. I’m doing my thing you can do yours.
@Joe Villeneuve too much BS. Can’t sell me on it. OP sounds like he ain’t sold either. Does he need to tweak the investment? Yes That’s why he’s here He wants to help the cash flow Not change his investing strategy
Good luck. In ten years I think his one house will lap your 7 time and again. 20-30 years?
Your houses will keep up with inflation.
His will be a rocket ship
"In ten years I think his one house will lap your 7 time and again. 20-30 years?"
How do you figure? I take my appreciation out in 5-7 years, and invest in in the next house(s), so my appreciation is growing too. By pulling out my cash, and reinvesting it with the added profits from the inflated equity (appreciation), I'm increasing the amount of money I have invested. My money is working overtime for me.
I'm expanding my cash flow, increasing the number of properties (or property values with the same number of properties), and eliminating/reducing my CAPEX/maint. costs. This increased cash flow (which you don't have with a negative CF property) is added investment money. This means I am going to be already at the destination your "rocket ship" is heading for...waiting for you.
I made a million dollars off 30k investment recently. I’m pretty happy with that. I’m doing my thing you can do yours.