How you can profit from a Big Mortgage

117 Replies

Originally posted by @Joe Villeneuve :
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:

I thought about this last night.  Here is a poll I would like to take regarding the security and returns from cash flow properties over the last 5 years.  

The question is simple and in 3 parts:  Over the last five years, adding up all of your "doors", a)- how many months of vacancy did you have, and b) how many months of income (cf) did you have, and c) - did the other rental income (CF) cover the vacancies?

Example: An investor had 100 doors (mix of multi and sf). Over the past 5 years, the REI averaged 10 vacancies/month. The answer to my 3 part question would then be -
a) - 10 vacancies/mo x 12 months x 5 years = 600 vacancies
b) - 90 non-V/mo x 12 mo x  5 years = 5400 NV
c) - Yes (if no)

In order to participate, you must have had at least 5 doors avg/year over the last 5 years.

Why bother with the poll when the data is right here! 

You can make a good first approximation about each town and answer all your questions. You can even model out best and worse case scenarios to see what level of vacancy turns people cash flow negative in different areas. 

 I'm taking the poll to see what those who are on this forum say...not what the totals and averages are for a list of major cities...which means nothing to me.  Every major city is so large that it has a number of different micro markets in them.  These micro markets have numbers that are at both extremes and are what make up the average...which isn't a true representation of an investment area.  You can invest in one of the "ideal" cities based on the data above...and lose money every month, and you can invest in that same city and make well over the average.

Suit yourself Joe, you asked a question so I thought I'd try and help you out. Didn't know you wanted to get that granular. 

My mistake, won't happen again.  

For what its worth, the data set has 552 cities and the cutoff if 25,000 occupied housing units, so it goes way beyond major cities. 

Happy polling!

 

@Andrey Y, you do NOT make a good point.  I invest in one of the poor cash flow, appreciation markets - SF Bay Area.  The only landlords that does not have to worry much about Covid-19 economic disruption is the ones that does not have a mortgage or has enough equity to sell profitably in a market that has slowdown.

Originally posted by @Bill F. :
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:

I thought about this last night.  Here is a poll I would like to take regarding the security and returns from cash flow properties over the last 5 years.  

The question is simple and in 3 parts:  Over the last five years, adding up all of your "doors", a)- how many months of vacancy did you have, and b) how many months of income (cf) did you have, and c) - did the other rental income (CF) cover the vacancies?

Example: An investor had 100 doors (mix of multi and sf). Over the past 5 years, the REI averaged 10 vacancies/month. The answer to my 3 part question would then be -
a) - 10 vacancies/mo x 12 months x 5 years = 600 vacancies
b) - 90 non-V/mo x 12 mo x  5 years = 5400 NV
c) - Yes (if no)

In order to participate, you must have had at least 5 doors avg/year over the last 5 years.

Why bother with the poll when the data is right here! 

You can make a good first approximation about each town and answer all your questions. You can even model out best and worse case scenarios to see what level of vacancy turns people cash flow negative in different areas. 

 I'm taking the poll to see what those who are on this forum say...not what the totals and averages are for a list of major cities...which means nothing to me.  Every major city is so large that it has a number of different micro markets in them.  These micro markets have numbers that are at both extremes and are what make up the average...which isn't a true representation of an investment area.  You can invest in one of the "ideal" cities based on the data above...and lose money every month, and you can invest in that same city and make well over the average.

Suit yourself Joe, you asked a question so I thought I'd try and help you out. Didn't know you wanted to get that granular. 

My mistake, won't happen again.  

For what its worth, the data set has 552 cities and the cutoff if 25,000 occupied housing units, so it goes way beyond major cities. 

Happy polling!

 

Bill, didn't mean to offend you...my apologies if I did.  I should have given a better explanation of what I was going for...and I should have used "large" instead of "major".

 

Originally posted by @Joe Villeneuve :
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:

I thought about this last night.  Here is a poll I would like to take regarding the security and returns from cash flow properties over the last 5 years.  

The question is simple and in 3 parts:  Over the last five years, adding up all of your "doors", a)- how many months of vacancy did you have, and b) how many months of income (cf) did you have, and c) - did the other rental income (CF) cover the vacancies?

Example: An investor had 100 doors (mix of multi and sf). Over the past 5 years, the REI averaged 10 vacancies/month. The answer to my 3 part question would then be -
a) - 10 vacancies/mo x 12 months x 5 years = 600 vacancies
b) - 90 non-V/mo x 12 mo x  5 years = 5400 NV
c) - Yes (if no)

In order to participate, you must have had at least 5 doors avg/year over the last 5 years.

Why bother with the poll when the data is right here! 

You can make a good first approximation about each town and answer all your questions. You can even model out best and worse case scenarios to see what level of vacancy turns people cash flow negative in different areas. 

 I'm taking the poll to see what those who are on this forum say...not what the totals and averages are for a list of major cities...which means nothing to me.  Every major city is so large that it has a number of different micro markets in them.  These micro markets have numbers that are at both extremes and are what make up the average...which isn't a true representation of an investment area.  You can invest in one of the "ideal" cities based on the data above...and lose money every month, and you can invest in that same city and make well over the average.

Suit yourself Joe, you asked a question so I thought I'd try and help you out. Didn't know you wanted to get that granular. 

My mistake, won't happen again.  

For what its worth, the data set has 552 cities and the cutoff if 25,000 occupied housing units, so it goes way beyond major cities. 

Happy polling!

 

Bill, didn't mean to offend you...my apologies if I did.  I should have given a better explanation of what I was going for...and I should have used "large" instead of "major".

 

No offense taken Joe, but thanks none the less!

Hope all is well up in MI. 

 

I hear ya. It is possible in the "prime areas" and with the run of the mill not so much. However there are 1000s of examples that achieved $5k + long run. Again these are prime areas that would exclude most of OC, LA etc. It is possible I could sit here all day and list examples that did much better than $5k. Think Hollywood Hills, Palos Verdes, Pacific Palisades, many parts of West LA, and perhaps in OC Newport Beach. You get the picture. Run of the mill OC will do about the same as prime Austin, Texas last check. I forget what that rate was but I remember they were about tied.

Take for example Hollywood Hills, you will see many that sold for 1 million in 2000 and are now 5 mil. That is 4 mil divided by 240 months or $16k+ a month. In many cases these were upgraded, remodeled, add ons etc. It is not like month in month out either (multiple cycles) so not 5 or 10 years for this to play out. This is unique as compared to 99% of the rest of the USA generally. It did happen when a very limited supply is crossed with tons of global money over multiple cycles. 

I am not sure there is any connection whatsoever to what others might be doing or investing in other locations. Some guys made 200% in Detroit last 5 years too or I bet all those who dealt with SEC 8 challenges are even more glad they did that now. I have a friend who only pays cash and has about the same in reserves. I would ask him why, seems too conservative, he always said " just in case." REI is considered high risk either way.

 Good luck!

Originally posted by @Bill F. :
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:

I thought about this last night.  Here is a poll I would like to take regarding the security and returns from cash flow properties over the last 5 years.  

The question is simple and in 3 parts:  Over the last five years, adding up all of your "doors", a)- how many months of vacancy did you have, and b) how many months of income (cf) did you have, and c) - did the other rental income (CF) cover the vacancies?

Example: An investor had 100 doors (mix of multi and sf). Over the past 5 years, the REI averaged 10 vacancies/month. The answer to my 3 part question would then be -
a) - 10 vacancies/mo x 12 months x 5 years = 600 vacancies
b) - 90 non-V/mo x 12 mo x  5 years = 5400 NV
c) - Yes (if no)

In order to participate, you must have had at least 5 doors avg/year over the last 5 years.

Why bother with the poll when the data is right here! 

You can make a good first approximation about each town and answer all your questions. You can even model out best and worse case scenarios to see what level of vacancy turns people cash flow negative in different areas. 

 I'm taking the poll to see what those who are on this forum say...not what the totals and averages are for a list of major cities...which means nothing to me.  Every major city is so large that it has a number of different micro markets in them.  These micro markets have numbers that are at both extremes and are what make up the average...which isn't a true representation of an investment area.  You can invest in one of the "ideal" cities based on the data above...and lose money every month, and you can invest in that same city and make well over the average.

Suit yourself Joe, you asked a question so I thought I'd try and help you out. Didn't know you wanted to get that granular. 

My mistake, won't happen again.  

For what its worth, the data set has 552 cities and the cutoff if 25,000 occupied housing units, so it goes way beyond major cities. 

Happy polling!

 

Bill, didn't mean to offend you...my apologies if I did.  I should have given a better explanation of what I was going for...and I should have used "large" instead of "major".

 

No offense taken Joe, but thanks none the less!

Hope all is well up in MI. 

 

Same to you bill in your area.  Wife is a P.A. and is exposed to this everyday for the last ??? weeks.  She came down with a fever yesterday and quarantined herself in our bedroom.  All I can say is I'm glad I spent the extra bucks on my office chair.  LOL.

...and her temp has gone down to close to normal, but she's taking no chances.

 

@Andrey Y.

I think your perception of cash flow is slightly different from the "cash flow" investors. Cash Flow, by definition is income remaining after all expenses plus estimated CapEx, maintenance, vacancy etc. From your examples, the potential missed rent payments (due to Coronavirus) and CapEx over the years, should have been captured in the estimated monthly vacancy and CapEx.

The investors who are stressing about the missed rent payments may not have accounted for these expenses properly and should learn from this experience. 

As a new investor, my best opportunity to scale is with a cash flow strategy.  I would then divest into more stable appreciating assets with lower cash flow down the line.  Cash flow is realized profit while appreciation is not.  Both are awesome in their own respect.  You may have an opinion that appreciation and rent growth is better, which I don't disagree.  However, talking down on investors who are focusing on the cash flow strategy is disrespectful and down right ignorant, regardless of how successful you are.

@Andrey Y. The family offices and international investors buying the luxury sector in each market you mentioned are doing so for capital preservation and foreign currency arbitrage. It’s more correlated with the $50MM+ art market than American-style real estate investment.

Even then, the “big boys” playing with leverage in the markets you mentioned routinely run into issues using leverage. Just NYC, check the historical transaction histories on the Empire State Building, Stuyvesant Town–Peter Cooper Village, and 666 Park Ave where the President’s son-in-law fell down the rabbit hole.

Serious players in the trophy market and luxury condo sector are not “BAM”ing it. They are paying cash, because it’s treated more like a CD in their portfolios and provides diversification AWAY from banks. Just look at all the empty sold units / entire floors in buildings in NYC, Miami and Panama City.

Meanwhile, BlackRock’s RE division has a $20B+ US portfolio... focused on what? Cashflow.

Meanwhile,

@Andrey Y.

Dumbest thing i heard in a while. Can you have both? Yes! But casflow will not fluctuate as much. Appreciation will. So you cant act like you have cracked some code that no one has figured out. Its a matter of a balanced portfolio. Some properties cash flow more than others some appreciate more.

If your so intetested in having a big mortgage i would love to sell you one of my properties in philadelphia. You can have my $500k mortgage. I will take the cash right about now and buy a similiar property in 6 months when prices come down AND have enough left over to buy another cash flowing property 15 min away from that one in NJ. This way we are both winners in your book.

Originally posted by @Joe Villeneuve :
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:
Originally posted by @Bill F.:
Originally posted by @Joe Villeneuve:

I thought about this last night.  Here is a poll I would like to take regarding the security and returns from cash flow properties over the last 5 years.  

The question is simple and in 3 parts:  Over the last five years, adding up all of your "doors", a)- how many months of vacancy did you have, and b) how many months of income (cf) did you have, and c) - did the other rental income (CF) cover the vacancies?

Example: An investor had 100 doors (mix of multi and sf). Over the past 5 years, the REI averaged 10 vacancies/month. The answer to my 3 part question would then be -
a) - 10 vacancies/mo x 12 months x 5 years = 600 vacancies
b) - 90 non-V/mo x 12 mo x  5 years = 5400 NV
c) - Yes (if no)

In order to participate, you must have had at least 5 doors avg/year over the last 5 years.

Why bother with the poll when the data is right here! 

You can make a good first approximation about each town and answer all your questions. You can even model out best and worse case scenarios to see what level of vacancy turns people cash flow negative in different areas. 

 I'm taking the poll to see what those who are on this forum say...not what the totals and averages are for a list of major cities...which means nothing to me.  Every major city is so large that it has a number of different micro markets in them.  These micro markets have numbers that are at both extremes and are what make up the average...which isn't a true representation of an investment area.  You can invest in one of the "ideal" cities based on the data above...and lose money every month, and you can invest in that same city and make well over the average.

Suit yourself Joe, you asked a question so I thought I'd try and help you out. Didn't know you wanted to get that granular. 

My mistake, won't happen again.  

For what its worth, the data set has 552 cities and the cutoff if 25,000 occupied housing units, so it goes way beyond major cities. 

Happy polling!

 

Bill, didn't mean to offend you...my apologies if I did.  I should have given a better explanation of what I was going for...and I should have used "large" instead of "major".

 

No offense taken Joe, but thanks none the less!

Hope all is well up in MI. 

 

Same to you bill in your area.  Wife is a P.A. and is exposed to this everyday for the last ??? weeks.  She came down with a fever yesterday and quarantined herself in our bedroom.  All I can say is I'm glad I spent the extra bucks on my office chair.  LOL.

...and her temp has gone down to close to normal, but she's taking no chances.

 

Oh no. I'm so sorry to hear about that. I wish her and you all the best. 

 

Originally posted by @Daniel Schiller :

@Andrey Y. The family offices and international investors buying the luxury sector in each market you mentioned are doing so for capital preservation and foreign currency arbitrage. It’s more correlated with the $50MM+ art market than American-style real estate investment.

Even then, the “big boys” playing with leverage in the markets you mentioned routinely run into issues using leverage. Just NYC, check the historical transaction histories on the Empire State Building, Stuyvesant Town–Peter Cooper Village, and 666 Park Ave where the President’s son-in-law fell down the rabbit hole.

Serious players in the trophy market and luxury condo sector are not “BAM”ing it. They are paying cash, because it’s treated more like a CD in their portfolios and provides diversification AWAY from banks. Just look at all the empty sold units / entire floors in buildings in NYC, Miami and Panama City.

Meanwhile, BlackRock’s RE division has a $20B+ US portfolio... focused on what? Cashflow.

Meanwhile,

 Nailed it. 

But its the internet, we all need to be talking heads, have a point, pick a side, and scream it the loudest. 

Cash flow is just a part of the equation, and a vital one at that. Kushner had the President give him 1.1+billion dollars worth of ****** rentals in NJ and Baltimore to provide the cash flow to make up for his BAM mistakes like 666. Which would have bankrupt him. Ed Hardy bros like Grant Cardone are bleeding heavily and let go of their entire staff without notice cuz they assume infinite appreciation and a BAM that will carry them through the finish line. But vacancies, having no tenants... that hurts anyone unless you are talking about millino dollar homes in perfect neighborhoods in very exclusive areas of the country. That makes up what... 1% of the market? 

Daniel, I think you meant Blackstone. They took over Stuyvesant. Black rock is a fixed income asset manager that was derived from black stone back in the 80s. The 666 building was out dated in 2007. Charles was pushing Jared to do the deal.

Originally posted by @Carl Fischer :

@John Teachout

Positive cash flow is good. Negative cash flow not so much.

BAMs are also good today because you will be paying back your loan with less valuable money. The dollar today will have more buying power than tomorrows dólar or the 2040 dollars. Dumping $2T in the country debt diluted the dollar and could be considered manipulation of our currency.

BAMs are a play in the currency market while tenants make your payments for you.

Borrowing as much as you can at a low rate should be a great move at this time-it may make you thrive not just survive. Think about it.

 This is well said. Couldn't have said it better.

Look at what they are doing. They are literally devaluing the dollar. Its becoming worthless. Holding cash or paying down a mortgage is a bad business decision, now more than ever.

Did you see the $2.2T they just printed? Magically! That number could be $6T by the end of the year. Then they will look you in the face and tell you it was a good decision.

A property who's valuation cannot beat inflation is one you cannot put a BAM on to take advantage of the situation, so it's the worst type of investment to be in. I'd rather invest in a 401k today than buy a "cash flowing" property. Enjoy those CapEx costs ladies and gents!

You were lied to! By the cash flow gurus. They already benefited because they sold you the property, course, book, or commission. Now you are left with a "High Cap rate!!" property.

High Cap Rate means they didnt want it so they sold it to ya.

Originally posted by @Patrick J. :

@Andrey Y.

And you'll never realize any gains until you sell. Why can't you have both cash flow and appreciation?? Your logic is ridiculous and there is no need to over analyze numbers down to per sqft.

 Stop reiterating the same lines you read online and actually think about this.

I bought a property in Mililani, HI for $140,000, $40K down. Do you know how much tax free gainz (bro) I have realized? $170K via two CASH OUT refinances.

That's 4X my initial investment and and infinite return. I can take out a 100% or 80% loan right now and mail the lender the keys! I am done with the property as far as I am concerned.

Try doing this with a $60K Memphis or Indiana 10 CAP!! property that was worth $50K in 1980 lol

Originally posted by @Jay Hinrichs :
Originally posted by @Justin Tahilramani:
Originally posted by @Andrey Y.:
Originally posted by @John Collins:
Originally posted by @Andrey Y.:

 I am actually cash flowing AND profiting in Hawaii specifically because rental income growth goes hand in hand with appreciation.  I would STILL profit even if my rentals were unoccupied. You cannot say the same thing.

The reason I can cover missed rent payments is because I focus on profitable markets, not to be confused with "cash flow" markets on paper.

What the hell are you talking about? You can cash flow without rental income? At what price point, what mortgage did you take out and how much interest are you paying on it? Simple math is all I ask for.  

 Very simple example. An investor owns a $800K home in a city in California. They earn $60K per year appreciation over the long term (which is $5K per month), which the Turnkey operators will tell you you should accept a $250 per month "cash flow", more than half of which will go to fixing up your boiler, or roof down the line, while the property value doesn't even keep up with inflation.

Do you think @Minh Le @Matt R. @Jay Hinrichs @Amit M. (investors who invest for PROFIT) are worried about their tenant not making the April and May mortgage payments? Because all of the people I see worried on all the threads popping up, are not invested in profitable markets. They are invested for "cash flow" because that is what they have been hearing and reading about for the last 10 years.

This is intended to teach, so we can all learn from something like this. At the end of the day, we are all trying to become better investors. Leave the advertising to those who are trying to sell you something. 

This is total BS speculation. Homes in CA do not appreciate long term at the rate of $5,000/month. You are out of your mind if you think that is the normal rate of appreciation. You are the one that is going to get hammered when tenants cant afford to pay their high dollar rents. Also - you are WAY off base about cash flow rentals. Affordable housing is probably the #1 issue facing America today. There are 1000 Americans that are barely able to keep up and need affordable housing for every 1 American who can afford to live in a HCOL area. You can have your own opinion, but dont share it in public forums like its the gospel. 

Well lets look at a real life example 684 Encina Grande Palo Alto CA  one of the highest cost per sq ft in the country .. I bought it in 85 for 180k  I think it peaked at 2.5 or a little better.. lets say in 2019  so in 35 years it went up 2.315 million.. and of course rents at what I paid would have by the mid 90s given me massive cash flow of 3k a month easy on that one house..   2.315/  35X12  =  420 months/ 2.315 = 5,511 per month of appreciation gains.. add in 3k a month for Positive NET NET NET cash flow for say 25 of those years or 300 months X 3,000 = 900,000 in positive cash flow over that time.  for a grand total of 3.215.000 gain on a property bought in 1985 at fair market value and just a basic 1400 sq ft rancher on a 6k sq ft lot.. And now you know why I cant even think about why I sold that house for 500k in 91.. 

So total net gain in this real life home in the SF bay area and not even the BEST part of Palo Alto ( Barren Park)  saw a return if I had kept it and rented it starting in 95 for the 5k a month it would have rented for then.  my monthly gain would be 7,654.47 PER MONTH.. 

So while the statement that not all of CA grows at 5k a month over time is certainly very true.  there are parts that have and do and have done better.. but its a long game cant take a snap shot.. like if you bought in 07 peak and sold in 2011 probably lose money you bought in 2011 for the 900 or 1 mil would have sold for then. you make massive gains the last 9/10 years. 

its kills me to write this out and the shoulda woulda coulda just comes screaming back.. And I owned another one in the same neighborhood I built as new construction and was all in at 700k and today that one is easy 3.5 mil.   

Any way back to the appreciation versus cashflow regularly scheduled thread. 

If I lived in another part of the country and I did the same thing started as an agent at 18 and a broker at 20 and the play was to stack cash flow rentals because appreciation is gambling etc.. that's what I probably would have done and would done.

Keep in mind in the 50 60 70s and into the 80s people got started in real estate buying cheap land all over the country as an investment

it was not until about 2001 2002 that smart folks said hey CA real estate is sky hi lets start selling mid west rentals to CA people and other high priced markets.. that's how the turnkey industry or OOS investing industry started.. No one was rushing to Memphis in the 90s to buy rentals from CA. for an example.

 

 Very well said, Jay.

"Keep in mind in the 50 60 70s and into the 80s people got started in real estate buying cheap land all over the country as an investment"

People lose their breath saying 'real estate can't go up forever' ' you just got lucky'

So it was the same guy in the 50s, his son in the 70s, and his grandson in the 00s, hoping and dreaming that these investors just "got lucky" and I'll just buy "next year" when the market correct. They have been waiting for the right moment forever. They take no action. 

All you have to do is go on the internet or talk to someone like Jay to get the last 40 years of data. Instead they will listen to gurus on podcasts who make a commission each time they refer someone to buy a 'Turnkey cash flowing' property in Birmingham, Memphis, or Indy

Originally posted by @Rick Ortiz :

@Andrey Y.

Dumbest thing i heard in a while. Can you have both? Yes! But casflow will not fluctuate as much. Appreciation will. So you cant act like you have cracked some code that no one has figured out. Its a matter of a balanced portfolio. Some properties cash flow more than others some appreciate more.

If your so intetested in having a big mortgage i would love to sell you one of my properties in philadelphia. You can have my $500k mortgage. I will take the cash right about now and buy a similiar property in 6 months when prices come down AND have enough left over to buy another cash flowing property 15 min away from that one in NJ. This way we are both winners in your book.

 My parents, who moved from communist dictatorship bought property in NJ from the 90s, not knowing the first thing about finances, didnt know English, and had no idea what cash flow is. They never calculated cash flow or cash on cash return (and still don't).

What saved them and made them wealthy was profit (appreciation). Not cash flow which is erodes into CapEx anyway. Conservatively, even if they made $20K per year per property in equity gain, Thats a lot of PROFIT from 1992 to 2020. It sure is a hell of a lot better than the $100/mo. in "cash flow y0" as long as your tenant is paying the rent and the hot water heater doesn't go out.

@Andrey Y.

Once again, you didn't realize any gains. You just borrowed more money and increased your liabilities. If the property were to go down in value, you would be in trouble without having any cash flow over the years.

@Kyle O. “BlackRock is the world's largest asset manager, with $6.4 trillion in assets, of which its real estate assets represents just 0.35 percent. It has not grown since the company's acquisition of Singapore-based private equity real estate firm MGPA in October 2013, when combined assets were $23.5 billion.”

Originally posted by @Andrey Y. :
Originally posted by @Rick Ortiz:

@Andrey Y.

Dumbest thing i heard in a while. Can you have both? Yes! But casflow will not fluctuate as much. Appreciation will. So you cant act like you have cracked some code that no one has figured out. Its a matter of a balanced portfolio. Some properties cash flow more than others some appreciate more.

If your so intetested in having a big mortgage i would love to sell you one of my properties in philadelphia. You can have my $500k mortgage. I will take the cash right about now and buy a similiar property in 6 months when prices come down AND have enough left over to buy another cash flowing property 15 min away from that one in NJ. This way we are both winners in your book.

 My parents, who moved from communist dictatorship bought property in NJ from the 90s, not knowing the first thing about finances, didnt know English, and had no idea what cash flow is. They never calculated cash flow or cash on cash return (and still don't).

What saved them and made them wealthy was profit (appreciation). Not cash flow which is erodes into CapEx anyway. Conservatively, even if they made $20K per year per property in equity gain, Thats a lot of PROFIT from 1992 to 2020. It sure is a hell of a lot better than the $100/mo. in "cash flow y0" as long as your tenant is paying the rent and the hot water heater doesn't go out.

OK. What if instead of 100/m...you were getting 500/m (I wouldn't get out of bed for 100/month)...and what was the cash flow that your parents were getting during the years mentioned (1992 - 2020)? Oh wait, they never calculated it. So how do you know they made 20k/year if you don't know it their CF was? What if they had negative CF during those years? That's 28 years. What were the CAPEX your parents had to pay during those years? I'm pretty sure they had to replace a water heater or two. By the way, if you count that replaced water heater (and other repairs/replacements) against the Cash Flow, then you have to count them against the "profit" you are speaking of too. How do those things impact that 20k/year number?

Oh, and what was the appreciation of the "cash flow" properties during those 28 years.  You know those that focus first on the cash flow, also get the same benefit of appreciation...along with the pay down from the rent, so their equity doesn't go negative just because they have higher cash flow...and like I said above, 100/month is not even the high end of bad cash flow.

I kills me the way your comparison sets the bar for the Cash Flow returns at the worst end, and yours at the high end, and say that's a fair comparison.

I will take cash flow all day over breaking even on a mortgage and planning on appreciation.

Zero interest in having to sell my properties when they put money in my pocket every month and are paying off their mortgages.

Will there be times when tenants don't pay? Absolutely. This current situation is like nothing that's ever happened before though. So using the first time countries gave shut down to make yourself feel smart is extremely stupid.

Also you seem to believe you're immune from what's happening.

What happens when your BAM tenant isn't paying and you can't sell your property because luxury buyers are pulling back?

I hope this doesn't come to fruition but you should be at least concerned about what's happening.

Andrey,

To steal a few lines from the 3 contributors below. These individuals summed up MY investment approach. We need some form of cash flow to service the debt while let time do the heavy lifting with rent growth, which translate to equity growth and higher cash flow on the back end. Initial negative cash flow is fine as long as we know when we can turn the corner and have the asset sustains itself. The asset doesn't have to pump out a ton of cash flow. I'd rather get $200k in equity upfront then $1k/mo of positive cash flow. 

Did some turnkey provide/marketer take you to the cleaner with a few OOS rentals? As Bill alluded to, cheap assets with the 1-2% rules aren't all they are cracked up to be. Everything in life has a price. These cheap rentals are cheap for a reason. It's unfortunate, but it seems like every wo/man has to learn his/her own lesson. 

@Joseph Cacciapaglia , Many investors are just looking at their year 1 cash flow, but if you're looking at your average cash flow over your holding period (with your expected rent growth), you will make much different decisions. Areas with lower initial cash flow, but stronger rent growth suddenly make a lot more sense.

@Natalie Schanne , both sides are correct.

@Bill F. , Big takeaways, Cash Flow and Appreciation both contributed positively to total return, with Appreciation being a big larger.

The most negative contributor to Total Returns: High Rent to value ratios. ie the 1% and 2% rule aren't all they are cracked up to be.

Be greedy when others are fearful. Opportunities are abound right now. Stay safe and healthy everyone.

Originally posted by @Jay Hinrichs :
Originally posted by @Justin Tahilramani:
Originally posted by @Andrey Y.:
Originally posted by @John Collins:
Originally posted by @Andrey Y.:

 I am actually cash flowing AND profiting in Hawaii specifically because rental income growth goes hand in hand with appreciation.  I would STILL profit even if my rentals were unoccupied. You cannot say the same thing.

The reason I can cover missed rent payments is because I focus on profitable markets, not to be confused with "cash flow" markets on paper.

What the hell are you talking about? You can cash flow without rental income? At what price point, what mortgage did you take out and how much interest are you paying on it? Simple math is all I ask for.  

 Very simple example. An investor owns a $800K home in a city in California. They earn $60K per year appreciation over the long term (which is $5K per month), which the Turnkey operators will tell you you should accept a $250 per month "cash flow", more than half of which will go to fixing up your boiler, or roof down the line, while the property value doesn't even keep up with inflation.

Do you think @Minh Le @Matt R. @Jay Hinrichs @Amit M. (investors who invest for PROFIT) are worried about their tenant not making the April and May mortgage payments? Because all of the people I see worried on all the threads popping up, are not invested in profitable markets. They are invested for "cash flow" because that is what they have been hearing and reading about for the last 10 years.

This is intended to teach, so we can all learn from something like this. At the end of the day, we are all trying to become better investors. Leave the advertising to those who are trying to sell you something. 

This is total BS speculation. Homes in CA do not appreciate long term at the rate of $5,000/month. You are out of your mind if you think that is the normal rate of appreciation. You are the one that is going to get hammered when tenants cant afford to pay their high dollar rents. Also - you are WAY off base about cash flow rentals. Affordable housing is probably the #1 issue facing America today. There are 1000 Americans that are barely able to keep up and need affordable housing for every 1 American who can afford to live in a HCOL area. You can have your own opinion, but dont share it in public forums like its the gospel. 

Well lets look at a real life example 684 Encina Grande Palo Alto CA  one of the highest cost per sq ft in the country .. I bought it in 85 for 180k  I think it peaked at 2.5 or a little better.. lets say in 2019  so in 35 years it went up 2.315 million.. and of course rents at what I paid would have by the mid 90s given me massive cash flow of 3k a month easy on that one house..   2.315/  35X12  =  420 months/ 2.315 = 5,511 per month of appreciation gains.. add in 3k a month for Positive NET NET NET cash flow for say 25 of those years or 300 months X 3,000 = 900,000 in positive cash flow over that time.  for a grand total of 3.215.000 gain on a property bought in 1985 at fair market value and just a basic 1400 sq ft rancher on a 6k sq ft lot.. And now you know why I cant even think about why I sold that house for 500k in 91.. 

So total net gain in this real life home in the SF bay area and not even the BEST part of Palo Alto ( Barren Park)  saw a return if I had kept it and rented it starting in 95 for the 5k a month it would have rented for then.  my monthly gain would be 7,654.47 PER MONTH.. 

So while the statement that not all of CA grows at 5k a month over time is certainly very true.  there are parts that have and do and have done better.. but its a long game cant take a snap shot.. like if you bought in 07 peak and sold in 2011 probably lose money you bought in 2011 for the 900 or 1 mil would have sold for then. you make massive gains the last 9/10 years. 

its kills me to write this out and the shoulda woulda coulda just comes screaming back.. And I owned another one in the same neighborhood I built as new construction and was all in at 700k and today that one is easy 3.5 mil.   

Any way back to the appreciation versus cashflow regularly scheduled thread. 

If I lived in another part of the country and I did the same thing started as an agent at 18 and a broker at 20 and the play was to stack cash flow rentals because appreciation is gambling etc.. that's what I probably would have done and would done.

Keep in mind in the 50 60 70s and into the 80s people got started in real estate buying cheap land all over the country as an investment

it was not until about 2001 2002 that smart folks said hey CA real estate is sky hi lets start selling mid west rentals to CA people and other high priced markets.. that's how the turnkey industry or OOS investing industry started.. No one was rushing to Memphis in the 90s to buy rentals from CA. for an example.
 

Jay,

We don't have to go back 35 years to find $5k/mo of equity growth. I have a SFH where I bought in 2013 for $440k with 25% down. Rent at the time was $2,600/mo. Currently in the process of doing a cash out refinance. Value is around $950k-$1M. Current rent is $3.6k/mo. When I bought it during the downturn, it was worth around $650k so I didn't care too much with the cash flow. 7 years with $500k in equity. Not too shabby just on one property. My partner and I have more than a couple handful of 6-12 unit buildings where $800k+ equity were gained within 5 years or less.

We just bought a 5-unit building in November 2019 for $1.225M. Our neighbor just sold his 5-unit building for $1.8M that is 1,000sf smaller. I understand there's no cash flow in Bay Area. Sheesh......