Investing in Break Even Properties
Wanted to discuss the investment strategy of a long time successful RE investor. He's a BP member and I've enjoyed reading about him. He lays out a very simple investment strategy that, on paper and over the long term, makes sense to me. However, when purchasing property, it's tougher to execute when the numbers aren't stellar cash flow wise (10-15%). But the properties are in strong areas with great curb appeal with increasing rents. Here's the strategy in his words:
What do you look for in an investment?
I look for good investments that will benefit over the long run. I’m mostly buy and hold for long term. I do buy foreclosures and keep some and sell some to turn over the money. I’m not one that is adamant on cash flow. I think that is an area that has negatives to many true investors. No tax benefits per se, usually older dumpy properties with little hope for appreciation and don’t afford much depreciation. I suggest most new investors try to buy break even properties, and just like Monopoly, buy as many as you can. Keep them, refinance and buy more. Keep your main job for the income end and build foundation of properties first. Cash flow will come as rents increase, but don’t sacrifice growth option at desire of cash flow to begin.
There are too many gurus out there preaching cash flow and “replace your job with real estate income”. I’m the opposite of those. Cash flow just happens, in time, but not worth sacrificing acquisition of additional properties by having to put more down to obtain cash flow.
There are 4 main benefits to owning real estate:
1. Appreciation
2. Depreciation leading to tax benefits
3. Principal pay down
4. Cash flow
Charts will continually show that #1 and #2 are the keys to creating “TRUE WEALTH” in real estate, and far out distance the last 2 in the short or long term.
Thoughts?