Best Cash Flow Strategies

20 Replies

What is the best cash flow strategy in your opinion?

I was told that owning cash flow residential properties is a pain because of having to deal with the maintenance, tenants and sometimes property management companies.

I heard good things about NNN commercial, Notes, and private lending.

Are there any other cash flow strategy with little competition, less headache (no maintenance or tenants), high returns and possibly not having to need a lot of cash?

Following! Great question. Maybe something niche?

@James Lee - I invest in notes and with performing notes it is mailbox money and if you are passive can be done with lower initial costs to invest as you can buy a partial note. If you get into commercial and NNN etc you will need to have a good chunk of $.

Several things to point out - there is no aspect of real estate investing that has little competition. Also if you want higher returns it means more risk, real estate investing is no different than any other investment- higher risk higher reward.

Be happy to tell you more about note investing if you want to send me a PM

I’m new to real estate investing, however, I’ve been wondering the same. So far, I’ve purchased one duplex, invested in Fundrise, lent “hard money,” and also invested with a larger local real estate investor. 

While I have a property manager, I've found myself spending more time than I would like worrying, communicating, and speaking with tenants. I'm putting aside CapEx, but at the same time during the first few months, I still fear as if I'll be coming out of pocket for a repair while that fund builds. To clarify, I say fear loosely, it'll be ok and not the end of the world. Just trying to be transparent and think deeply in attempt to be helpful.

The other three are completely laissezfaire. The hard money lending and the money I’ve invested with a local real estate investor are backed by mortgages, one class B and the other class A. It’s “mailbox money” as Chris called it. :) I get the interest payments monthly without the lingering thought of someone else (plumber, electrician, etc.) swooping in to take it. 

All this has happened over the past few months, so it’s just my observations from my very limited experience. Hope it helps!

I would much rather be a lender than a landlord and have borrowers instead of tenants. 

I think you should look into Turnkey properties. A lot those companies are in the MidWest which requires a much lower entry point into owning a house that cash flows. The maintenance is very little, a good company should take care of that.

Now it does offer a lower return. But you can't have your cake and eat it with ice cream

Everyone has different goals and preferences. If you're accredited, you could invest in syndicated value add multifamily deals run by sponsors that are experienced and proven operators. Get a preferred return with annual cash-flows ranging 8-15%, IRRs 15-20%. Diversify your capital across multiple operators, asset classes, and markets. 

Best Cashflow= Paid off warzone house. On paper you'll pencil out amazing returns and it's cheap.

However in real life you're going to want to spend some money and get higher quality properties if you want less headache. A/B class, good school= better chance of long term  good tenant. 

Originally posted by @Spencer Gray :

Everyone has different goals and preferences. If you're accredited, you could invest in syndicated value add multifamily deals run by sponsors that are experienced and proven operators. Get a preferred return with annual cash-flows ranging 8-15%, IRRs 15-20%. Diversify your capital across multiple operators, asset classes, and markets. 

 @Spencer Gray, would you mind elaborating or directing me to some resources regarding accreditation and syndicated value add multifamily deals?

@Varinder Kumar Why would you rather have borrowers than tenants?  I feel I am the same way just would like to know your reasoning. 

I think you've described the holy grail there. i.e. "Little competition, high returns, less headache, not having to need a lot of cash."

Thats called investing in a tech stock and hoping it becomes the next google, amazon or apple before anybody else does.

Ultimately, you have to decide what your goal actually is and then find something to fit. Little competition is not really an option - at least when you think of real estate related investing.  But the others you can get a mix of but I'm going to say you aren't getting all 3.

The thing with lending - which several people recommended - is that it takes money. And you're asking for something that doesn't need to have a lot of cash. What you could do though is to try to raise money to then lend to other investors.  That technically does not require you to have a lot of cash. Returns are good. And less headache.  

That being said, what you're doing there is creating a job. And there is still some headache - when you have to foreclose on someone. Your returns are good if you go into hard money lending maybe but they're nothing compared to what buy and hold real estate delivers. And it might be kind of tricky to raise a bunch if you don't have a bunch of money to put into the entity yourself.

And if you can't raise money, then your returns are going to be nominal unless you have a huge personal nest egg that you can lend out.

I just don't see anything that comes close to buy and hold real estate investing. If you buy it right (say 70 to 75% of the ARV), you can then refi your money back out after some period of time and end up being all in on the house for 0 to 5%. What is your return on an investment of 0 if its making you 3k a year in rental income, principal paydown of another 2k a year, and appreciation of 5k to 6k a year?

Multiply those types of returns by 10 or 20 houses and there's very little that comes close to the kind of returns you're going to get for such small amounts of investment. Thats the beauty of real estate. If you buy right, you're leveraging other people's money (i.e. the bank's) to basically take down the whole deal with very little out of pocket. You're all in at 0 to 5%? Nothing comes close to that.

When that 150k house - that you are all in at 6k or 7k after the refi - goes up 4% or 6k in the year and gives you 3k a year in rental income and gives you 2k a year in principal paydown, you are getting a return that only buy and hold can provide.

@Larry Freid
Can you PM the company info for your passive portfolios? Thanks!

@James Lee

I've invested in all of the things you've mentioned. In my opinion, there is no one perfect cash flow strategy because all of them have their disadvantages and advantages. I personally like diversifying into all of them. But to answer your question:

1) yes, residential properties involve maintenance, tenants and property management companies. However, if you hire property management, maintenance and tenants are not your problem to manage.

2) triple net lease (NNN) it is a great cash flow strategy. The problem is that everyone else has discovered this too, so the safest properties have gotten very expensive. It can be difficult to find a good deal. Are you an accredited investor? If so there are funds that you can use to get into them. There are also 1031 exchange funds, but these tend to be very expensive and not worth it if you are not transferring in the property that is deferring taxes.

3) note/private lending. This is also another good cash flow strategy. However, it's incorrect for anyone to call this "mailbox money". It's only mailbox money as long as nothing is going wrong. If the noteholder defaults, all of a sudden it is a lot of work because you have to foreclose, essentially fix up the property, and resell it. If you are in the middle of the down market, you may have to hold it for a few years. Now on the other hand, if you're looking for something completely passive, then again if you are an accredited investor, there are funds that you can invest in that allow you to do this completely passively. The manager handles all the problems.

I love @Mike H. 's assessment of B/H strategy, and completely agree.  You can do TurnKey, which is mostly hands off, and you still end up with something of far greater value than the other strategies.

Originally posted by @Jeff Schechter :

I love @Mike H. 's assessment of B/H strategy, and completely agree.  You can do TurnKey, which is mostly hands off, and you still end up with something of far greater value than the other strategies.

 I would agree. Turnkey is normally 100% passive and hands off. Good way to invest if you work a 9-5 or invest out of state or both!

In my opinion, a property that cash flows and gains equity is a winner. Note buying, Funds, Hard Money Lending... There's a lot of ways to make it work. I would research for hours on end and gain professional financial and legal advise before entering any situation. 

@Ryan Ingram What kind of rates are you receiving? I'm looking to get on the lending side soon.

@ John K. I’m currently at 10-12%. That’s about half the return I’m getting with the duplex; but, after I signed the paperwork, my duties were complete 😇

If you've never invested in notes before, you can learn the "ins and outs" from the professional (institutional) note buyers who tend to be National in scope. They're always looking for product, which is why a good # of them welcome referrals from people who are willing to "bird dog" through effective marketing, which doesn't have to cost much at all. If you're willing to just put in a little time finding potential notes to buy, these investors will put up all of the money and take all of the risk. You earn money through referrals. You're not putting up any of your own money (no risk on your part). .. you're using other people's money (OPM).

By referring a # of these transactions and watching the professional funder perform due diligence and close deals, you're earning fees with no risk on your part, essentially getting paid to learn. By building a file on every transaction (all the while familiarizing yourself with the documentation involved), you're preparing for the day when you'll invest in your first note for your own account (and the money to do that with will come from your referral fees), having gained invaluable experience by leaning what's good, what's bad and why-- which is why the "no-quotes" from a funder are just as valuable a learning experience as the ones that do go through.

Originally posted by @Ryan Ingram :

@ John K. I’m currently at 10-12%. That’s about half the return I’m getting with the duplex; but, after I signed the paperwork, my duties were complete 😇

 Where are you finding the deals to lend?

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