How can you make money in this environment?

Rental Property Investor · Lebanon, OH · Member since 2016 · 45 posts · 47 votes

I've been an investor for 30 years. I own and manage 60+ units. Best life ever. I've always said I'm an investor not a speculator. Properties are being priced at levels I don't understand and if I bought them they would sit empty because my rental market couldn't afford the rent I'd have to charge. BUT these over priced properties are flying off the market in 4 to 5 days. I'd like to think I know what I'm doing but I will not buy a property and not have positive cash flow immediately or at least know what I have to do to get to positive cash flow quickly. Can somebody explain to me what I'm missing? Depreciation and appreciation are great but I can't pay a mortgage payment or water bill with it.

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Joe SplitrockPro Member

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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

I have learned that my experience can work against me. You see the market as it is today and as it was the last 30 years. Someone starting out sees the market as it is today and as it will be for the next 30 years. Two different perspectives, but looking back creates limiting beliefs. Looking forward has risk, but given enough time and the right market, it is almost impossible to fail.

I remember scratching my head back in 2016 saying the exact same thing that you are saying. Looking back at those deals, any one of them would have been an amazing investment. At some point I had to accept the reality that others see value where I don't. That can be even tougher when you are experienced, because you are admitting that someone with less experience may have a better view of the future.

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Taylor DaschBusiness Member
Real Estate Agent · Temple, TX · Member since 2022 · 1k+ posts · 700 votes
4y
I have been asking myself this as well. First of all, it all depends on the market. It is still very possible to purchase a cash flowing property in my market as the rents have went up quite a bit. My theory is that investors realized/make a bet that inflation is going to keep causing the prices to go up, if they sit and wait for prices to drop their million is going to be worth 900k eventually. This also causes the properties in the range for the first time home buyer to go up(I think they have similar criteria in terms of price/condition), but they dont care about cash flow so they buy it anyways. I am still buying properties that cash flow extremely well here in Texas.
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Dave G.
Investor · Phoenix, AZ · Member since 2016 · 349 posts · 418 votes
4y
@Paul Sweetman good question. I feel the same way. Bought my first rental back in the 1900s (1991 to be exact) and just don't see opportunity, at least in my state, right now. The last rental I bought was in 2017. In fact, I just sold one of my rentals, took some cash off the table in this crazy market.
We have some strange dynamics in our country right now. Economically, politically and culturally. To me, they are all feeding into the country's inability to realize the efficiency and effectiveness of capitalism in the way that we saw even only 20 years ago.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
4y
Nothing has really changed but the "bar". MAny ways of buying have been temporarily put on hold until things go back to normal pricing, but the basic two things that make or break a deal work, cash flow and/or profit, are still alive and kicking. Like always though, not all markets work all the time (sometimes never work). Not all strategies work all the time. What does work all the time are opportunities, and what makes an opportunity a deal.
All deals, it doesn't matter where or when, always are based on two things:
1 - How much it costs the REI (this is called cash...and only cash, out of pocket)
2 - How the rest of the total cost is paid for by someone/something else. (Terms).
...and the success of all deals can be measured by two things:
1 - How quickly the cash flow will recover the REI cost/DP (less than 3 years).
2 - How quickly the paid for equity (DP) can be duplicated by the "free" equity (appreciation), so the property can be sold and the cash from the sale can be moved forward and grown exponentially (less than 5 years).
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Paul Sweetman:

I've been an investor for 30 years. I own and manage 60+ units. Best life ever. I've always said I'm an investor not a speculator. Properties are being priced at levels I don't understand and if I bought them they would sit empty because my rental market couldn't afford the rent I'd have to charge. BUT these over priced properties are flying off the market in 4 to 5 days. I'd like to think I know what I'm doing but I will not buy a property and not have positive cash flow immediately or at least know what I have to do to get to positive cash flow quickly. Can somebody explain to me what I'm missing? Depreciation and appreciation are great but I can't pay a mortgage payment or water bill with it.
there are very big difference in thought process as it comes to investing in real estate throughout the US.

for me growing up in the SF Bay Area and Being a RE broker there for decades the West coast investors competition for the assets and their mind set was simply as long as someone else can pay the on going expenses and maybe just a 100 or 200 negative its still a good investment hedge against inflation and most of these investors have day jobs that make significant incomes .

In Markets were wages are lower houses prices are lower and appreciation historically is minimal to non existent then for sure the thought process is the asset has to produce cash other wise why even buy it.. there is a reason that many big cities in the Rust belt and mid west have thousands of vacant boarded houses or thousand go to tax sale.. you simply never see that out west or in other high dollar markets. you have supply demand and you have RISK

In the high dollar markets supply is usually constrained your not going to drive through silicon Valley and basically see any board ups unless its a major retail renovation. compared to markets in the mid west rust belt were you could realistically see 3 board ups or more on one block..

So for better or worse the mid west rust belt markets have finally bounced back some and this inventory is being bought up and prices have risen some but rents are not moving as fast as values if they were there would be no issue you would still have the same metrics that you used back a few decades ago to buy these assets.
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Curtis Mears
Property Manager · Raleigh, NC · Member since 2014 · 728 posts · 596 votes
4y
@Paul Sweetman
I have had similar questions. But, I stopped buying in 2018 in my market as I thought prices were to high vs the rent. I guess you could say I was completely wrong as the prices jumped even more in the last year. I also sold 2 properties recently to lock in the gains and also avoid any drastic capital gains increase. I am sitting back now and enjoying life waiting to see how everything shakes out.
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Alex Jarbo
Developer · Asheville, NC · Member since 2019 · 5 posts · 3 votes
4y
@Paul Sweetman finding a good syndication fund that offers double digit or pretty close to double digit returns is seeming to be the route everyone is going towards right now. There is power in numbers when it comes to purchasing real estate and syndications is a good route. Brian Burke has a great book published by bigger pockets where he talks about how to properly choose the right syndicator. Hope that helps.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
4y
Quote from @Curtis Mears:

@Paul Sweetman
I have had similar questions. But, I stopped buying in 2018 in my market as I thought prices were to high vs the rent. I also sold 2 properties recently to lock in the gains and also avoid any drastic capital gains increase. I am sitting back now and enjoying life waiting to see how everything shakes out.

I'm with you, Curtis. Why fight the market? If it's a seller's market, sell your least favorites at a tax-efficient velocity.
To the original question, I think a lot of us that have been around a while are selling more than buying. My ratio of sells to buys from '18-'21 has been 3:2. This year should be 8:4 or 2:1.
That's not all the markets fault though. Real estate is work and at some point we just want to work less. No way I'm turning 200 rocks to buy some skinny deal.

7 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
Add value. $1 of added NOI = $25 in added value at a 4% cap rate. A $100 increase in rent could translate into $30,000 of increased value.
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Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
4y
I’m still finding things that are 50 cents on the dollar and with a remodel can earn a healthy return. However even as an agent I find those things are off market or via relationships. These deals are becoming increasingly scarce so much so that I am not sure it will make sense to sell them anymore if I’m also growing a portfolio. But it does prove to me it can be done and money can be made
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Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
4y
@Paul Sweetman

Sounds like you are in a great spot and have accumulated some wealth. Prices have not made sense in quite some time unless you speculate that that prices and rents will continue to increase. I try to stay away from that but people who were more aggressive than me have done well.

The folks who are in really tough spot are the ones who don't have any wealth. They have to look at the market and say, "well it looks stupid but it seems to be working for the people out there doing it." If you don't have a choice I think real estate is probably the least ugly investment. It is less redonkulous than crypto "sheebu eenu" LOL, but for folks who can afford to wait and have something to loose it seems wise to slow down and enjoy these asset prices and rent growth.
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Eric JansonBusiness Member
Real Estate Agent · Minneapolis, MN · Member since 2015 · 102 posts · 100 votes
4y
I see the same thing in our market. Investment properties are selling for well above what makes sense to cash flow. I think people are banking on rents and prices continuing to rise, so they see the short-term pain to be worth it. I am still seeing deals, though, but they are harder to find. There seems to be more opportunity in the rural areas where prices much lower, but the rents are not too different. Properties cash flow better further away from a big city, but that leads to a list of other challenges.
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Michael K GallagherBusiness Member
Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
4y
@Paul Sweetman I see similar competition here in central OH.There is almost no way to cashflow a single family home here, the demand is just too high, even in areas where they are offering tax incentives, you have to look for medium to long term rental solutions to get the revenue high enough. You don't start to see any promising numbers unless you move into 2 units minimum.
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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
4y
Some markets aren't cash flow markets. You can't change the nature of the market
Another potential issue is areas where there is temporarily high growth. If/when the high growth period ends prices are likely to drop. Then you're stuck holding the bag.
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Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
4y
You still find stuff that's not priced correctly, all the time, even in multifamily. I'm still trying to really figure out why the people who just accepted our latest offer just did. And I'll never know. They just did, for any one of a thousand reasons that have nothing to do with the market and have to do with their personal lives.
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Edgar Z Whelan
Real Estate Broker · Hollywood, FL · Member since 2019 · 20 posts · 9 votes
4y
South Florida has always been about appreciation first and cash flow secondly at least in my experience. Not only have we had appreciation but also rents are at all time highs. Best of both worlds. The prices have gotten so high that I am unable to find any deals that meet my criteria. So I have been searching other markets that seem affordable. But the problem is that these possibly affordable markets seem to be low appreciation and low rents. I have been looking in the Midwest mostly in Ohio. I just don't see buying a property where I can't see any appreciation growth and collecting rents in the $750 to $1200 range. My concern is that any repair would eat up the rent in any given month and not having the protection of appreciation.
So my current plan is to sit out and wait. Pull out some money and increase rents. I am also planning to improve and update the properties.
Where can you make money in this environment perhaps its in repositioning your portfolio and controlling cost.
And waiting for a good deal.
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Gordon Starr
Rental Property Investor · Dayton, OH · Member since 2015 · 312 posts · 273 votes
4y
Hi Paul, sounds like you should be looking at Dayton. Here the prices still make sense, at least for now. This is especially true if you have a construction company.
1 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
I think @Eric Bilderback touched on something important with "least ugly investment": where else does investment money go right now? Saving in cash at .01% interest rates and 7% inflation doesn't look like a smart play if you have any capital.
And lots of things can be true at once: Low interest rates creating bubbles, late to the cycle beginner money following trends, legitimate inflation hedge, long term market patterns favoring rental assets, downsizing boomers creating a larger market than poorer milennials (which is a huge group as well) covid disruption.
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Dan Rowley
Investor · Cary, NC · Member since 2012 · 214 posts · 194 votes
4y
There is nothing wrong with being patient and waiting, as business cycles will change. I think it was Warren Buffet who said,
"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" Just keep some $s available and when things swing down you will be ready.

4 Reply
George Azita
Los Angeles · Member since 2022 · 97 posts · 96 votes
4y
I purchased a 6-unit all 1-bedroom unit property at $291,000 per unit in March 2021 for my son and it is the highest-priced property I ever purchased. The profits are super low compared to the past and there is little room for rent increases, but we figure the property will net about $1.4 million in 10 years. We paid $1.75 million cash, but even if we got a loan we would have put down about $700k and still would have netted about $1 million in 10 years, or $100k per year.

I see two things happening with investors; one is bad and the other is good. The investors who don't do a totally thorough set of number crunching cannot figure out which investments are good and the investors who have super spreadsheets and do extensive calculations are doing well. Their philosophy is that they will buy, hold for 10 years and make a much better return that the stock market, or any other investment.

For those who wrote posts saying they are waiting for the prices to come down. Lots of luck!!! I've been seeing sellers getting more-desperate to sell and actually see prices coming down, but prices will never come down significantly where the profits will be like the old days.
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Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y
I have learned that my experience can work against me. You see the market as it is today and as it was the last 30 years. Someone starting out sees the market as it is today and as it will be for the next 30 years. Two different perspectives, but looking back creates limiting beliefs. Looking forward has risk, but given enough time and the right market, it is almost impossible to fail.
I remember scratching my head back in 2016 saying the exact same thing that you are saying. Looking back at those deals, any one of them would have been an amazing investment. At some point I had to accept the reality that others see value where I don't. That can be even tougher when you are experienced, because you are admitting that someone with less experience may have a better view of the future.
11 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
4y
I think patience is the biggest advantage right now.
3 Reply
Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
4y
The issue more often than not is that you are dealing with entirely different economies. In my county, Marin County California, an income of $100,000 is considered "low income," - not enough to get you a section 8 voucher but still "low." A household of two people earning about $75,000 qualifies for Section 8. Two people earning $75,000 in Toledo, Ohio (where I lived for 7 years and where you can rent a nice two bedroom for $650/month) qualifies you for a pretty darn good lifestyle. Given these different dynamics, different investment strategies are going to prevail. What you are seeing in the Toledo's of the world (what is commonly referred to as "appreciation" but is in fact a kind of inflation) is an attempted arbitrage by folks living in one kind of economy in the other. In short, your demand for housing in the Toledo type of economies is being driven in substantial part by investors from Marin County type of economies looking for "cheap" assets in parts of the country they, often, do not fully understand. Houses are cheap there because you simply cannot raise rents due to economic conditions. An apartment that rented for $500 in Toledo in the 1980's probably rents for about $650 today!!! In the Bay Area, a house that rented for $1,700 in the 1990's would go for $6,000 today. Different economy. Different supply and demand dynamic. Different strategy.
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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
4y
@Paul Sweetman
You have to get creative and find new ways to make deals work. A good example would be if you are looking to buy in an A location with these prices here in Columbus, OH. One of the few ways some of my investors have been able to make those deals work is to buy something that can be an Air BnB. If done correctly, you can get almost double market rent, and that changes how you look at the deal. Another example would be renting to section 8 tenants. In some cases, you can get more rent by renting to section 8 tenants vs just advertising to people off the street using Zillow.
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Nate R.
Real Estate Investor · Austin, TX · Member since 2015 · 214 posts · 234 votes
4y
We're in a massive "everything" bubble. Years of low and lower interest rates have pushed up prices (of all assets, not just real estate) and pushed down affordability.
2 Reply
Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
4y
Quote from @Joe Splitrock:

I have learned that my experience can work against me. You see the market as it is today and as it was the last 30 years. Someone starting out sees the market as it is today and as it will be for the next 30 years. Two different perspectives, but looking back creates limiting beliefs. Looking forward has risk, but given enough time and the right market, it is almost impossible to fail.
I remember scratching my head back in 2016 saying the exact same thing that you are saying. Looking back at those deals, any one of them would have been an amazing investment. At some point I had to accept the reality that others see value where I don't. That can be even tougher when you are experienced, because you are admitting that someone with less experience may have a better view of the future.

I agree with everything you said. Investing in real estate in my area required some speculation beginning in 2017 or so as you couldn't justify the prices going for the rents you could achieve. Many would be buyers refused to budge and pay for properties that didn't pencil and retrospect have lost out big-time up to this point. The rub is that if investors think prices will go up it becomes a self fulfilling prophecy. As buyers push prices up appraisers and bankers use the higher prices as comps etc, etc. What I really dislike about today's market is prices in my opinion are much more dependent on policy then on sound economics.

Obviously I could be wrong,
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