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.
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 love this thread. You pose a great question, @Paul Sweetman. I totally agree with you (and nearly all of the other posters in this thread), but I would counter with this: interest rates are much lower than they were just 1-2 years ago (although they're now starting to rise) and rents are much higher than they were just 1-2 years ago. Based on these two factors, it makes sense that the price/unit has shot up significantly in the past 1-2 years.
Our strategy has been finding properties where the owners have not kept up with the increase in market-rent, especially in the past year (14-17% nationwide). This will allow us to add significant value and justify our high purchase price. Yes, we have to purchase at a very low cap-rate and I hate that. But, again, the mortgage rate we locked in and the market-rent we're now achieving justify our purchase price. Would I rather purchase at an 8.5-cap instead of a 5.5-cap, yes! But, that isn't the market, so I can play in this market, or I can sit on the sideline.
If you're in a position to sit and wait, you may be rewarded handsomely if this market suddenly remembers gravity still exists and bubbles can't be blown up forever....
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.
Thanks this is a great viewpoint.
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,
It is a self fulfilling prophecy. Value is just what the majority agree something is worth. I have heard people say, I don't understand why people are paying so much for X. The simple answer is because enough people think it is worth that much. We don't all have to agree on value, just enough people willing to buy something.
What people sometimes forget is that ALL investing requires speculation to some degree. Even if the property has amazing cash flow today, you are still speculating that it will continue into the future. There were people who owned GE stock for 30 years, thought the dividend was guaranteed and that GE would dominate forever. Sears was once the greatest retailer in the world, so was Walmart and now Amazon is. Nobody knows for sure what the future holds. We all look at the local market and take a chance. That is what scares many people out of real estate investing. There is a fair amount of risk and people do get burned.
I find this thread very interesting in that it takes place two years ago and speculates on the future. I spent a long time trading on Wall St before getting involved in real estate. I learned a few things. One of them is that something is only worth what someone else is willing to pay for it. Another is "often early, never wrong". I'd be curious if anyone of the previous contributors feel differently about conditions now. I'm betting on a market correction that will require the Fed to revisit its hawkish stance.
Im a new investor compared to some you. Im just surprised there are a ton of buildings where rents can be literately doubled if you just change the floor and paint the walls. Those are amazing opportunities compared to what I saw in Los Angeles with rent controlled units and total rents adding up to only half of the mortgage. But I guess I really missed the good old days in the 90s?
Charlie Munger said, “You don’t make money when you buy and you don’t make money when you sell. You make money when you WAIT.”
I think most of us (including myself) hate to wait. Since it feels like we are not accomplishing anything. But sometimes it is the best thing to do.
Now with that being said there are opportunities but those opportunities are only found by doing alot of marketing to find the right situation, motivation, etc.
Charlie Munger said, “You don’t make money when you buy and you don’t make money when you sell. You make money when you WAIT.”
I think most of us (including myself) hate to wait. Since it feels like we are not accomplishing anything. But sometimes it is the best thing to do.
Now with that being said there are opportunities but those opportunities are only found by doing alot of marketing to find the right situation, motivation, etc.
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.
Barring someone with some "creative" strategy/angle- *cough, rent to own scam, cough*-, or someone taking a leap with other peoples money, rather than their own -hello syndicators- , I don't think you are missing anything, and are one of the few honest posters here on BP regarding the state of affairs.
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.
Barring someone with some "creative" strategy/angle- *cough, rent to own scam, cough*-, or someone taking a leap with other peoples money, rather than their own -hello syndicators- , I don't think you are missing anything, and are one of the few honest posters here on BP regarding the state of affairs.
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.
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 .
That sounds like why Realtors and Financial Advisors love Doctors. Doctors have money/income, and are overwhelmed with their day jobs.
Never understood the mentality of having enough money that mediocre investments are ok. Even if I had Elon Musks money, mediocre returns would not be ok on any of it.
If those people made better investments, maybe they wouldn't have to keep working the day job.
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.
Barring someone with some "creative" strategy/angle- *cough, rent to own scam, cough*-, or someone taking a leap with other peoples money, rather than their own -hello syndicators- , I don't think you are missing anything, and are one of the few honest posters here on BP regarding the state of affairs.
Not interested in gimmick strategies or scams. People can be as "creative" as they want with their own money, not someone elses.
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.
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 .
That sounds like why Realtors and Financial Advisors love Doctors. Doctors have money/income, and are overwhelmed with their day jobs.
Never understood the mentality of having enough money that mediocre investments are ok. Even if I had Elon Musks money, mediocre returns would not be ok on any of it.
If those people made better investments, maybe they wouldn't have to keep working the day job.
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.
Barring someone with some "creative" strategy/angle- *cough, rent to own scam, cough*-, or someone taking a leap with other peoples money, rather than their own -hello syndicators- , I don't think you are missing anything, and are one of the few honest posters here on BP regarding the state of affairs.
Not interested in gimmick strategies or scams. People can be as "creative" as they want with their own money, not someone elses.
There was a topic here on BP not long ago.
It will never be my ideology but many of these current day investors subscribe to negative cash flow on some long term strategy they believe in. I mean the thread in here that literally amazed me. They were debating on what is cool cash flow to lose. Some were ok with having $1000 negative cash flow for several years. These are the people buying this stuff.
@Mark Cruse
I recall that thread Mark. It was Crazy Talk!
To each their own. As much as I believe in wealth building through appreciation, the asset must cash flow as well... NOW... NOT 3-5 years from now. It would bankrupt me if I subscribed to that. Or I would need some crazy excess money.
I think most of the time those posters omit clarifying that that they are high income earners and are just trying to side hustle REI. They dabble versus making it their primary income. Otherwise, they would not be chanting that mantra. Think about it, a person with no other income, but invest in negative cash flow. IMPOSSIBLE!!
@Mark Cruse
I recall that thread Mark. It was Crazy Talk!
To each their own. As much as I believe in wealth building through appreciation, the asset must cash flow as well... NOW... NOT 3-5 years from now. It would bankrupt me if I subscribed to that. Or I would need some crazy excess money.
I think most of the time those posters omit clarifying that that they are high income earners and are just trying to side hustle REI. They dabble versus making it their primary income. Otherwise, they would not be chanting that mantra. Think about it, a person with no other income, but invest in negative cash flow. IMPOSSIBLE!!
Yea, many are high earners but others I feel just dont know any better. Itś cool to say you are an investors and without a lot of guidance they jump in. Also, they have smart people they may look up to saying its cool to do it. Many are not far from newbies and in this climate they have no idea how to get one with cash flow. Others are horrified by anything below a B plus community. Not sure if I´ḿ a high earner but I damn sure dont live off this. Itś a side gig for me as well and I have passion for it but I dont subscribe to negative cash flow.
Charlie Munger said, “You don’t make money when you buy and you don’t make money when you sell. You make money when you WAIT.”
I think most of us (including myself) hate to wait. Since it feels like we are not accomplishing anything. But sometimes it is the best thing to do.
Now with that being said there are opportunities but those opportunities are only found by doing alot of marketing to find the right situation, motivation, etc.
I'm a buy and hold guy. waiting and earning is the name of the game I play. But my wife sees cash as a problem and needs to be earning better than 5% or else it's loosing money. I can't disagree with her.
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.
Barring someone with some "creative" strategy/angle- *cough, rent to own scam, cough*-, or someone taking a leap with other peoples money, rather than their own -hello syndicators- , I don't think you are missing anything, and are one of the few honest posters here on BP regarding the state of affairs.
We've looking into more syndications which has worked out surprisingly well.