Why properties more than 300k doesn’t make cash flow?
Member since 2023 · 11 posts · 3 votes
Why properties more than 300k doesn’t make cash flow?
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesQuote from @Behzad Sharifi:
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
In most markets, make sure the property works as an LTR. this is because STRs are under attack from multiple directions. Quotas, bans outrageous taxes. OTAs that continuously become less owner friendly. AirBnB is advocating owners pick up the fees that are currently paid by the guests. Even some vacation markets are implementing outrageous STR taxes/fees.
STR can make more money, but requires more effort and has the risks from the various attackers. Best to be sure any purchase can work as an LTR.
by the way lowering LTV is purchasing cash flow at too high a price as the difference between 80% LTV and 70% LTV reduces the return significantly. In terms of return, in most markets you are better off having the negative cash flow than lowering the LTV to obtain cash flow. At 80% LTV, 10% appreciation results in 50% return from appreciation. At 70% LTV, the same 10% appreciation results in 33% return from appreciation.
Good luck
32 Replies
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
I would ignore those search results. You can find better neighborhoods, put down more $$, change your strategy, etc......
- 2yJason WrayPro MemberBanker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
You have to take into consideration a few things like Location, Property type, Number of Units, and which will yield a higher ROI like LTR or STR using VRBO/AirBNB. In some cases you will have a hard time cash flowing as a long term rental on a single family home above $300K if the Annual Taxes and Home owners insurances are above average. If you look at a 2-4 unit at that price range it should cash flow based on the multiple doors.
If you are going to spend above $300K you need to look in different amenity areas which offer a good VRBO -STR style rent to cash flow. One you get into the $350K to $550K price range you should be looking at 3-4 unit style properties or even 2-unit/Duplex style homes with a good size lot that can also offer an ADU option to increase rents without construction to the subject property.
I can give you an example here in Florida in my market you can find a great Duplex or 3-4 Unit Multifamily in that range of $300K to $550K. In many cases these properties are within 5-10 minutes from any local beach or attraction. Most investors I know have VRBO properties that Gross $8-$10K a month for a Duplex. That cash flows well above the PITI payment including management fee's and other factors.
If you really want to spend more money $850K to $1.25M you can get a 2-4 unit directly on the beach which are booked 6-8 months in advance. If you want to stay lean and buy frugal many states not just Florida offer a solid ROI. I am seeing a lot of activity in IN, OH, TN, FL, OR, TX, AZ, NV. Each has its own particular advantage and price range but some offer low annual taxes and insurances that help with cash flow like TN.
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2y
North Virginia is a really tough market. I live southwest of Richmond and work in an office in Reston (or did before the pandemic moved us to work from home).
I tried to find a way to make the numbers work in north virginia and gave up. I am sure there are workable deals but in that area you are simply going to have to work with larger numbers.
I recommend you look at Leesburg or other areas west of Fairfax if you are hooked on the area. Otherwise, you might want to consider investing as a remote owner in areas further away.
- Member since 2023 · 11 posts · 3 votes2y
Quote from @Bruce Woodruff:
I would ignore those search results. You can find better neighborhoods, put down more $$, change your strategy, etc......
I am willing to put down more money, but not in the property without cash flow. And i am using the buy and hold strategy.
Is that good? - Member since 2023 · 11 posts · 3 votes2y
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
- Member since 2023 · 11 posts · 3 votes2y
Quote from @Glen Wiley:
North Virginia is a really tough market. I live southwest of Richmond and work in an office in Reston (or did before the pandemic moved us to work from home).
I tried to find a way to make the numbers work in north virginia and gave up. I am sure there are workable deals but in that area you are simply going to have to work with larger numbers.
I recommend you look at Leesburg or other areas west of Fairfax if you are hooked on the area. Otherwise, you might want to consider investing as a remote owner in areas further away
Yeah, that’s right
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votesYou create more cash flow by putting down more money. Right?
Quote from @Behzad Sharifi:
Is that good?
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Behzad Sharifi:
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
No....a well run STR will make 2-3 times the money of a LTR.....You are new to this right?
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Behzad Sharifi:
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
In most markets, make sure the property works as an LTR. this is because STRs are under attack from multiple directions. Quotas, bans outrageous taxes. OTAs that continuously become less owner friendly. AirBnB is advocating owners pick up the fees that are currently paid by the guests. Even some vacation markets are implementing outrageous STR taxes/fees.
STR can make more money, but requires more effort and has the risks from the various attackers. Best to be sure any purchase can work as an LTR.
by the way lowering LTV is purchasing cash flow at too high a price as the difference between 80% LTV and 70% LTV reduces the return significantly. In terms of return, in most markets you are better off having the negative cash flow than lowering the LTV to obtain cash flow. At 80% LTV, 10% appreciation results in 50% return from appreciation. At 70% LTV, the same 10% appreciation results in 33% return from appreciation.Good luck
- Member since 2023 · 11 posts · 3 votes2yYes, am totally new to it. Still learning..
Quote from @Bruce Woodruff:
Quote from @Behzad Sharifi:
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
No....a well run STR will make 2-3 times the money of a LTR.....You are new to this right?
- Member since 2023 · 11 posts · 3 votes2y
Quote from @Bruce Woodruff:
You create more cash flow by putting down more money. Right?Quote from @Behzad Sharifi:
Is that good?
Does it?
- Member since 2023 · 11 posts · 3 votes2yYes sir, that’s right, but i have to stick with LTR, cuz i am still in college. And have a lot of more experiences, so I won’t be able to the ARBNBs.
Quote from @Dan H.:
Quote from @Behzad Sharifi:
ARBNB AND VRBOS are good, but I need a long term rental agreement to keep up with the expenses and the principal.
In most markets, make sure the property works as an LTR. this is because STRs are under attack from multiple directions. Quotas, bans outrageous taxes. OTAs that continuously become less owner friendly. AirBnB is advocating owners pick up the fees that are currently paid by the guests. Even some vacation markets are implementing outrageous STR taxes/fees.
STR can make more money, but requires more effort and has the risks from the various attackers. Best to be sure any purchase can work as an LTR.
by the way lowering LTV is purchasing cash flow at too high a price as the difference between 80% LTV and 70% LTV reduces the return significantly. In terms of return, in most markets you are better off having the negative cash flow than lowering the LTV to obtain cash flow. At 80% LTV, 10% appreciation results in 50% return from appreciation. At 70% LTV, the same 10% appreciation results in 33% return from appreciation.Good luck
Thanks! - 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Behzad Sharifi
What area are you in? I wasn’t making much off mine when I first started 9 years ago but kept planting trees and enjoying all the mailbox $ now as market rent goes way up while my mortgages are fixed and seem really low now compared to rent. Huge yourself 10 years and you’ll be set for life. Most people can’t wait that long, but if you have patience you’ll make a killing with RE after about 10 years and create generational wealth. If you can’t wait 5-10 years then try something else the younger impatient generations are investing in like crypto and BTC and hope for the best.
- Member since 2020 · 351 posts · 329 votes2y
I’ve noticed a similar trend. In my town rent caps out near 2000/mo so a 200k property rents for 2000 and a 400k property rents for 2200. Renters of single family homes are primarily the ones without the means to buy which limits the maxima they can pay for rent. Owner occupied houses have much softer ceilings.
- 2yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Behzad Sharifi:
Quote from @Bruce Woodruff:
You create more cash flow by putting down more money. Right?Quote from @Behzad Sharifi:
Is that good?
Does it?
Well if you put down $400k on a $500k property, then you're only paying on a $100k mortgage, right?
- 2yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
It looks like checking out websites like Zillow and BiggerPockets for cash-flowing properties in Fairfax, Virginia has been a bit tricky. If expensive properties aren't yielding positive cash flow, which is common in hot markets like Fairfax, and if you've found cash-flowing properties in less desirable areas, it's crucial to navigate carefully due to potential risks. Consider shifting your focus to a buy-and-hold approach, exploring multi-unit properties, or considering creative financing options like owner financing or subject-to deals. Additionally, expanding your search beyond Fairfax to nearby areas with more affordable options could enhance your chances of finding better cash flow potential.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Bruce Woodruff:
Quote from @Behzad Sharifi:
Quote from @Bruce Woodruff:
You create more cash flow by putting down more money. Right?Quote from @Behzad Sharifi:
Is that good?
Does it?
Well if you put down $400k on a $500k property, then you're only paying on a $100k mortgage, right?
I suspect lower LTV is not an option for most newbie RE investors, but let’s look at the numbers.80% LTV, 6.75% 30 year on $500k. $100k down. P&i 2,594. If it appreciates 10%, you made 50% from appreciation. If it appreciates 20%, you made 100% return from appreciation.
20% LTV same loan terms (you likely would get marginally better as there is less risk on the lender at the low LTV), $400k down. P&i $649. If it appreciates 10%, the return from appreciation is 12.5% (25% of the return of the higher LTV). 20% appreciation would produce a 25% return (25% of the higher LTV) $1945/month crease to the cash flow. $300k/1945 is 154 months (12.85 years) to have the cash flow recover the additional down payment. This is not including the lost value of the money. That money would typically be earning returns. The returns vary but at 10% return, the recover never occurs because at 10% return that money produces $30k/year (not including compounding). $1945/month equates to $23,340/year. At 5% return, it would be $15k annually. $23349 - $15k is $8,340. At $8340/year, the time to recover the $300k is 35.97 years.
The numbers show that buying cash flow hurts return. Best return is achieved using highest leverage but make sure you have sufficient reserves. Most people who lose money on RE did so because they were forced to sell. Do not put yourself in a position that you will be forced to sell. In addition, that increased down would take many years (likely longer than the 30 year loan term when including modest 5% growth on the money) to pay for in the increased cash flow.
Use the leverage. Keep some/much of what would have been used on larger down as reserves. Do not try to purchase the cash flow, virtually always it ends up being financially the wrong decision.
Good luck
- Member since 2019 · 46 posts · 25 votes2y
Quote from @Dan H.:
Quote from @Bruce Woodruff:
Quote from @Behzad Sharifi:
Quote from @Bruce Woodruff:
You create more cash flow by putting down more money. Right?Quote from @Behzad Sharifi:
Is that good?
Does it?
Well if you put down $400k on a $500k property, then you're only paying on a $100k mortgage, right?
I suspect lower LTV is not an option for most newbie RE investors, but let’s look at the numbers.80% LTV, 6.75% 30 year on $500k. $100k down. P&i 2,594. If it appreciates 10%, you made 50% from appreciation. If it appreciates 20%, you made 100% return from appreciation.
20% LTV same loan terms (you likely would get marginally better as there is less risk on the lender at the low LTV), $400k down. P&i $649. If it appreciates 10%, the return from appreciation is 12.5% (25% of the return of the higher LTV). 20% appreciation would produce a 25% return (25% of the higher LTV) $1945/month crease to the cash flow. $300k/1945 is 154 months (12.85 years) to have the cash flow recover the additional down payment. This is not including the lost value of the money. That money would typically be earning returns. The returns vary but at 10% return, the recover never occurs because at 10% return that money produces $30k/year (not including compounding). $1945/month equates to $23,340/year. At 5% return, it would be $15k annually. $23349 - $15k is $8,340. At $8340/year, the time to recover the $300k is 35.97 years.
The numbers show that buying cash flow hurts return. Best return is achieved using highest leverage but make sure you have sufficient reserves. Most people who lose money on RE did so because they were forced to sell. Do not put yourself in a position that you will be forced to sell. In addition, that increased down would take many years (likely longer than the 30 year loan term when including modest 5% growth on the money) to pay for in the increased cash flow.
Use the leverage. Keep some/much of what would have been used on larger down as reserves. Do not try to purchase the cash flow, virtually always it ends up being financially the wrong decision.
Good luck
Completely agree with above and makes common sense. I don't know why i was thinking that more cash is good for buying a property. Simple math like above explains it pretty simply :) Thanks for guiding us.
- Realtor · Houston, TX · Member since 2017 · 177 posts · 68 votes2y
I've found more success by putting down 25% because it flows more nicely. But the downside is, your overall rate of return on cash invested goes down as you have sunk more of your own money into the deal. And the more leverage you use, the higher your breakeven point gets. It's a seesaw ride, so you have to strike a balance. Keep in mind too that rents in any market are pretty much dictated by wages in the area.
- Real Estate Agent · Central West area of Florida · Member since 2024 · 13 posts · 3 votes2y
Quote from @Behzad Sharifi:
I looked up a lot of properties through Zillow, and used the bigger pockets calculator to analyze it. The results surprised me, so basically properties which are expensive than 300k are not making cash flow. And the other properties which make cash flow are in a bad environment or a bad neighborhood. So any advice or suggestions?
Hi Behzad,
It is true that with the recent increase in interest rates has made it harder to find cash flowing properties, but there are a lot of different variances that affect the cash flowing possibilities of an investment.
You have to keep in mind different neighborhoods in different cities/counties, in different states and different types of strategies. The property may not cash flow as a long term rental, but it may does as a short term rental or a mid term rental, maybe instead of finding a move-in ready home you could find a fixer upper for a lower price, increase the value of it and increase the rental income... There are thousands of possibilities!
I'm happy to connect and have a deeper conversation to see if I can help your specific situation.
Good luck!
- Member since 2023 · 11 posts · 3 votes2y
Quote from @John Morgan:
@Behzad Sharifi
What area are you in? I wasn’t making much off mine when I first started 9 years ago but kept planting trees and enjoying all the mailbox $ now as market rent goes way up while my mortgages are fixed and seem really low now compared to rent. Huge yourself 10 years and you’ll be set for life. Most people can’t wait that long, but if you have patience you’ll make a killing with RE after about 10 years and create generational wealth. If you can’t wait 5-10 years then try something else the younger impatient generations are investing in like crypto and BTC and hope for the best.
That’s a good thing to hear. Am in to buy and hold market too, but still learning.
- 2yAaron HowellBusiness MemberReal Estate Agent · Crozet, VA · Member since 2014 · 436 posts · 223 votes
I had another agent tell me "You can cash flow anything depending on how much down payment you make" a while back and was a little taken aback when I heard it. He was 100% right though.
You can try to cashflow a property in NOVA with a minimal downpayment on one hand and crap in the other and see what fills up faster. See which fills up faster. We have a hard time cash flowing even in Central Virginia.
I was a big cash flow guy like 7 years ago but that strategy doesn't work in 2024 in 95% of the markets w/o a super funded down payment. B:P has all kinds of calculators, etc but no one will tell you the truth. The main bulk of my net worth has come from appreciation and not cash flow. Hot water tanks, roofs, turnovers, Covid, etc ... all crushed my cash flow but appreciation marches on.
If you asked ten investors what their biggest regret was you'd get ten saying "i should have bought more back in X year !!!" The first trip around the Monopoly board ... you pick up as much property as you can afford and if you can't pay cash, you mortgage it. 75 of the last 80 years real estate has appreciated.
If you can't afford it, the bank most likely won't loan on it based on their guidelines. If you can't afford it, don't buy it but the "Cashflow" strategy is like WWI trench warfare strategy in 2024.
Story House Real Estate529 Reviews - Member since 2024 · 2 posts · 0 votes2y
Hi @Jason
@Jason Wray- can you please tell me which city in Florida you stay?
I’m planning to invest in FL and looking for multi family homes
- Member since 2023 · 11 posts · 3 votes2y
Quote from @Aaron Howell:
I had another agent tell me "You can cash flow anything depending on how much down payment you make" a while back and was a little taken aback when I heard it. He was 100% right though.
You can try to cashflow a property in NOVA with a minimal downpayment on one hand and crap in the other and see what fills up faster. See which fills up faster. We have a hard time cash flowing even in Central Virginia.
I was a big cash flow guy like 7 years ago but that strategy doesn't work in 2024 in 95% of the markets w/o a super funded down payment. B:P has all kinds of calculators, etc but no one will tell you the truth. The main bulk of my net worth has come from appreciation and not cash flow. Hot water tanks, roofs, turnovers, Covid, etc ... all crushed my cash flow but appreciation marches on.
If you asked ten investors what their biggest regret was you'd get ten saying "i should have bought more back in X year !!!" The first trip around the Monopoly board ... you pick up as much property as you can afford and if you can't pay cash, you mortgage it. 75 of the last 80 years real estate has appreciated.
If you can't afford it, the bank most likely won't loan on it based on their guidelines. If you can't afford it, don't buy it but the "Cashflow" strategy is like WWI trench warfare strategy in 2024.
Actually you are right. To be honest with you I am still in the learning process. I know that there are 4 wealth generator cash flow, loan pay down, taxes, and appreciation. And almost every book which I read says, say no if the property is not making cash flow. Anyway, thanks a lot!
- Investor · Richmond, VA · Member since 2023 · 459 posts · 474 votes2yI have to disagree with your assessment of central Virginia - our properties cash flow very strongly and although they are less common than a few years ago I continue to see deals that will cash flow just fine in the counties surrounding Richmond.
Quote from @Aaron Howell:
You can try to cashflow a property in NOVA with a minimal downpayment on one hand and crap in the other and see what fills up faster. See which fills up faster. We have a hard time cash flowing even in Central Virginia.
I was a big cash flow guy like 7 years ago but that strategy doesn't work in 2024 in 95% of the markets w/o a super funded down payment. B:P has all kinds of calculators, etc but no one will tell you the truth. The main bulk of my net worth has come from appreciation and not cash flow. Hot water tanks, roofs, turnovers, Covid, etc ... all crushed my cash flow but appreciation marches on.
If you can't afford it, the bank most likely won't loan on it based on their guidelines. If you can't afford it, don't buy it but the "Cashflow" strategy is like WWI trench warfare strategy in 2024.
Cash flow is still the name of the game in risk mitigated real estate investing in 2024.
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