Am I over analyzing deals?

Question

Hi BP crew!

My wife and I used to own 2 rentals in a different state and we sold them over 10 years ago. Now, work has us reloacted in central Fl. We are in a position, and want to get back into owner investment properties again, for the primary goal of diversifying our portfolio. Mainly looking to buy and hold, with LTRs. We are trying to find our first "deal" and staying in our general area we live before we even entertain out of state. Here's the question: When analyzing deals, properties are definitely over-valued and rents can range from 1600-1900 for a 3/2 in the areas we are looking. Median home prices are still around $250+ so when running numbers, most aren't cash flowing or allowing enough in reserves for maintenance, cap ex, vacancy etc. This mainly has to do with current interest rates being so high. I know that asking price of $250 can be negotiated down, and I've seen some houses that have been on the market for well over 8-12 months and the owners seem more desperate to sell, so I know I can talk them down. My question really is, in this market, is it better to make sure that the homes rent covers the Mortgage, Taxes and Insurance knowing that rents have increased around 1-3% per year and if interest rates come down again, we can refinance. Mainly, playing the long term game and getting appreciation over "cash flow" in the beginning. Am I just over thinking most deals? How does everyone else approach this?

Joe Villeneuve · Answer

I would never put myself in a position of negative cash flow.  You have no idea of the future as far as expenses, taxes, insurance, etc... so don't put yourself behind from the start.  Your profits when, if you ever, sell will be reduced by all the negative CF you allow yourself to have, as well as the unanticipated NCF you will add onto it.  Remember, if you have PCF, and your expenses go up, you may still have PCF.  If you start out with NCF, and expenses go up, all you're doing is losing more money.

Ken M. · Answer

https://www.biggerpockets.com/forums/311/topics/1265821-using-creative-financing-to-buy-off-market-with-subject-to-and-wraps

G. Brian Davis · Answer

Are you just looking to buy properties directly, or are you also open to passive investments?

I switched my strategy years ago, sold off my rentals, and today just invest passively as a member of the co-investing club. Every month we meet to vet an investment together, and any members who want to participate can do so with $5K+.

Some deals are more growth-oriented, others are more income-oriented (like this month it was a land fund that pays a 16% distribution yield).

It definitely helps to have a lot of eyeballs on these investments, and to discuss the risk together as a club. Anyway feel free to reach out any time if you want to discuss active vs. passive investing further.

Dan H. · Answer

For me cash flow is not king.  I am about total return.  If I am not producing $1k/month per unit of total return, then I would be disappointed in my RE investment (I have never not produced at least $1k/month of return on an RE purchase)

Cash flow is taxed in the year earned (at least cash flow beyond depreciation).  Value adds and appreciation are taxed at sale if not 1031 to another investment.  If you die, the RE gets a new baseline and the taxes from appreciation are never paid.  Equity paydown is similarly never taxed.

If you need the cash flow to pay the bills, you have less options to returns other than cash flow.  If you have the assets that cash flow is unnecessary, you can concentrate on total return without needing to focus on the cash flow.

Cash flow is tough in the current market.   Can you produce early return via a value add?   At the price point you indicated that market appears to have historical RE at near inflation, but with leverage the appreciation is magnified based on your LTV.   In addition, if you choose a long term fixed rate loan, the loan payment (P&i) is not impacted by inflation.   This implies if rents go up with inflation, your cash flow does improve because your largest expense will not increase.   Using 50% rule (likely fairly accurate at your price point), only 50% of the costs is subject to inflation.

My last purchase had horrendous cash flow.   The worse I ever heard of in anon commercial RE purchase.   The rent was nearly $3k/month below piti.   My underwriting showed $6.5k/month negative cash flow (has anyone ever had a more negative cash flow non commercial RE purchase?).   Today the property is up ~$1m in value above purchase and rehab costs.   It has cash flow of a $3k/month (modest for the equity).  My monthly appreciation over the hold is over $20k/month (value add, below market purchase, market appreciation).  With appreciation over $20k/month, do you think I am very concerned about the cash flow (which is taxed in the year earned)?  this has been a great purchase even though its initial cash flow was pathetic.

I recognize the example is not where investors start.  I started much smaller in a time where virtually all investor purchases had positive cash flow.   However, even on those properties, the cash flow I have achieved makes up a small percent of the return on those properties. My RE purchases have been mostly brrrr, however Leveraged appreciation without a value add is a very significant source of return.

My point is that cash flow alone does not dictate if a property purchase is a good investment.   Analyze all source of return to determine if an RE is a good purchase.

Good luck

Elealeh Fulmaran · Answer

You’re not overthinking; you’re bumping into today’s math. For long‑term holds, I want at least small, real cash flow on day one after taxes, insurance, realistic reserves, and PM, then let rent growth and a future refi be upside, not the plan. In central FL, tighten the buy box to C+ to B areas where rents are durable, target light value‑add or stale listings to buy a discount, and underwrite taxes post‑reassessment and insurance at today’s quotes. If a deal only covers PITI, pass unless you’ve got a clear, near‑term value lever to move it positive. Quick next step: run a strict noise‑to‑numbers scan on 20 listings this week and only offer on the 2–3 that are modestly cash‑positive now with one easy rent or expense win.

Jimmy Lieu · Answer

Hey Dave, welcome back to BP and props to you and your wife for jumping back in after some time away. Honestly, your thought process is solid and a lot of investors are facing that same challenge right now—high interest rates making cash flow tighter than we’d like. Playing the long game can work, especially if you’re buying in a strong market with steady rent growth and good fundamentals, as long as you’ve got enough reserves and aren’t banking on appreciation alone. Personally, that’s why I like markets where you can still find deals that hit the 1% rule today, even with current rates. I moved from Portland to Columbus, Ohio in 2020 to invest and now own 10+ rentals here, and we’re still seeing properties in the $120K–180K range that cash flow from day one, with strong population and job growth driven by big companies like Intel, Amazon, Google, Microsoft, and Honda. It’s also landlord-friendly, which helps the numbers make more sense. I wouldn’t say you’re overthinking—it’s smart to run the numbers carefully—but also keep in mind you might have to look beyond your backyard or get creative with negotiations to find a true winner. Happy to connect and answer any questions you have!

Jaycee Greene · Answer

Hey @Dave Yandel, welcome to the BP Forum!

You’re not overthinking it @Dave Yandel — you’re actually doing what most investors skip: running the real numbers.Here’s how I look at it:* With rates where they are currently, so it’s normal that few long-term rentals cash flow great. That’s just where we are in the cycle.* If the rent covers your mortgage, taxes, insurance, and a small reserve (5–10%), you’re in a solid position to ride things out.* Look for sellers who’ve been sitting on the market for 6+ months — they’re usually more flexible on terms than price. Ask for seller credits or a rate buydown instead of chasing big discounts.* Focus on solid neighborhoods with stable rent-to-income ratios. You’re buying time and appreciation, not instant cash flow.* Think of this as a “capital preservation and wealth-building” phase, not the “$300/month cash flow” phase from years ago.If you can stomach a couple years of break-even or modest returns, you’ll be well-positioned when rates drop and rents keep inching up.

Ryan Kelly · Answer

@Dave Yandel the simple answer is, expenses have gone up with inflation, and rents have not due to incomes. Investors now either have to put more money down, both in residential and commercial investments, or use higher-yield strategies like rent-by-the-room, MTR, STR, etc. Lower-priced properties tend to have better yields, but might be lower-quality investments.

Am I over analyzing deals?

Most Popular Reply