Looking For Advice on Turnkey Midwest Rental Properties!!!
Hi all! I am looking for some advice. I have been a real estate investor for 3+ years. I purchased (3) turnkey properties with conventional mortgages under my name. In analyzing my portfolio this weekend, I identified a few things that surprised me. I would love any advice on next steps.
Key Findings:
- The concept of ‘passive cash flow’ has turned out not to be true. In 3 years, all of my properties are negative aggregate cash flow (if I include closing costs).
- My properties are all overperforming expectations due to appreciation. Pre-COVID, my ROIs were 20%, 20% and 50%. Post-COVID, due to massive appreciation, ROIS are all above 50%.
Conflicting Ideas for Next-Steps:
- Who cares about cash flow when you have a 50%+ passive investment. Transfer all of these properties to a non-recourse loan and hold.
- The COVID appreciation spike won’t last. 1031 exchange these properties to a multi-family that cash flows.
Most Popular Reply
I used to buy turnkey single family homes as passive investments looking for cash flow. Like you, I did not get the cash flow I had been hoping for, but the appreciation definitely made up for it. I learned, however, that these are not passive investments. I spent a lot of time managing the property manager and eventually had to replace several of them. It was a hassle and I spent a lot of time on frustrating emails and phone calls.
Since then, I have sold all of my rentals and started investing in passive syndications. After the initial vetting of the sponsors and deals it is completely passive. I receive the passive income I have been hoping for and the appreciation on the back end is similar to that of my active rentals. .
I didn't do a 1031 because I didn't want more active investments - instead I did a "Lazy 1031" where I used the cost segregation and bonus depreciation to defer and offset all of the taxes the active properties I sold. When these deals go full cycle, I will buy into new syndications and start the deferral process again.
I am making the same money I was with active investments with fewer headaches and much less time spent managing the assets.
- Jim Pfeifer