All Forum Posts by: Account Closed

  "Cash flow is for poor investors or investors that are poor."

Hi @Account Closed - thank you for reading my post and for the feedback: could you explain your point a little bit more? BP is all about learning and sharing what works and I am constantly looking for ways do improve. Would you recommend to invest in markets where property values are higher? You are not referring to investing in Hawaii, right? 

I will argue with you on the flips - flipping is a job, at least for me. 20% of the work is finding a deal, 80% is planning, managing, staging and marketing the product. You can argue that 80% of the value comes from 20% of the work - which is finding the deal. But it's still active work. There is no income once you stop working. Just like wholesaling is a job and not an investment. Unless you are talking about a slow flip - when you buy something in the 70's (like you did) and then sell in the 90's, but in that case I assume you are holding cash flowing asset. The broader definition casually used includes all these aspects under "real estate investing", but I would argue that an investment should involve a ongoing stream of more or less passive income. 

Cash flow is absolutely vital to me, I'll be the first to admit that. It allowed me to quit my well paid corporate job and do what I enjoy. Most of my cash flow feeds back into my business and keeps my portfolio growing. I would not be able to do any of this without cash flow.  Most of my investor clients also rely on cash flow, either to grow their portfolio or even as their ultimate goal for retirement. You have done very well for yourself and I guess once you own a $40B portfolio a single family rental property does not look very attractive. I imagine it's not that easy to find investments that are suitable for that kind of money. It's the Warren Buffet problem - how do you buy SFRs on a large scale? You can't. For most of us here it's about paying our bills, having the time and the money to travel a bit and feel safe and secure for retirement.

You have almost 40 years of experience on me - I'd appreciate your insights!

I really appreciate all of the great feedback I'm getting from everyone here. It sounds like the consensus is that I should hold out for a better deal for now, or try to find a way to structure this deal to make it cashflow better now.

But only pay for actual NOI and value of homes. In the end the bank's appraisor will ignore the land as well.

I have Potential renters moving to where im from from out of state. They passed with flying colors with their background and credit checks, as well as their past landlords and references. They want to start the lease before they even see the unit, they want to do this so they can just start living there is soon as they make the drive here. Has anyone else had this happen before? Is it OK to start a lease and Fedex Mail it back and forth? I would appreciate any tips or advice from anyone. Thanks!

I was just reading another interesting discussion about cash flow vs. appreciation and the Midwest vs. the West coast and I want to make a case for a balanced approach, and I think my backyard -  Milwaukee - is a perfect example.

I think we are really blessed here with a very unique situation: the ratio between market rents and (SF) home prices is very favorable here. For an investor that means number one positive cash flow and number two a lower entry threshold to get started. Good rental properties can be bought in the greater Milwaukee area anywhere from 60k to 200k (yes, also for less, but don't get me started on 30k homes).

With a 80% loan to value mortgages for investors getting started is relatively easy compared to many high priced markets out on the coasts. Part of the equity should be come with the property in form of a discount (that's the whole point of finding good deals), the rest can be made up with cash or forced appreciation (improvements, rehab, BRRRR). Either way it does not take a fortune to get started.

Positive cash flow should be a non negotiable for any RE investment. Without positive cash flow the investment outcome hinges solely on appreciation, which makes it a bet and not an investment. However how much positive cash flow is necessary for a good investment depends very much on the strategy. Generally speaking $200 per door after PITI, vacancies and maintenance expenses should be the minimum. It's hard to build a good cash flow stream with less, it simply takes too many units.

The greater Milwaukee area offers a wide range of choices: the general rule of thumb is that higher cash flow (or cash on cash returns) come with more headaches - essentially the investor is earning the additional cash flow by dealing with more issues. Rent to property values are often 2% or better. While cash flow can be excellent in the inner city, equity build up is slow and property taxes consume often a very large portionof the expenses.

The surrounding markets and suburbs offer great investment opportunities as well and are generally more passive and less stressful. While cash flow is generally lower, a larger portion of the monthly expenses goes towards the principal. Milwaukee is often seen as very low appreciation potential, but that is not quite accurate. We have also seen good appreciation in most of these markets in the last years. Year over Year August 2016 the mediaa sale price went up 9.51% to now $194,375. That is not bad for appreciation, especially combined with the still low price tags compared to many of the costal markets.

According to 2016 GMAR data Milwaukee County is up 11% (driven by hot markets along the North Shore area like Shorewood, Glendale, Brown Deer etc who made up for the lower performing areas) the markets in Ozaukee County show even stronger appreciation with +13% ( driven by Mequon, Thiensville, Grafton, Cedarburg etc). At the same time property values are still relatively low (rent to value usually arround 1%) and come with much lower property taxes and higher rents compared to Milwaukee. The same can be said for Germantown and Menomonee Falls area. 

Milwaukee is often times misrepresented as an investment in low income housing and that is simply not the case when looking at the big picture. My own rental properties are mostly around the mid price point with a good balance of cash flow and appreciation potential, but I am gradually moving north and into lower property taxed areas with slightly lower cash flow but better appreciation potential.

I hope this post helps to look at the Greater Milwaukee Area a little more differentiated and puts things in perspective, as there is a true variety of great investment choices available in and arround Milwaukee.

Exactly and I stand by the statement...then you say that it's wrong and just say the same thing I explained with different language. I'm explaining  to the person who asked to ignore financing. All cash or hypothetical all cash is how a cap rate is calculated.

Anyways whatever. 

 Hypothetical all cash transaction. It's calculated based on as if the property was purchased with all cash. You read the first line of each statement I make and ignore the qualifying statements that follow.