All Forum Posts by: Tom NA

Of course nobody is against appreciation but the one interesting thing is that people have made more money in residential real estate in areas that *don't* cash flow with less work than many can ever dream to make in cash-flowing areas. Lucky - yes. Speculation - yes. My preferred way of investing - no (at least not anymore since I've learned so much from this forum :D ). It just seems to me that most of the cash-flowing properties/areas are where properties can be had cheaply (sub $100k or even sub $50k) and those types of areas do not tend to appreciate much, even over long periods of time. Yes, they're more stable and yes, they will keep you in the game forever due to the cash flow but my gut tells me you don't have much of a chance of hitting that big appreciation that you *may* (or may not!) see in a different location.

Obviously, I speak from very little experience and would be interested in hearing from Ryan or Mike-OH or many of the others on this forum that have significant success with cash-flowing properties. What has been your experience on the appreciation side? Are these by nature less volatile (both on the positive *and* negative side)?

This is exactly the situation I am in - paid $200k and now worth somewhere north of $350k. Cash flows a little, not as much as yours. What I want to do is what I believe would be best for you to do as well - sell and move your money to other opportunities. After all, your $300k or so in equity between the 3 properties should be able to provide a much greater return than $900/month. One way to look at it is if you had that kind of free money today, would you go buy these 3 units and put down $300k in order to cash flow $900/month? I suspect not.

That said, you may also have the same problems or concerns as myself:
1. Where do I put this money if I cash out? Frankly, I don't have time to be finding the great deals and got lucky making an uninformed purchase the first time around. Even if I cash out and have the money to invest in a few down-payments, I'm not sure where to find the cash-flowing deals.
2. If you think your area is still appreciating, that's another reason to possibly stand pat and ride the wave. I know others disagree but I believe it's ok to bet part of your "portfolio" on appreciation rather than focusing it all on maximizing cashflow today.

You're right Jim - it's not interest-free money since it is ultimately a higher mortgage on the home. My mistake. I did not say nor intend to imply however that it is illegal. I just wanted to point out that there is no magical "creation" of money which some people seem to sell when they talk about cash back. There are a million ways to get your hands on cash via a loan - refi your main home with cash out, a HELOC, credit card cash advance, bank loan, etc. - for some reason, cash back when buying a property is pitched as being free money whereas the reality is, it's just another in the many, many ways of getting a loan - there's nothing free about it.

Seems to me that cash back is just a shell game - moving money from one account to another. If you get cash back, it's that much less equity you have in the property. No different than a HELOC other than it's interest-free money.

I wanted to give a slightly different view on the break-even property idea than most on this site. First off, I have much, much less experience and only a passing interest in RE Investing vs making it a career so I'm no expert and have much less expertise and success in RE than many others on the forum. However, after having thought about this, I do have an opinion that I haven't really seen discussed here and that is the thought that if you're investing in SFR's, there might not be anything wrong with having a couple properties that don't perform so well *if* you have evidence that they are in an appreciating market. You can make more money with 1 property in a hot market in a couple year's time than you can renting dozens of properties with a couple hundred each of monthly cash flow. Buying and counting on a single property to appreciate is indeed dangerous but in my opinion, if you have other money makers and reason to believe you can play the appreciation game with a single property in your portfolio that isn't cash-flowing, I would posit that taking that informed investment risk with the hopes of a bigger payout is not a bad strategy. It's really no different than putting the bulk of your stock portfolio in conservative stocks while having the 10-20% in high-risk/high-reward investments. You may lose, you may win, you may break even but the possible upside is greater and I believe worth the risk. In fact, having done no research or reading on it (i.e. I have no data to back up my opinion), I'll bet you would find that many who have made their fortunes in RE made it from appreciation, not cash flow.

I'd love to hear thoughts on this and hopefully I qualified my comments enough to indicate that I don't believe on betting strictly on appreciation, especially if you can't support the property that you are buying with your reserves. I'm just saying that a little diversification can be good and I know in my own case, my luck with appreciation (and luck is what it was) has made me much more money than if I had bought and held a good cash-flowing property with minimal appreciation for many, many years.

I agree with Wheatie on funding options but an even more direct (if not a bit harsh) question is if you can't afford to buy a $14k house, what exactly is your investment strategy? They don't come much cheaper so you'll always have a funding issue which you should be prepared for in advance.

Ok, I'll jump into this lively debate and take Sean's side. In spite of what Joshua has experienced with the people he comes into contact with, I am with Sean in that I can't imagine *anyone* believing that Zillow data represents a *true* appraisal. Anyone who has ever purchased property knows that an appraisal is done by someone visiting the property, taking measurements, noting the condition and neighborhood, most often checking out comparable properties from the outside, etc. And then the appraiser mixes that all into a recipe to come up with a value (which magically equals the contract price in most cases but that's a different debate for a different day...).

I don't work in real estate like you guys so maybe it's the fact that I work with highly educated people in technology (I'm not judging or assuming who you typically interact with - just classifying who I interact with to give a perspective). Most people know about and even use Zillow for information (as do I) but I haven't met anyone who believes Zillow to give more than a ballpark estimate and certainly *not* a value that you could take to anyone and consider an "appraisal". To me, Zillow is just another source of free information - no different than trulia.com, ziprealty.com, domania.com, any mls access I can get, etc. and it's honestly hard for me to answer if they put in enough disclaimers because I've always considered it to be an information-only site from the first visit.

Obviously we can debate back and forth about what the general population believes about the site and nobody will ever be 'right' so I'll respect other's opinions and hope they respect mine (they don't have to agree). I think what concerns me more is that once again, the government is trying to regulate in an attempt to save people from themselves. It's perhaps not a great example, but if you're going to protect people from themselves in this case, why not outlaw lease-options for example as well (I know Texas has)? After all, we all know that by-and-large, it is landlords who win this game as ambitious lessors believe they will magically turn around cash and credit issues in a short timeframe in order to purchase a property. May as well protect these people from themselves too because we all know that they rarely follow through on the purchase which just means they wasted even more money than they needed to and continued down the spiral of poor money management (this is not based on experience, just what I read about the reality of lease-options & odds of actually making the purchase).

Anyway, feel free to tear my post apart but this is one view from outside the profession.

On the positive side, I've learned a lot that should help me. This is a great community of people willing to help each other become successful.

On the negative side (you couldn't expect all positive things here... :D ), I "partnered" with someone from BiggerPockets who took my money and ran. Only my pending litigation will get that money back at this point. A good lesson about the importance of properly structuring a partnership in advance and not trusting anyone but certainly an expensive one!

To Robert's comment about being able to recover negative rents on a tax return, I assume this only applies if you don't earn over 150k AGI and you're screwed otherwise? Any creative ways to get around this limitation?

Actually, if you want to be exact - residential depreciation is over 27.5 years but as with everything Ryan writes, the idea is correct.