Is SFR Cashflow a Myth?

[Dan Hertler]

As I build up my SFR portfolio I am starting to ask myself: "Is the idea of SFR cashflow simply a spreadsheet myth?"

The common "goal" for SFR investing is $200+/month in cashflow, i.e. cash leftover after PITI and all expenses/reserves. This sounds great on paper, and when you get paid out by your property manager each month all is right and good in the world.

In reality, each of these houses have several "time bombs" just waiting to go off, namely roof & HVAC replacement. Build up enough SFR's in your portfolio and you're destined to be replacing one or more of these components each year. It is a mathematical certainty, as these components age out over different timelines across the portfolio. In 2 years, I have bought 7 houses, 8 doors total- and have now unexpectedly had to replace 2 HVAC units.

So for arguments sake, let’s say I’m making $200/month in spreadsheet cashflow on a given house after expenses/reserves, and reserving $75 each month for capex expense. I get a call from my property manager saying the HVAC died and it’ll be $6,000 to replace it. I bought the house 1 year ago, so best case scenario I have $900 saved for this time bomb.

Assuming $200/month “cashflow”, it would take 2+ years to make up for the difference, meaning this house is cashflow negative for the next 2+ years.

Now, I have cashflow and capex reserves from the other houses in my portfolio that can theoretically cover this expense. But when analyzing my portfolio, I have to assess each house independently to identity outperformers/laggards.

But since this will continue to happen - time bombs knocking out cashflow for 2+ years at a time, I’m questioning whether my portfolio is cashflow positive at all at this point. And will it ever be in the future?

Is all this “cashflow” showing on my spreadsheets simply a figment of my imagination?