Does CashFlow Matter Anymore in this Market?

Question

Are people still looking for cash flow in this market or are you looking at the long term & thinking that deals will be more profitable over the long run as rents rise relative to your current debt and if rates go back down you can refinance into a lower monthly payment.

I am looking at a lot of deals in the midwest that don't make sense when trying to do a BRRRR and refinance into a standard rental or mid-term rental. My initial thought is that as long as I can not be negative on the mortgage that it will probably be more beneficial to pick up more units, and in the future they will be worth more which will offset the minimal ROI that I am receiving initially & my cash flow will improve. My only concern is that this seems like a slippery slope to go down.

What are peoples thought on this?

Marcus Auerbach · Answer

I'll probably get catch some heat for this: If your deal is cash flow negative, you are just overleveraged.

Cash flow isloated by itself is a poor metric anyways. Every property will cash flow until you leverage it with financing. If you want more cash flow, just put more money down. We've just been spoiled with BRRRR, infinite returns and absurdly low interest rates (2.75% for 30 years: thats like getting money for taking a loan considering inflation)Break even is good enough for me these days. But quality matters. I am not willing to compromise on location or condition, which in the long run has a much bigger impact than a couple hundred bucks.

It is absolutley okay to buy low or no cash flow deals as long as they are quality properties and:

- you have an existing portfolio that cash flows and/or- you have good "cash flow" from your W2s- plenty of reserves

We have been through an absolute unicorn phase where you could invest with no money, build a portfolio that functions like an ATM. You are flat broke and want to be an "investor"? No problem!  Just buy some RE with OPM! People did it all the time without having much capital in the first place and then quit your W2 and travel the world. That was nuts!

Sorry, the cash flow dream is over. Even in markets like Milwaukee. Back to reality: you actually need money to "invest" and REI is back to what it always has been, the long game.

Joe Villeneuve · Answer

Do the lungs matter if you want to breath?

Nicholas L. · Answer

@Adam Oldham

both - i'm still looking for cash flow, AND i am willing to buy a lower cash flow deal that can build equity.

i will not buy a deal though that only works IF rates go down.  too risky.  if it doesn't work on the terms i'm buying it on - i'm not buying it.  rates might stay where they are for years. or go up. or go down. i don't know what they'll do.

whether to be closer to break even seems something that is very specific to the situation of each individual investor.  for example, if you're counting on cash flow to pay for groceries, and one big capex item is going to set you back years - then that deal wouldn't be a good one for you.

but if you can buy deals that break even with the potential for appreciation and rent growth, and they fit comfortably into your portfolio and financial situation, great.  like i said - going to vary for each individual investor.  no one size fits all.

Jason Thompson · Answer

@Adam Oldham, great topic, Adam. Try to avoid negative leverage as best as you can. There are still plenty of good deals out there that don't require you to compromise your investment criteria, the buying frequency will be less, but overall your returns will balance out. Real estate is a long-term strategy try to stay focused on your end goals. I hope this helps and you're having a great day Adam.

Eliott Elias · Answer

Cash flow is the only thing that matters. It will keep you afloat during this upcoming recession. The last thing you want to do is negative cash flow, you will drown.

Trevor Richardson · Answer

I like Marcus’s take. We have been telling this to our investor clients for a year. Less leverage helps the cash flow, at the cost of purchase power. 40-50% down makes investments look a whole lot better.

And yea, buy in good areas during this time! The country is still in a massive housing deficit, when money markets stabilize America is going to still be millions of units short. It’s such a great time to buy right now IMO.

Jay Hinrichs · Answer

you have to define cash flow .

most define cash flow as a property with 80% debt .  and right now many of those wont "cash flow"

but they might "cash flow " with 70% debt or 60% debt.

or simply pay cash everything cash flows then.

thats what I see my clients doing in the day of BRRR with no cash in the deal thats getting more rare and rare.. but we just did one for a client and they ended up with 12K cash into the deal on a 250k prop that makes a little bit of drip income  IE cash flow.  still great leverage in historic metrics.

so define cash flow and figure you may need a few more bucks into the deal and then get going waiting is not going to do you much good your competition is still buying.

Adam Oldham · Answer

Thanks for the insight, I am definitely more willing to play the long game with these deals and I agree that the risk needs to be adjusted to the individual investors goals.

Does CashFlow Matter Anymore in this Market?

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