Overleveraging, net worth, cash flow and headache factor

[Becca F.]

I currently have 3 SFH rentals solely owned (1 in San Francisco Bay Area and 2 in Indianapolis metro area) and 1 apartment building in the Bay Area with co-investors). I have a lot of equity in the Bay Area house and the apartment building. SFH is currently negative cash flow because I'm renting out to family members, trying to get roommates in to bring it up to market rent. The apartment building cash flows the most out of all the properties.

Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it. However my cash flow has decreased from $400 a month (in 2019) to now $110 a month in January 2023 due to property tax increases. It's really $66 if you divide the annual HOA fee into monthly amounts. House was built in 2005 so haven't had too many expenses recently (replaced water heater 2017 and HVAC 2018), but it will need a new roof in a few years, I would guess.

Indy SFH#2 is a renovated home (built in 1920) bought 7 months ago in a Class C moving up to B area. It's supposed to cash flow $176 but I have only received 1 full month rent (minus the property management fee) due to repairs that tenant has called the PM company for. I'm in escrow on Indy SFH#3 - projected cash flow is negative - $100 or so with these interest rates. Hopefully I can raise the rent over the next few years.

Since these cash flow amounts are small, they would be wiped out by a major capital expense for the year. I have reserves but I feel like I have too much in real estate and should take a break and invest in more liquid forms (stocks and index funds). My net worth in RE is well over 50% (don't want to go into specific numbers on a public forum). I've heard different investors have net worth range from 20% to 98% in RE.  My goal is to leave stressful W2 job within 5 years or scale down to working on part-time/contract basis. I feel like I'm starting to over leverage or take on too much risk. Is that part of the definition of over leverage, with rents barely covering my monthly expenses? 

Also there's the headache factor with investing out of state especially older homes. My thoughts were to in the near future possibly sell the Indiana properties because of the ever increasing property taxes, 2.77% and 2.78% tax rate and 1031 to a SFH in a less expensive part of Northern California (90 min drive). Nevada or Arizona have much lower property taxes and better appreciation but I would be cash flow negative with those also (as long term rentals) and again it's out of state. Or just sell them and take the capital gains hit but then I lose the rental income and tax write offs.

 Am I missing something but how am I going to leave my W2 job or go part-time if I'm barely cash flowing especially on these Indiana properties? Even if I bought 10 more Indy properties all my net rental income won't add up to my W2 income (after taxes). I do my own taxes so I can see my taxable income reduced every time I add a property into the tax return form. They're passive losses but I'm tracking my hours to see if I qualify for Real Estate Professional Status. This RE investing combined with a W2 job is stressing me out. Thoughts?

Sorry for the essay but I'm frustrated. 

[Marcus Auerbach]

Quote from @Becca F.:

 Thanks for your perspective. I'm grateful to have a W2 job - I could be much worse off. Ironically I'm paying for Covered California like I'm self-employed. My employer offers health care coverage but employees have to pay 100% of the premiums. This was in exchange for a significant higher salary when I compared it to other employers my friends work at in the same field. I did some calculations and went with Covered Cal since the costs were significantly less per month with the premiums. I'm pretty healthy (so far) but my blood pressure goes up at times with all the stress of managing my W2 and these rentals and trying to acquire more properties. 

I jumped on the "leaving W2" bandwagon that has been popular in recent years. I have 2 friends who left W2s and neither of them own 100s of doors or commercial real estate. They both bought before 2017 so not in this current market. One is in his late 30s with 9 doors from income from rentals and being frugal (he doesn't live in CA). He has now said to me that he's bored because there's only so many times you can go to the gym, go on hikes, and watch movies at home. Most of his friends in 30s to early 40s are still working W2s and don't have free time to socialize with him.

The other friend and her husband retired from corporate jobs in the Bay Area and live off his stock dividends and rental income around the age of 45. They own 4 properties. They bought Bay Area property a long time ago, in early 2000s so they reaped the benefits of appreciation. My friend started her own business and her husband just sits around and plays golf. 

You can quit your job and live of REI, but it takes on average 10 years of throwing everything you have in time, money and energy into this endeavor.

I quit my W2 in 2015 and learned very quickly that you can watch only so much daytime TV. Your friends are working and collecting rent is not really very fulfilling. And you need more money, if you are not busy at work. So I got licensed, really liked it and started a team, a YouTube channel and I am on the board of a local REIA. All things that give me purpose and I enjoy. And oh yes, ironically, I have a W2 again, working in my own company.

The real beautiy of REI starts to unfold when you own property for 10+ years, that's when the equity side starts to kick in. OOS is hard to cash flow, because you have extra expenses and some inefficencies. So you have to be patient. And 1031-ing small deals is really a fools errand: the only person making money is your real estate agent. Just let them sit there, re-invest money to make them better, keep up with market rent. Be patient. In 10 years you will be glad you did.

Maybe there is something you can do to make your W2 experience better? Different company? More flexility?

[Carlos Ptriawan]

most people probably like their w2, but they don't like their w2 boss/manager hhahahaha 
that's what the co-founder of my company telling in one of the internal discussion lol
if you don't like the boss just leave 

also in all my w2 experience, all company has always their very own self-created chronic crony nepotism
it's always like that, they would bring the guy that would say yes and yes only....

[Jon A.]

@Becca F.

[Marcus R.]

Good topic.  Hang in there Becca F., it sounds like you're doing just fine and need to give it more time.  Make the small improvements and keep getting better over time but be patient.

I've had these same thoughts.  Figure out other ways to de-stress your life so you can keep your W2 for as long as possible - outsourcing disliked tasks, working on mental/physical health, shorter commute, etc...Retirement seems like an emotional state of relatively low stress and contentment.  There may be a way to reach this destination in the nearer future that doesn't require 10+ paid off properties. 

Lastly, ignore the noise.  Social media folks push that they're "retired" but still run podcasts, sell courses/books/seminars, post daily content, etc... so still actively working. 

A W2 can be frustrating but it provides a guaranteed paycheck, subsidized healthcare, matching retirement, tuition reimbursement, equity programs, PTO, and more.   

[Alan F.]

Quote from @Marcus R.:

Good topic.  Hang in there Becca F., it sounds like you're doing just fine and need to give it more time.  Make the small improvements and keep getting better over time but be patient.

I've had these same thoughts.  Figure out other ways to de-stress your life so you can keep your W2 for as long as possible - outsourcing disliked tasks, working on mental/physical health, shorter commute, etc...Retirement seems like an emotional state of relatively low stress and contentment.  There may be a way to reach this destination in the nearer future that doesn't require 10+ paid off properties. 

Lastly, ignore the noise.  Social media folks push that they're "retired" but still run podcasts, sell courses/books/seminars, post daily content, etc... so still actively working. 

A W2 can be frustrating but it provides a guaranteed paycheck, subsidized healthcare, matching retirement, tuition reimbursement, equity programs, PTO, and more.   

 Wish I could give your comment more upvotes!!

[Jay Hinrichs]

Quote from @Becca F.:

Quote from @Theresa Harris:

For SFH#2, what did the inspection report show? You should not be getting calls for repairs every month. Either the house has problems or the tenant is a problem.

If you are feeling overleveraged, sit down and look at all your properties and decide which ones are not performing or will have big expenses coming up. Then look through those and see what you'd get the most money for if you sold (in the spring because winter is not the time to sell).

Rents should go up every year.

With Indy SFH#2, the inspection report showed minor issues like back door was sticking, a few GFCI issues, etc. A contractor fixed all of it for about $1500. I didn't mention this part but my AC unit was stolen right before the tenant moved in - the thieves climbed a 7 foot fence. I paid the $4600 for new unit (labor and materials), didn't file a claim since it might cause my insurance premium to go up.

This is a Class C area potentially moving up to Class B. The tenant has called about at least 3 times for the PM to repair things. My PM repairs anything under $500 without having to call me but I will ask specifically what is going on. This is what I mean about the headache factor, having to deal with my W2 job along with PM issues and repairs out of state. 

This is your issue you should sell any property that is in an area were your condenser units will be stolen.  I always advise though going to the mid west to simply follow this tidbit of advice.
figure out the median house price of the MSA you want to invest in and buy at that or a little higher. the reason being this will get you in better neighborhoods were houses are actually being sold to owner occupants.. to buy in the mid west in neighborhoods that the sales are basically 100% to investors will stymie your growth as values will only track rents.  A little above Median also gets you into the better  school districts were the best renters want to live.

[Carlos Ptriawan]

Quote from @Marcus R.:

Good topic.  Hang in there Becca F., it sounds like you're doing just fine and need to give it more time.  Make the small improvements and keep getting better over time but be patient.

I've had these same thoughts.  Figure out other ways to de-stress your life so you can keep your W2 for as long as possible - outsourcing disliked tasks, working on mental/physical health, shorter commute, etc...Retirement seems like an emotional state of relatively low stress and contentment.  There may be a way to reach this destination in the nearer future that doesn't require 10+ paid off properties. 

Lastly, ignore the noise.  Social media folks push that they're "retired" but still run podcasts, sell courses/books/seminars, post daily content, etc... so still actively working. 

A W2 can be frustrating but it provides a guaranteed paycheck, subsidized healthcare, matching retirement, tuition reimbursement, equity programs, PTO, and more.   

 and if  boss is nice, product is selling , we can do less work with same salary received.

dont fire your job , fire your boss instead LOL

[Jim G.]

Real estate investment is a long game and leverage. If the goal to invest in real estate is to quit a w-2 job, I don't suggest you doing this in early stage of your investment. May be you could think this in later time, when you accumulated enough wealth. For leverage, you need your w-2 to get loan to support your next investment. If you don't have a w-2 job, as mentioned by a lot of people in this thread, it is hard to get loan to support your investment. At early stage of your investment, you need to get maximum leverage. I've been doing SFH investment in last 20 years, with half of properties in bay area and rest scatting around sunbelt states. I was lucky that invested heavily when/after great recession. Although I've accumulated quite a bit properties, from highlight, my only regret is that I wasn't leverage enough. Again, don't give me fool, my experience only apply to 20 or 10 years ago, when 1% or 0.5% rule were still working. Now, I don't know. I still don't know how to deal with my existing holdings which is equity rich and cash flow poor in current market value standard.

[Carlos Ptriawan]

Quote from @Jim G.:

Real estate investment is a long game and leverage. If the goal to invest in real estate is to quit a w-2 job, I don't suggest you doing this in early stage of your investment. May be you could think this in later time, when you accumulated enough wealth. For leverage, you need your w-2 to get loan to support your next investment. If you don't have a w-2 job, as mentioned by a lot of people in this thread, it is hard to get loan to support your investment. At early stage of your investment, you need to get maximum leverage. I've been doing SFH investment in last 20 years, with half of properties in bay area and rest scatting around sunbelt states. I was lucky that invested heavily when/after great recession. Although I've accumulated quite a bit properties, from highlight, my only regret is that I wasn't leverage enough. Again, don't give me fool, my experience only apply to 20 or 10 years ago, when 1% or 0.5% rule were still working. Now, I don't know. I still don't know how to deal with my existing holdings which is equity rich and cash flow poor in current market value standard.

Just curious and want to learn from you. 
Are you using DSCR loan after the 4th or 5th property ? what's your typical DSCR rate and what year is the acquisition after the first ten ?

[Peter W.]

Nominally real estate gives ~5-6% yield in rent after expenses (1% and 50% rule gives 6%). Maybe a little more if you self manage and less if you use pm. Therefore you need 2-3 million in equity to replace w2 paying 100k/yr. Takes a long time to build that up even if you can get 20-25% returns.

Depending on interest rates (6%) should be able to get close to 20% on turnkey properties provided you keep refinancing to keep leverage in the 4-5x range (destroying your cash flow in the process) Higher returns require value add or getting lucky on appreciation/deal/interest rates.

A great brrr should return approximately 100% the first year and then back to the 20% afterwards. Again it’ll take quite a while. The influencers are mostly lying.

[Nicholas L.]

@Peter W.

the other issue is that investors are coming in now based on BP advice circa 2016 =(

[Carlos Ptriawan]

Quote from @Nicholas L.:

@Peter W.

the other issue is that investors are coming in now based on BP advice circa 2016 =(

I think Becca is investor since GFC era if I am not wrong …

but you are right , all BP default message has been outdated and foolishly may actually create danger situation for new investor.

[Nicholas L.]

@Carlos Ptriawan

yes I don't think OP has done anything wrong at all.  i was mostly reacting to the comment about influencers.

[Carlos Ptriawan]

Quote from @Becca F.:

I currently have 3 SFH rentals solely owned (1 in San Francisco Bay Area and 2 in Indianapolis metro area) and 1 apartment building in the Bay Area with co-investors). I have a lot of equity in the Bay Area house and the apartment building. SFH is currently negative cash flow because I'm renting out to family members, trying to get roommates in to bring it up to market rent. The apartment building cash flows the most out of all the properties.

Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it. However my cash flow has decreased from $400 a month (in 2019) to now $110 a month in January 2023 due to property tax increases. It's really $66 if you divide the annual HOA fee into monthly amounts. House was built in 2005 so haven't had too many expenses recently (replaced water heater 2017 and HVAC 2018), but it will need a new roof in a few years, I would guess.

Indy SFH#2 is a renovated home (built in 1920) bought 7 months ago in a Class C moving up to B area. It's supposed to cash flow $176 but I have only received 1 full month rent (minus the property management fee) due to repairs that tenant has called the PM company for. I'm in escrow on Indy SFH#3 - projected cash flow is negative - $100 or so with these interest rates. Hopefully I can raise the rent over the next few years.

Since these cash flow amounts are small, they would be wiped out by a major capital expense for the year. I have reserves but I feel like I have too much in real estate and should take a break and invest in more liquid forms (stocks and index funds). My net worth in RE is well over 50% (don't want to go into specific numbers on a public forum). I've heard different investors have net worth range from 20% to 98% in RE.  My goal is to leave stressful W2 job within 5 years or scale down to working on part-time/contract basis. I feel like I'm starting to over leverage or take on too much risk. Is that part of the definition of over leverage, with rents barely covering my monthly expenses? 

Also there's the headache factor with investing out of state especially older homes. My thoughts were to in the near future possibly sell the Indiana properties because of the ever increasing property taxes, 2.77% and 2.78% tax rate and 1031 to a SFH in a less expensive part of Northern California (90 min drive). Nevada or Arizona have much lower property taxes and better appreciation but I would be cash flow negative with those also (as long term rentals) and again it's out of state. Or just sell them and take the capital gains hit but then I lose the rental income and tax write offs.

 Am I missing something but how am I going to leave my W2 job or go part-time if I'm barely cash flowing especially on these Indiana properties? Even if I bought 10 more Indy properties all my net rental income won't add up to my W2 income (after taxes). I do my own taxes so I can see my taxable income reduced every time I add a property into the tax return form. They're passive losses but I'm tracking my hours to see if I qualify for Real Estate Professional Status. This RE investing combined with a W2 job is stressing me out. Thoughts?

Sorry for the essay but I'm frustrated. 

 one thing you need to keep in mind is becoz property tax and insurance from out of state is increasing, the OOS investment is losing competitive advantage now ! If you see how some condo has been crashing in san francisco, it's possible you could make more cash flow from san francisco/walnut creek unit than indianapolis. 

Another example of not to follow the herd but to check your backyard constantly. 

Also by having property in bay area locally you could lower down the capex/opex since you become the property manager, automatic 10% saving in there.

[Jeff S.]

1) SFH is currently negative cash flow because I'm renting out to family member

2) Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it. However my cash flow has decreased from $400 a month (in 2019) to now $110 a month in January 2023 due to property tax increases

3) Also there's the headache factor with investing out of state especially older homes. My thoughts were to in the near future possibly sell the Indiana properties because of the ever increasing property taxes, 2.77% and 2.78% tax rate and 1031 to a SFH in a less expensive part of Northern California (90 min drive).

@Becca F.

1. That is a big stressor right there. This problem won't solve itself. Rule number one don't rent to family or friends. 

2.This one is a winner but now has become a poor return on equity. Another problem to solve? Maybe ok appreciating still so overall return is good? Maybe a trade into something else or maybe a good hold future low debt rents should increase over time just not fast enough yet.

3. Selling possibly a good idea. Reinvest where your neighborhood doesn't scare you. Northern CA sounds good as does NV or AZ although not familiar the market with either.

And lastly you are very young. Like Jay is saying without benefits or a pension you are really on your own. Economic downturns can be very destructive and jobs can dry up. My parents were self employed their entire lives. Alternative w2 maybe with benefits or something opposite of doing it on your own a hybrid of sorts that you can enjoy? You will be good when you can live off either investments or w2 and not need both. Usually takes a while. Also stress is what we get paid for. No paycheck can be a nightmare when the economy tanks.

[Becca F.]

Quote from @Henry Clark:

Forget your current investments.

What is your personal and financial objectives?

What is your risk reward effort expectations?     

Are you wanting to retire in 5 years or x?

You want to reduce stress?

How much free cash do you want per year? Take into account you will be paying medical.

Other???  Where do you want to live while w2?  Where afterwards?

Now figure out which REI strategy will meet that objective.

Now what are your current assets?  Including your house?  No $$$$ info on BO.  This is point A.   Above is Point B.  

Now build or ask for help developing a plan from A to B.  Timeframe.  Dollars available for investment.  

Right now you don’t have a path and a $$$ objective.  

I'm going through some of your questions and have answered a few of them. That's been the problem with finding the best REI objective. I feel like the Indy SFH#3 purchase was sort of a reactionary "the interest rates will go down in the spring, better find something so I don't have to compete with buyers next year and it's a lower down payment and monthly payment than buying in Nevada, Arizona or Northern California (Sacramento) and I can more easily cover the payments if it's vacant" I also feel like with a lot REI mindset is to always be looking for a deal. I'm realizing sometimes it's good to take a break and reflect and analyze with the questions you posed.

I'm getting all kind of opinions: buy but not in these cities, don't buy, etc. I feel like I'm all over the place and throwing darts at target and missing the bulls-eye. Thanks for the wise words. 

[Becca F.]

Quote from @John Morgan:

These are all money pits. I'd sell them all and 1031 them into cash flowing SFR. Your numbers clearly aren't working with these properties. Find some properties that will work. And maybe buy 2 or 3 properties with each 1031 exchange if you can find some they cash flow. I target C to C+ class hoods which appreciate the most and have higher demand with good cash flow from day one. I'm not buying for the school district and amenities these neighborhoods have. I'm buying for cash flow, very low turnovers and high demand SFR which are in highest demand.

Sell the Indiana SFHs? And the Bay Area SFH? I wouldn't sell the Bay Area one - I have lots of equity and my children will inherit a great property worth well over $1+ million. The cash flow on this one is more easily fixed by either getting roommates for my family members - they're open to this or they move out with the next lease expiration and I hire a PM to find me qualified rental applicants at market rate rent or self-manage it (don't really want to self manage in a pro-tenant city). This SFH has the potential for an ADU (a separate downstairs unit if I put in a kitchenette it becomes a studio apartment) but if a it's a multi-unit (2 units or more) it's under rent control. SFHs aren't under rent control. I could cash flow $2000 a month on this house.

With the apartment building I co-own it so I can't 1031 it and I don't think my partners would buy me out at current market value. That one probably runs the smoothest with a PM company who knows all the landlord-tenant laws. With Proposition 13 in California, there's a cap on property tax increases at 2% a year from the base value of when I acquired the properties. Even though property values skyrocketed from 2018 to spring 2022, my property taxes didn't go up dramatically.

If you were just talking about selling the Indiana properties, I agree with you there. 

[Account Closed]

Hi Becca,

If you don't mind a question : What was the driver to purchase the Indy SFR's that are cash flow negative? Too good to pass up?

If you can ride it out for 5 years (60 months at $200 month negative cash flow x 2 properties = $24k cost to hold on!) you'll increase rents and an opportunity to refi at a lower rate. Is it worth spending the extra $24k to you to keep these in your portfolio for 5 years?

The only reason I'd suggest holding on a bit longer with your Indy SFR's is you already paid the transaction costs to get into those deals. You'd have to pay those transaction costs again when you sell, plus hopefully incur some capital gains (profits!). If you can let your appreciation tree grow a bit your returns will be better should you choose to sell down the road.

If you can rework the numbers (raise rent a little each year) and get to net positive, the appreciation will come.  Getting the debt service covered is vital each month.  

Working a W2 position, investing in Real Estate and being a mom is lot!  I respect the pressure you're putting on yourself, but take a step back and look at what you've managed to accomplish.  You have a real estate portfolio that will allow you make some great choices for you, your family and kids future.

It sounds like your plan to have your SF area SFR cash flow at $2k per month is the biggest bucks for the bang (of the hammer). If you put that plan into effect will the cash flow off set your Indy properties monthly loss until rates drop a bit or you're able to raise rents?

I don't envy having family as tenants. That makes each decision more difficult and tends to change your lens from RE investor to "giving my family a good deal." While noble, it allows you to not fully maximize your returns of your REI portfolio.

What you've achieved is amazing, so drink that in.

[John Morgan]

Quote from @Becca F.:

Quote from @John Morgan:

These are all money pits. I'd sell them all and 1031 them into cash flowing SFR. Your numbers clearly aren't working with these properties. Find some properties that will work. And maybe buy 2 or 3 properties with each 1031 exchange if you can find some they cash flow. I target C to C+ class hoods which appreciate the most and have higher demand with good cash flow from day one. I'm not buying for the school district and amenities these neighborhoods have. I'm buying for cash flow, very low turnovers and high demand SFR which are in highest demand.

Sell the Indiana SFHs? And the Bay Area SFH? I wouldn't sell the Bay Area one - I have lots of equity and my children will inherit a great property worth well over $1+ million. The cash flow on this one is more easily fixed by either getting roommates for my family members - they're open to this or they move out with the next lease expiration and I hire a PM to find me qualified rental applicants at market rate rent or self-manage it (don't really want to self manage in a pro-tenant city). This SFH has the potential for an ADU (a separate downstairs unit if I put in a kitchenette it becomes a studio apartment) but if a it's a multi-unit (2 units or more) it's under rent control. SFHs aren't under rent control. I could cash flow $2000 a month on this house.

With the apartment building I co-own it so I can't 1031 it and I don't think my partners would buy me out at current market value. That one probably runs the smoothest with a PM company who knows all the landlord-tenant laws. With Proposition 13 in California, there's a cap on property tax increases at 2% a year from the base value of when I acquired the properties. Even though property values skyrocketed from 2018 to spring 2022, my property taxes didn't go up dramatically.

If you were just talking about selling the Indiana properties, I agree with you there. 

Gotcha, lots of variables to what you have. I always look at what my return on my equity can cash flow me. Before I hit my goal of 15k/month net cash flow after all my expenses, I wanted to put my equity to use to scale up and buy as many cash flowing good appreciating SFR as I could with no or very little out of pocket $ to scale up. It was all about the cash flow and buying great appreciating SFR that did well. Once I hit my goal, then I didn’t care about my CoC returns. I’m using less leverage now and paying cash for homes since my cash flow off RE is more than I need. So it all depends on your goals with how much cashflow you want. Some people don’t need much due to having a W2 they love. Some people want more so they can get out of the rat race and retire early and comfortable. You sound like you’re set as is and have great assets and legacy wealth to pass on down to your kids which is great. Congrats to you your success!

[Jay Hinrichs]

Quote from @Becca F.:

Quote from @John Morgan:

These are all money pits. I'd sell them all and 1031 them into cash flowing SFR. Your numbers clearly aren't working with these properties. Find some properties that will work. And maybe buy 2 or 3 properties with each 1031 exchange if you can find some they cash flow. I target C to C+ class hoods which appreciate the most and have higher demand with good cash flow from day one. I'm not buying for the school district and amenities these neighborhoods have. I'm buying for cash flow, very low turnovers and high demand SFR which are in highest demand.

Sell the Indiana SFHs? And the Bay Area SFH? I wouldn't sell the Bay Area one - I have lots of equity and my children will inherit a great property worth well over $1+ million. The cash flow on this one is more easily fixed by either getting roommates for my family members - they're open to this or they move out with the next lease expiration and I hire a PM to find me qualified rental applicants at market rate rent or self-manage it (don't really want to self manage in a pro-tenant city). This SFH has the potential for an ADU (a separate downstairs unit if I put in a kitchenette it becomes a studio apartment) but if a it's a multi-unit (2 units or more) it's under rent control. SFHs aren't under rent control. I could cash flow $2000 a month on this house.

With the apartment building I co-own it so I can't 1031 it and I don't think my partners would buy me out at current market value. That one probably runs the smoothest with a PM company who knows all the landlord-tenant laws. With Proposition 13 in California, there's a cap on property tax increases at 2% a year from the base value of when I acquired the properties. Even though property values skyrocketed from 2018 to spring 2022, my property taxes didn't go up dramatically.

If you were just talking about selling the Indiana properties, I agree with you there. 

Just and Idea on the apartment  if your partners will go for it.. if you are not already vested on the deed as a TIC ( Tenants in Common) you can change the vesting and if everyone agree's to sell you can 1031 your interest at that point..  Thats what I did with some land I had in Rohnert park that we had a massive gain on based on path of progress in CA.. bought for 30k in 97 and sold for little over 2 mil in 2019 .. this allow my two other partners and me to 1031 which we needed to do since we had basically a zero basis.

[Tim Hall]

@Becca F. It depends on where you're finding the properties. I don't like generalizing. There are properties out there that cash flow but they're hard to find. It's how invested are you in finding them. I bought 2 unicorn properties during Covid, everyone said there were no deals out there. If you want cash flow don't buy properties that don't cash flow, Simple. If you want easy don’t buy properties out of state. Or set up a bullet proof system that makes it simple to manage the property from afar. If you want to quit your w2 make a plan, set a goal and then take massive action. It’s that simple

[Carlos Ptriawan]

Quote from @Tim Hall:

@Becca F. It depends on where you're finding the properties. I don't like generalizing. There are properties out there that cash flow but they're hard to find. It's how invested are you in finding them. I bought 2 unicorn properties during Covid, everyone said there were no deals out there. If you want cash flow don't buy properties that don't cash flow, Simple. If you want easy don’t buy properties out of state. Or set up a bullet proof system that makes it simple to manage the property from afar. If you want to quit your w2 make a plan, set a goal and then take massive action. It’s that simple

 just be careful for you guys outthere, past performance doesn't guarantee future result. 

We are in market where there're huge influx of supply being added to single family and multi family, the absorption is huge that there're more supply until 2026 2027. 

Be very careful in term of future underwriting projection in area where average home price is below 500 600k, that's where bulk of new homesupply is being added and would give pressure to cashflow and appreciation.

next ten years are very different than 2010-2017 era.

[Andrew P Angerer]

Not sure about your actual Equity, but...  Why not sell, do a 1031 exchange to a smaller market that cash flows better?  I know locally an 1100 sq ft home that I own is worth 160k, rents for 1300ish.  That may not be 1% on a turnkey property, but If it was all equity there would be cash flow.  I am aware a 1031 requires higher purchase price, you could buy more than one.  Maybe look up that guy who wrote small and mighty, Chad Carlson.

[Carlos Ptriawan]

Quote from @Andrew P Angerer:

Not sure about your actual Equity, but...  Why not sell, do a 1031 exchange to a smaller market that cash flows better?  I know locally an 1100 sq ft home that I own is worth 160k, rents for 1300ish.  That may not be 1% on a turnkey property, but If it was all equity there would be cash flow.  I am aware a 1031 requires higher purchase price, you could buy more than one.  Maybe look up that guy who wrote small and mighty, Chad Carlson.

Yes, better to sell. Becca you have to do future appreciation calculation and calculating the cashflow vs capex/opex using excel . If it can't beat 5% CD, better to sell , you are selling at the top of the market right now, appreciation next 5 years would be less than prev 5 years. Buy somewhere where your future generation or yourself could use, lets say you think you want to retire at Oregon coast, buy there, if you want to retire in Tahoe buy in Reno/Sacramento ; something like that. 

Older investor like us should transform from what CoC looks like to "can I use this property later on ?" ; the return would be not much different anyway.

[Peter W.]

I see two issues. I don’t think you have conviction in your macro views/investment thesis or your strategy. The other issue is I think your expectations are too high (but I addressed that in an earlier post).   It’s not clear why you chose Indy which has you second guessing that choice. You bought house number 3 because you were worried interest rates were going to drop and housing prices would rise, but now that you bought you’re anxious about the property. But if you had conviction interest rates would fall you wouldn’t mind the slightly negative cash flow because you will be able to refinance within 12 months to bring that cash flow positive.

My investment thesis

Permabull America: America will continue to be one of the best if not the best place to live work and invest. Any setbacks in the economy are temporary.

Real estate will continue to be one of the best places to store wealth. It will be one of the best places for Americans to access cheap debt.

Interest rates (for treasuries) will in the long run be at or below inflation/gdp growth. (High interest rates are temporary) we may not see 3% mortgages again, but I bet we see under 5% on primary residences more often than not over the next 15 years.

The mega corporations have consolidated power in the near term. This means wealth will disproportionately flow to them.

Tier 1 cities will continue to see disproportionate growth compared to the rest of the country.

Investing in real estate locally means a creates advantages (reduces risk of buying lemons and operational efficiency)

This has led to my current strategy:

Target ~40-50% of assets in stock market and 50-60 in real estate. Use real estate to access low cost debt to increase my overall returns.

Stocks are primarily index funds with additional exposure to the mega corporations (most notably Microsoft and google)

Buy local real estate (within 15 minutes of where I live). Currently targeting single family homes. 0 cash flow is okay because I will eventually be able to refinance into significantly lower rates at which point the property will cash flow.

Over the next five years buy 5-8 properties (1- 1.5/yr) to get asset allocation in line with what was suggested above. Refine tactics in terms of neighborhood characteristics, property type and management style).

because I have strong convictions in both the thesis and strategy I am better able to deal with hiccups and stressors and less likely to make fear based mistakes.