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Updated 7 months ago, 05/09/2024
Overleveraging, net worth, cash flow and headache factor
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.
@Linda West set up an account through TreauryDirect.gov and you can set up as many automatic renewals as you’d like. It’ll link to your bank account so transfers in/out are seamless. Renewal changes or cancellations are also fairly flexible.
I've yet to find a model that allow to retire from a W2 on cash flow without starting off with Millions to put in down payments, even in "cash flowing" markets
The math simply does not play out. If anyone has a model that proves otherwise, I'd love to see it.
Generally, you start by building a large equity position, then covert to cash flowing assets.
I've retired from my W2, but it took 9 years of pushing equity via rehabs, YOY rent increases and riding appreciation.
Quote from @Julien Jeannot:
I've yet to find a model that allow to retire from a W2 on cash flow without starting off with Millions to put in down payments, even in "cash flowing" markets
The math simply does not play out. If anyone has a model that proves otherwise, I'd love to see it.
Generally, you start by building a large equity position, then covert to cash flowing assets.
I've retired from my W2, but it took 9 years of pushing equity via rehabs, YOY rent increases and riding appreciation.
This is the way.
Yup, I tend to agree. You need money, i.e. wealth, to generate more money, passively. Whether you generate cashflow to live on via appreciation or income it doesn't really matter. And it doesn't really matter what sort of investment you are doing, real estate or otherwise.
Too many are trying to generate cashflow from "nothing," and take huge risks to do it. Meanwhile, rentals aren't passive, only for taxation purposes as categorized as the IRS. One is potentially trading one headache for another.
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.
Not to be discouraging, but it sounds like you're not investing in the right opportunities. The deals we bring to out of state investors typically have cash flow off the bat. We typically bring our out of state investors off market deals that meet or exceed the 1% rule as they stand. Most of these deals also bring the opportunity to utilize the BRRR strategy, too. So that you can recoup your initial investment (and some) and use the money to buy the next deal. I believe this would be the best strategy to reach your goals in your stated time line. As you suggested, I'd consider selling your current portfolio, and investing in deals that clearly make sense off the bat from a cash flow perspective.
I apologize if this has already been mentioned in another response as I haven't read all of them, but I would consider selling off your worst performing properties and using that money to pay off the mortgage on your best performing/emerging properties. This would help increase your cash flow, keep your equity position high and decrease the amount of stress and frustration for you. After doing that I would be more careful in your underwriting on deals and market selection. Out of many options, this is just my two cents.
Quote from @Jason Allen:
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.
Not to be discouraging, but it sounds like you're not investing in the right opportunities. The deals we bring to out of state investors typically have cash flow off the bat. We typically bring our out of state investors off market deals that meet or exceed the 1% rule as they stand. Most of these deals also bring the opportunity to utilize the BRRR strategy, too. So that you can recoup your initial investment (and some) and use the money to buy the next deal. I believe this would be the best strategy to reach your goals in your stated time line. As you suggested, I'd consider selling your current portfolio, and investing in deals that clearly make sense off the bat from a cash flow perspective.
Thanks for your feedback Jason. I attempted to do BRRRR via 6 offers in Indianapolis before I closed on Indy SFH#3 recently (I think there were 2 attempted flips in there). Either seller wouldn't accept my lower offer price, renovation costs were estimated to be much higher, inspection report issues or ARVs were all over the place and I underwrote those offers pretty conservatively. I also got feedback from local investors and property managers about neighborhoods, projected rent, etc. I even flew to Indy in the summer and looked around at areas and homes. I know that BRRRR is a good way to value add but if's stressing me out I don't consider that a good ROI. We all have different capabilities, lifestyles, financial situations, risk tolerances and someone in my exact same situation might make different decisions.
At this point I'm running my numbers all again. Honestly for all the headache might as well just look into syndications. I wouldn't sell off my California properties - those have appreciated the most and on the multi-unit (apartment building) my co-investors would need to buy me out at current market value which they wouldn't do.
Quote from @Gregory Murphy:
I apologize if this has already been mentioned in another response as I haven't read all of them, but I would consider selling off your worst performing properties and using that money to pay off the mortgage on your best performing/emerging properties. This would help increase your cash flow, keep your equity position high and decrease the amount of stress and frustration for you. After doing that I would be more careful in your underwriting on deals and market selection. Out of many options, this is just my two cents.
Worst performing right now would be the Bay Area SFH only because I'm renting out out family members and they're getting a deal. This is more easily remedied by getting in roommates or if they were to move out when the lease expires I get tenants in paying market rate rent...I would cash flow around $2000 a month (acquired pre-2008 so it has a lot of equity). My property tax is reasonable with Prop. 13. I wouldn't sell off any Bay Area property without doing months of analysis. I still believe California is better in terms of long term wealth building and passing this onto my kids.
Indy SFH#1 is Class A great tenants but increasing property taxes have decreased cash flow. It's had good appreciation in 10 years and a decent amount of equity. Indy #2 I've only owned for 10 months and Indy #3 closed on less than 2 weeks ago. These are Class C (potentially moving up to Class B) renovated 100 year old homes. If I sold off these three, it wouldn't pay off the mortgage of my Bay Area property. Selling SFH #1 would have capital gains tax if don't do 1031 exchange
Quote from @Becca F.:
Quote from @Jason Allen:
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.
Not to be discouraging, but it sounds like you're not investing in the right opportunities. The deals we bring to out of state investors typically have cash flow off the bat. We typically bring our out of state investors off market deals that meet or exceed the 1% rule as they stand. Most of these deals also bring the opportunity to utilize the BRRR strategy, too. So that you can recoup your initial investment (and some) and use the money to buy the next deal. I believe this would be the best strategy to reach your goals in your stated time line. As you suggested, I'd consider selling your current portfolio, and investing in deals that clearly make sense off the bat from a cash flow perspective.
Thanks for your feedback Jason. I attempted to do BRRRR via 6 offers in Indianapolis before I closed on Indy SFH#3 recently (I think there were 2 attempted flips in there). Either seller wouldn't accept my lower offer price, renovation costs were estimated to be much higher, inspection report issues or ARVs were all over the place and I underwrote those offers pretty conservatively. I also got feedback from local investors and property managers about neighborhoods, projected rent, etc. I even flew to Indy in the summer and looked around at areas and homes. I know that BRRRR is a good way to value add but if's stressing me out I don't consider that a good ROI. We all have different capabilities, lifestyles, financial situations, risk tolerances and someone in my exact same situation might make different decisions.
At this point I'm running my numbers all again. Honestly for all the headache might as well just look into syndications. I wouldn't sell off my California properties - those have appreciated the most and on the multi-unit (apartment building) my co-investors would need to buy me out at current market value which they wouldn't do.
I completely understand on the BRRR strategy headaches. Dealing with contractors and unexpected expenses can be a pain. I also understand with the California properties. Having to convince someone else that making such a big move is the right thing to do can be difficult. We also haven't seen the California market really take a hit.
@Becca F. I don't think Indy is a cash flow market at the moment and is strictly an appreciation play.....this is my personal opinion. If you are looking for cash flow, you should look into investing in other markets where you will get higher cash flow but low appreciation. In today's market with the current rates it is very hard to accomplish both.
Also a 1031 exchange while its beneficial it will also be difficult to find a seller who is willing to work with you. Take the tax hit and re-invest into more properties. The return you will get will exceed the tax you will pay. Again, that is my personal opinion.
I'm sorry to hear your frustration and I understand where you are coming from. My SFR fund buys property in Indiana and I know the markets pretty well
The unfortunate reality is that real estate only really works for job-replacement-level cashflow when you have a significant volume of properties.
A decent/rough rule of thumb is $500/month cashflow on a 25% downpayment for the median purchase price house
To make $10,000/month in cashflow, that means you need 20 SFRs.
20 SFRs at ~$450K is $9M of real estate. Indiana is a bit cheaper, so let's say $8M
25% downpayment on $8M of real estate is $2M of equity needed to make this happen.
All of this to say: real estate is a fantastic vehicle to provide cashflow, but it takes:
-a significant amount of properties
-a significant amount of equity
Both of those also take a significant amount of time
Hang in there, you can do this, and wishing you all the best!
You need factor in cap/ex/reserves before cashflow. I assume $150 a month on a house averaged out. If it doesn't cashflow after that it won't really cashflow. Buy into B class 4 unit properties with higher rents so can actually cashflow after expenses.
Indy Property #1 doubling in appreciation in 10 years is really good. However, I don't understand how the cash flow can only be $66/month, after doubling in value. The rent should have gone up by at least 50% if the appreciation doubled.
I bought a SFH college rental in Fort Collins in 2007. By 2017, the appreciation doubled (182K to 365k) and the rent doubled ($1250 to $2500). With 20% down, and a mortgage rate of 6%, the original PITI was $1040. I then refinanced in 2009 to 4.75% and my PITI went down to $950. I think it's worth about 510K today and current rents are lagging at $2600/month. I provided a $150/month discount for good renters to renew this past year. Current mortgage rate is at 3.5%, so I'm not selling even though rents are currently lagging. I'm playing the long game. Rents should rebound in the near future.
@Becca F. I think that you're focused on the wrong things. We want to quit working, but for what reason. Look at your friend who "retired" and is now bored. Work provides a lot of benefits that are fundamental to human fulfillment. My guess, although this could be projection, is that you are looking to leave your W2 job to have more time freedom. You would like to be able to do the things you want (travel, take classes, read, exercise, visit friends/family) without the constraints of a 9-5.
You're clearly a hard-working person with a talent for personal finance and real estate acquisition as compared to the layperson. In my experience, people like this do not generally find fulfillment outside of work. You are a striver, dreamer, achiever, and ambitious. Those are not the categories that make someone satisfied with being "retired".
You can continue on your current path and you will get to pretty darn good financial success, although it will take you 20-30 years. So what is the solution? You need to find something financial to pursue as active income that you find more enjoyable, and that more closely meets your financial and other values goals. For some this is starting an active business, or acquiring one. For others this is finding a new career path to pursue.
What you're missing is alignment of personal values and your current main work. "Passive" cashflow from rental properties is a poor substitute for these values, not to mention extremely risky. I would hold off on more acquisitions for now and take some time to identify what those values are and what potential career you could take to get into alignment there. Then, plan the work and work the plan.
Best of luck!
Quote from @Adam Christopher Zaleski:
Indy Property #1 doubling in appreciation in 10 years is really good. However, I don't understand how the cash flow can only be $66/month, after doubling in value. The rent should have gone up by at least 50% if the appreciation doubled.
I bought a SFH college rental in Fort Collins in 2007. By 2017, the appreciation doubled (182K to 365k) and the rent doubled ($1250 to $2500). With 20% down, and a mortgage rate of 6%, the original PITI was $1040. I then refinanced in 2009 to 4.75% and my PITI went down to $950. I think it's worth about 510K today and current rents are lagging at $2600/month. I provided a $150/month discount for good renters to renew this past year. Current mortgage rate is at 3.5%, so I'm not selling even though rents are currently lagging. I'm playing the long game. Rents should rebound in the near future.
With Indy SFH#1, I used to live in that house. When I moved back to California I rented it out in 2019. My rent was in the market rate range. I'm on the second set of tenants. With this tenant my property manager said that he doesn't raise rents on his great tenants. I went with his advice along with another investor friend of not raising rents on tenants that pay on time and never cause problems. So with year 2 (lease renewal) they had the same rent while my property tax increased.
The county figured out that the house wasn't my primary residence and my property tax increased 2.7 times so my cash flow went from over $400 to around $224. It's now $110 as of Jan. 2024, another property tax increase. The assessed value is lower than the market value so I didn't see how I could appeal the increase.
I raised the rent $90 on the recent lease renewal but I can't increase it $200 or $300 a month on an existing tenant. Rent is in the market rate range $1650 so it's not way under. The owner with the house on the next street advertised their house for $1800 rent and they had to reduce it to because there were getting no rental applicants - same model as mine but mine has upgraded cabinets, bathroom and light fixtures. I'm not sure what they finally rented it out at.
This is decently long thread, and I apologize if this has been mentioned already.
Cash flow with leverage is now is very difficult to achieve. Property values are up. Interest rates are off the floor. So, getting cash flow w/ leverage/appreciation is very difficult. Or, as a thread or two out there recently has said, the cash flow was never really there.
I've spoken with some investors who have the same issue where repairs and capex have eaten away at their "theoretical" cash flows. Investors who can claim this astronomical rents have asked me why are their turnover rates so high. They lose so money, i.e. cash flow, in the turnover and vacancy. Well, of course, few can really afford to pay such high rents. Following "general indices" is nice to talk about, but in real life people's disposal wages don't increase by these indices.
What you "see" in the past 5-7 years is an out cropping of these dislocated market. And even then, its difficult to recreate what one "influencer" did. Is a "truth vs. reality" situation.
Investing for wealth generation, i.e. growth, is generally different from income/cash flow generation in my opinion. That's what the "old grey haired" investors that I've spoken with had to contend with doing.
good luck.
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agree with everything you wrote. i think, though, that cash flow was always overstated, and now it's become impossible to mask that fact.
Quote from @Nicholas L.:
agree with everything you wrote. i think, though, that cash flow was always overstated, and now it's become impossible to mask that fact.
Well it was essentially subsidized. Real estate is cyclical, forced equity is back.
Thanks. I guess I as just trying to make the point how the past 5-7 years with the unprecedented increase in rents, the sales pitch for cash flow "looks" better. Agree, cash flow is overstated when trying to generate wealth. :)
Quote from @David M.:
Thanks. I guess I as just trying to make the point how the past 5-7 years with the unprecedented increase in rents, the sales pitch for cash flow "looks" better. Agree, cash flow is overstated when trying to generate wealth. :)
Actually you articulated it perfectly. So many W2 employees dont realize they've been the benefactor of policies like sarbanes oxley and Dodd Frank. Itll be interesting what policies will develop to "fix" what many see as a problem. Weening Americans from cheap $.
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yep. a lot of the responses to this post were along the lines of - 'if OP had only bought cash flowing properties, they'd be cashflowing.'
whereas, i think her experience is a lot more typical than thought, she just had the courage to post it.
@Alan F. Thanks so much. On that note, I've been wondering what about the "non-W2" earners. The system seems to have disenfranchised so many because they don't have a sterling credit history or a nice W2 paystub. Imagine if they weren't so "disenfranchised ?" There could be a flood of "eligible" buyers, just with different risk profiles...
@Nicholas L. Yes, OP is really putting it all out there. Have you noticed how the other posts on this board about high cashflowing properties are by third parties? i.e. agents, consultants, whatever.. That's my feeling of it. Real estate investing can be lucrative, but its nowhere as easy or necessarily as lucrative as "advertised." That's what my 20+ years has taught me.
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Quote from @David M.:
This is decently long thread, and I apologize if this has been mentioned already.
Cash flow with leverage is now is very difficult to achieve. Property values are up. Interest rates are off the floor. So, getting cash flow w/ leverage/appreciation is very difficult. Or, as a thread or two out there recently has said, the cash flow was never really there.
I've spoken with some investors who have the same issue where repairs and capex have eaten away at their "theoretical" cash flows. Investors who can claim this astronomical rents have asked me why are their turnover rates so high. They lose so money, i.e. cash flow, in the turnover and vacancy. Well, of course, few can really afford to pay such high rents. Following "general indices" is nice to talk about, but in real life people's disposal wages don't increase by these indices.
What you "see" in the past 5-7 years is an out cropping of these dislocated market. And even then, its difficult to recreate what one "influencer" did. Is a "truth vs. reality" situation.
Investing for wealth generation, i.e. growth, is generally different from income/cash flow generation in my opinion. That's what the "old grey haired" investors that I've spoken with had to contend with doing.
good luck.
The money isn't really in cash flow, or a quick buck to step out of the W2. The money is in holding the parcel of land and the structure on top of it for a long time. Location and barrier to entry are pivotal; you'll get the rent appreciation & house appreciation quicker. You'll also get the people on the higher ends of those indices allowing you to mark to market it more appropriately, and likely be among the most liquid real estate pieces in your local market in the event you have to sell/trade off the property.
BP has just looked at year 0 financials, very few people look at what their investing. Think the other day someone mentioned how they made their investment property, and it allows them to cash flow $100/mo. That's a joke, come on. It's that kind of statement that is blinding people of where the real value is in real estate.
@David M.@Nicholas L.@Alan F.and @V.G Jason
I appreciate all your words of wisdom. I'm guilty of listening to too many people who emphasized cash flow including agents and other investors. The YouTubers and Instagram influencers are the worst "I'm 30 or 35 years old and bought a bunch of properties in the Midwest using Other People's Money and now I quit my W2 in 3 to 5 years and have freedom" and they're charging for their courses or mentorship...<major eyeroll reaction>.
Talked to turnkey companies who had properties in Memphis, Cleveland, Detroit, St. Louis with their good on paper numbers for cash flow, cash on cash return etc. If I had $100 every time someone said "California is a terrible place to invest" I'd have a good amount of cash. I know way more multi-millionaires in the Bay Area who bought a long time ago and they started as middle class (not high earning tech workers, not physicians, etc) pre-2008, even back in the 1970s with low property taxes - they played the long game.
I talked to a few people who recommended that I 1031 my Bay Area SFH and buy a commercial building (apartments), multiple SFHs or 2 to 4 units out of state to "cash flow" better. These are investors who started in 2016 or 2017 so they haven't been through 2008 or a full real estate cycle. I know nothing about commercial RE and my property tax on a $1+ million building OOS will be way more than my SFH. And trading my Bay Area SFH to buy multiple properties in the Midwest, Memphis, or whatever city (more roofs, HVACs, property management fees, tenant issues, etc) - that sounds terrible to me. I'll pass.
@Becca F. - If you're interested in pursuing the Northern Nevada market, please feel free to reach out. I live in Reno and have been looking for a BRRRR equity partner here. I have contractor contacts and do some repair work myself. I also managed a rental here with a rent-by-the-room model that allows cashflow in areas that you wouldn't normally find it.
I also invest in small commercial multifamily in the Cleveland, OH area. The returns there are great if you find the right deal. I'm currently renovating a 6-unit apartment building and am starting the journey of creating a fund to earn double-digit returns for investors on similar deals. Would be happy to discuss a larger equity partnership in that as well.
Regardless, best of luck on your journey and keep us posted on your progress!