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. 

[Joe Fish]

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

[Becca F.]

Quote from @Joe Fish:

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

Thanks for your feedback Joe! I've watched Chad Carson's videos Small and Mighty RE Investor. I haven't heard of Paula Pant, will listen to her podcast. I have a pretty clear sense of what I need to do given recent information. In retrospect, I should have just left what I had alone, the Bay Area SFH and multi-unit and Indy home #1, all Class A properties, where I have a lot of equity in them. It was going pretty well. With the Bay Area home if could get roommates in my cash flow would increase significantly (I'm renting to family members...long story but they're open to having compatible roommates).

With the Class C properties, I agree with all your points. if I was living there it might be a different story but from 2000 miles away, too many headaches. I listened to too many people who emphasized "cash flow", which there is none because I'm -$300 to -$700 a month. I should have bought a Class A or B property if I was to be in the negative, at least those properties would appreciate. 

I agree on the raising rent part. I do need a PM for my OOS properties. I don't have the time to advertise the homes and screen tenants. My Bay Area multi-unit (11 unit apartment building) has a PM also. 

I calculated my return on equity on those Class A properties a while ago and they're doing well, can't remember the numbers right now. I'll see how this lines up with 15% ROE and compares to my stocks and index fund returns. 

[V.G Jason]

Quote from @Becca F.:

Quote from @Joe Fish:

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

Thanks for your feedback Joe! I've watched Chad Carson's videos Small and Mighty RE Investor. I haven't heard of Paula Pant, will listen to her podcast. I have a pretty clear sense of what I need to do given recent information. In retrospect, I should have just left what I had alone, the Bay Area SFH and multi-unit and Indy home #1, all Class A properties, where I have a lot of equity in them. It was going pretty well. With the Bay Area home if could get roommates in my cash flow would increase significantly (I'm renting to family members...long story but they're open to having compatible roommates).

With the Class C properties, I agree with all your points. if I was living there it might be a different story but from 2000 miles away, too many headaches. I listened to too many people who emphasized "cash flow", which there is none because I'm -$300 to -$700 a month. I should have bought a Class A or B property if I was to be in the negative, at least those properties would appreciate. 

I agree on the raising rent part. I do need a PM for my OOS properties. I don't have the time to advertise the homes and screen tenants. My Bay Area multi-unit (11 unit apartment building) has a PM also. 

I calculated my return on equity on those Class A properties a while ago and they're doing well, can't remember the numbers right now. I'll see how this lines up with 15% ROE and compares to my stocks and index fund returns. 

I wouldn't get caught up on ROE or even CoC, heck most metrics use for this REI. I know people will set me on fire for those comments.

ROE only matters if you realize it-- meaning re-fi or sell. And you absolutely need to do that, to make sense of this. At this exact time, maybe not. But sooner than people do but also later than most people wish for. CoC is more of a year 1 indicator and these aren't 1-year term investments.

In future positions, someone scaling to 4-6 Class B+ or better properties over 10-12 years, and selling/re-fi'ing 1 to 2 out after 12-15 years is really the route. Take the cash-- pay yourself and pay the debts down. Have 2-4 A or better properties significantly less levered is amazing. 

[Sam Yin]

Quote from @V.G Jason:

Quote from @Becca F.:

Quote from @Joe Fish:

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

Thanks for your feedback Joe! I've watched Chad Carson's videos Small and Mighty RE Investor. I haven't heard of Paula Pant, will listen to her podcast. I have a pretty clear sense of what I need to do given recent information. In retrospect, I should have just left what I had alone, the Bay Area SFH and multi-unit and Indy home #1, all Class A properties, where I have a lot of equity in them. It was going pretty well. With the Bay Area home if could get roommates in my cash flow would increase significantly (I'm renting to family members...long story but they're open to having compatible roommates).

With the Class C properties, I agree with all your points. if I was living there it might be a different story but from 2000 miles away, too many headaches. I listened to too many people who emphasized "cash flow", which there is none because I'm -$300 to -$700 a month. I should have bought a Class A or B property if I was to be in the negative, at least those properties would appreciate. 

I agree on the raising rent part. I do need a PM for my OOS properties. I don't have the time to advertise the homes and screen tenants. My Bay Area multi-unit (11 unit apartment building) has a PM also. 

I calculated my return on equity on those Class A properties a while ago and they're doing well, can't remember the numbers right now. I'll see how this lines up with 15% ROE and compares to my stocks and index fund returns. 

I wouldn't get caught up on ROE or even CoC, heck most metrics use for this REI. I know people will set me on fire for those comments.

ROE only matters if you realize it-- meaning re-fi or sell. And you absolutely need to do that, to make sense of this. At this exact time, maybe not. But sooner than people do but also later than most people wish for. CoC is more of a year 1 indicator and these aren't 1-year term investments.

In future positions, someone scaling to 4-6 Class B+ or better properties over 10-12 years, and selling/re-fi'ing 1 to 2 out after 12-15 years is really the route. Take the cash-- pay yourself and pay the debts down. Have 2-4 A or better properties significantly less levered is amazing. 

 Your suggestion is sound. There are many paths to take for many different people, but what you have suggested is one of the best methods to build wealth and achieve FI.

I concur with you that people sometimes misunderstand the use of those metrics because it has been overstated and regurgitated without experience behind it.

[John Dirks]

Hi @Becca F.. Great post/rant. Alot of great responses as well. I also have found after being in the RE world for a bit, it's not all roses, champagne, and unicorns. We have 3 Memphis properties and one Bay Area. All SFH. Stress, theft, bad tenants, repairs, acts of nature, and people who dont know how to take care of a house happen.

You are correct at the point of taking a LOT of houses to over take W2 job. That is what I have found as well. Sounds like you also found out the higher the class area, the less the issues. But lower cashflow. Generally higher equity growth tho. 

Very awesome on the multi unit. Hearing more about this would be great. It is something I plan on getting into. 1031 from SFH into multi seems to be the most promising way as long as the class is not to low.

[Carlos Ptriawan]

Quote from @Sam Yin:

Quote from @V.G Jason:

Quote from @Becca F.:

Quote from @Joe Fish:

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

Thanks for your feedback Joe! I've watched Chad Carson's videos Small and Mighty RE Investor. I haven't heard of Paula Pant, will listen to her podcast. I have a pretty clear sense of what I need to do given recent information. In retrospect, I should have just left what I had alone, the Bay Area SFH and multi-unit and Indy home #1, all Class A properties, where I have a lot of equity in them. It was going pretty well. With the Bay Area home if could get roommates in my cash flow would increase significantly (I'm renting to family members...long story but they're open to having compatible roommates).

With the Class C properties, I agree with all your points. if I was living there it might be a different story but from 2000 miles away, too many headaches. I listened to too many people who emphasized "cash flow", which there is none because I'm -$300 to -$700 a month. I should have bought a Class A or B property if I was to be in the negative, at least those properties would appreciate. 

I agree on the raising rent part. I do need a PM for my OOS properties. I don't have the time to advertise the homes and screen tenants. My Bay Area multi-unit (11 unit apartment building) has a PM also. 

I calculated my return on equity on those Class A properties a while ago and they're doing well, can't remember the numbers right now. I'll see how this lines up with 15% ROE and compares to my stocks and index fund returns. 

I wouldn't get caught up on ROE or even CoC, heck most metrics use for this REI. I know people will set me on fire for those comments.

ROE only matters if you realize it-- meaning re-fi or sell. And you absolutely need to do that, to make sense of this. At this exact time, maybe not. But sooner than people do but also later than most people wish for. CoC is more of a year 1 indicator and these aren't 1-year term investments.

In future positions, someone scaling to 4-6 Class B+ or better properties over 10-12 years, and selling/re-fi'ing 1 to 2 out after 12-15 years is really the route. Take the cash-- pay yourself and pay the debts down. Have 2-4 A or better properties significantly less levered is amazing. 

 Your suggestion is sound. There are many paths to take for many different people, but what you have suggested is one of the best methods to build wealth and achieve FI.

I concur with you that people sometimes misunderstand the use of those metrics because it has been overstated and regurgitated without experience behind it.

I've checked so many private investment, syndication how they  do  the business , professional investors ,etc.
At the end of the day 99% they waiting for the final bonus check.

What really matter is really when the house is being sold. This is why I no longer afraid if I have to buy DSCR 0.89 single family with 30Y loan. But I'm afraid of DSCR 1.05 with syndication of 5Y IO 75%LTV.

At the end of the day it's market return that's important and not the cash flows.

[V.G Jason]

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @V.G Jason:

Quote from @Becca F.:

Quote from @Joe Fish:

@Becca F. - sorry to hear of your challenges & frustrations with managing & growing your portfolio. A lot of great points have already been raised in this thread. As someone in a similar position (trying to eventually leave W2, starting with a few properties, family responsibilities, etc.), a few things jump out to me… 

- as you’ve alluded to the significant stress of owning real estate, it’s worth reiterating that there are definitely other paths to achieving financial freedom. On a related note, it seems likely that we are entering a period where RE returns are less of a sure thing and may be comparable to returns from other investments (despite the added headaches). No one really knows, but it seems like we’re in for a period of stagnation or slow/moderate growth in the RE market broadly. 

- it may be helpful to step back and assess where you are in the process. Chad Carson’s book, the Small and Mighty RE Investor, talks about the stages a RE investor moves through. Paula Pant also has a good perspective on the topic and touches on it occasionally in her podcast, Afford Anything. The bottom line is that you should have a different strategy depending whether you’re in the growth stage, stabilizing, retiring, etc. It sounds like you’re in the growth stage, but getting clear about what that means could be helpful, including establishing metrics that align with your goals. The challenge that I have (being in the growth stage) is that I need the cash flow, but I also want appreciation. This combo is difficult to find in the current economic climate, but I think it’s important to be conservative here and only pursue deals that move me in both of these directions, to the extent possible.

- Do you have a clear sense for how to evaluate the performance of your portfolio against your goals? e.g., how does each individual property contribute to your goal of retiring early? To what extent does each property support or impede that goal? Are there opportunities to optimize your portfolio to better support your goals (selling existing properties, value adds, etc.)?

- The current reality is that investing in RE may require a couple years of negative cash flow before things start to make sense on paper. This should be expected and accounted for in underwriting. Similarly, I would expect any new purchase to require some level of capital expenses (though hopefully not due to theft!). 

- If at all possible, you really should be raising rent on an annual basis, at least keeping up with inflation & tax increases (despite what your PM may advise). The idea that you should reward good tenants by keeping the rent at the current level is outdated IMO and leads to weird landlord/tenant dynamics. While a turnover and vacancy are definitely a hassle for a property owner, they’re also a major hassle for tenants. There’s a middle ground for reasonable rent increases. 

- Having run the numbers on several Class C properties in the Midwest (and as someone who grew up in Indiana, but is not currently investing there), I find the negligible cash flow under current conditions is not worth the risk (eviction, major capex, vacancy, etc.). Further, does rent or property value appreciation keep up with inflation? If cash flow and appreciation are both marginal, it’s hard to see where the value is. I’m sure some people are making it work, but as an outsider, I’m not sure it’s easy to put the pieces together. 

- Do you actually need a property manager for your OOS investment? I get the comfort aspect, but are they bringing the value that offsets their cost, given the availability of tools to enable remote property management? 

- Have you calculated your return on equity for each of your properties? I feel like this is an underutilized metric for RE investors and is the best way to compare performance of RE assets vs. other potential investments. 

- To your broader question about investing in RE vs. other strategies, while investing in index funds is easy, returns there are not guaranteed and are not under your control. You could suffer double digit losses and find yourself questioning that strategy in the same way that you question RE. I think the answer is always diversification, but there's no magic formula for what is the correct balance. Comparing your real estate return on equity (not CoC return) vs. historical stock market returns would be a great start. Personally, I aim for > 15% return on equity from real estate, which exceeds long-term stock market returns by a healthy margin, but does require active portfolio management (mainly by not keeping too much equity in a given property). If return on equity approaches typical stock market returns, I would lean toward investing in the stock market, as there is less effort involved (though not necessarily less risk).

Hope this helps! 

Thanks for your feedback Joe! I've watched Chad Carson's videos Small and Mighty RE Investor. I haven't heard of Paula Pant, will listen to her podcast. I have a pretty clear sense of what I need to do given recent information. In retrospect, I should have just left what I had alone, the Bay Area SFH and multi-unit and Indy home #1, all Class A properties, where I have a lot of equity in them. It was going pretty well. With the Bay Area home if could get roommates in my cash flow would increase significantly (I'm renting to family members...long story but they're open to having compatible roommates).

With the Class C properties, I agree with all your points. if I was living there it might be a different story but from 2000 miles away, too many headaches. I listened to too many people who emphasized "cash flow", which there is none because I'm -$300 to -$700 a month. I should have bought a Class A or B property if I was to be in the negative, at least those properties would appreciate. 

I agree on the raising rent part. I do need a PM for my OOS properties. I don't have the time to advertise the homes and screen tenants. My Bay Area multi-unit (11 unit apartment building) has a PM also. 

I calculated my return on equity on those Class A properties a while ago and they're doing well, can't remember the numbers right now. I'll see how this lines up with 15% ROE and compares to my stocks and index fund returns. 

I wouldn't get caught up on ROE or even CoC, heck most metrics use for this REI. I know people will set me on fire for those comments.

ROE only matters if you realize it-- meaning re-fi or sell. And you absolutely need to do that, to make sense of this. At this exact time, maybe not. But sooner than people do but also later than most people wish for. CoC is more of a year 1 indicator and these aren't 1-year term investments.

In future positions, someone scaling to 4-6 Class B+ or better properties over 10-12 years, and selling/re-fi'ing 1 to 2 out after 12-15 years is really the route. Take the cash-- pay yourself and pay the debts down. Have 2-4 A or better properties significantly less levered is amazing. 

 Your suggestion is sound. There are many paths to take for many different people, but what you have suggested is one of the best methods to build wealth and achieve FI.

I concur with you that people sometimes misunderstand the use of those metrics because it has been overstated and regurgitated without experience behind it.

I've checked so many private investment, syndication how they  do  the business , professional investors ,etc.
At the end of the day 99% they waiting for the final bonus check.

What really matter is really when the house is being sold. This is why I no longer afraid if I have to buy DSCR 0.89 single family with 30Y loan. But I'm afraid of DSCR 1.05 with syndication of 5Y IO 75%LTV.

At the end of the day it's market return that's important and not the cash flows.

Sold or re-fi'd, a true mark to market approach to get the value out. That's why year 7-8 to trade equity, but really 10 years + to see the value in REI is paramount. This whole $200/mo cash flow nonsense is just by sheer luck people bought 10 years ago+ when we came off a recession + higher renter demand + rate policy to stimulate economy. It was a great alignment, but if you didn't sell in 2021-2022 or re-fi and buy less levered or scaled down. You didn't really get the best of it. 

Most physical assets are not intrinsic by nature, otherwise they'd all be gobbled up and there is something wrong with it, or they've come from a massive force that made it not a worthwhile venture to get into(war, drought, recession, etc.) at that specific moment in time. They are almost all worthwhile to get into-- some more than others.

Long-term fixed rate debt and quality location are arguably going to be the biggest two biggest hedges against the play against infrastructure and land. 

[Carlos Ptriawan]

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @V.G Jason:

Quote from @Becca F.:

Long-term fixed rate debt and quality location are arguably going to be the biggest two biggest hedges against the play against infrastructure and land. 

 

Long-term fixed rate debt and quality location --> going back to the very basic !

not COC, not IRR, not cash flow, not sponsor experience, not GP/LP but just simple long term fixed rate loan and plus quality location.

That's the mantra worldwide.

[Sam Yin]

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @V.G Jason:

Quote from @Becca F.:

Long-term fixed rate debt and quality location are arguably going to be the biggest two biggest hedges against the play against infrastructure and land. 

 

Long-term fixed rate debt and quality location --> going back to the very basic !

not COC, not IRR, not cash flow, not sponsor experience, not GP/LP but just simple long term fixed rate loan and plus quality location.

That's the mantra worldwide.

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

Carlos, the investment foundation that you just laid out is very basic, but very realistic and reliable. It has been tried and trued. It's very hard to counter long-term fixed debt in a good location. It safe and less stressful of an investment. Allow time to do it's magic.

[Carlos Ptriawan]

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

Carlos, the investment foundation that you just laid out is very basic, but very realistic and reliable. It has been tried and trued. It's very hard to counter long-term fixed debt in a good location. It safe and less stressful of an investment. Allow time to do it's magic.

 it has implication though.

since long term fixed debt is limited by DTI thus the best approach for savvy investor is to invest to maximize their DTI first before venturing to any other strategy (OOS/MF1-4/syndication,commercial,etc).

for example, sometimes in BP is asking something that doesn't make sense, for example, they are renting in CA but wanna start two OOS in Indiana.

[Sam Yin]

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

Carlos, the investment foundation that you just laid out is very basic, but very realistic and reliable. It has been tried and trued. It's very hard to counter long-term fixed debt in a good location. It safe and less stressful of an investment. Allow time to do it's magic.

 it has implication though.

since long term fixed debt is limited by DTI thus the best approach for savvy investor is to invest to maximize their DTI first before venturing to any other strategy (OOS/MF1-4/syndication,commercial,etc).

for example, sometimes in BP is asking something that doesn't make sense, for example, they are renting in CA but wanna start two OOS in Indiana.

Agreed.

[Carlos Ptriawan]

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

in any kind of anything (including investments) I found the biggest challenge is actually to exploit the unknown or basically adding education.

not everyone here in BP is on the same level, we have people that has experience building homes from Maine to Arizona or 18 years that's asking for what's CoC but thru an experience we share "this is the better approach"..... which at the end bring the summary what Jason says: quality asset/location and long term debts as hedge for market risk/mistake.

[Becca F.]

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

Carlos, the investment foundation that you just laid out is very basic, but very realistic and reliable. It has been tried and trued. It's very hard to counter long-term fixed debt in a good location. It safe and less stressful of an investment. Allow time to do it's magic.

 it has implication though.

since long term fixed debt is limited by DTI thus the best approach for savvy investor is to invest to maximize their DTI first before venturing to any other strategy (OOS/MF1-4/syndication,commercial,etc).

for example, sometimes in BP is asking something that doesn't make sense, for example, they are renting in CA but wanna start two OOS in Indiana.

 Great point! A lot of people are renting in the Bay Area for $3000+ and wanting to go buy RE OOS. I've talked to a few in person at a local RE meet up - don't buy Class C cheap properties in a location you know nothing about and keep renting here, better to house hack here and get roommates in to help you pay the mortgage. House hacking doesn't always work especially if you have a spouse/significant other and kids though but if someone is young and single with high W2 income here, it's a good strategy.

I'm not renting, bought primary residence here, not my dream house (which I would get in another state but my W2 salary would be much lower like by 40% if I leave Bay Area). 

[Michael P.]

Quote from @Becca F.:

Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it.

This is not correct. The midwest never appreciates.

- Everyone on BP

[Michael Stoyanov]

Hi Becca,

I am sorry to hear about  your situation. It seems that it is not working well for you.

I see that with a LOT of  " investors" - buying a property with debt to cash flow $200 per month, banking on appreciation. It rarely works, and unless we get a lalapalooza in the real estate market, like we got in 2020-2022 , when the value of real estate increased dramatically, you will always be struggling.

You should always buy for CASH FLOW  - nothing else. The appreciation will be an added bonus and since you can not predict it and control it, do not account for it. It is nice to have, but you will not be able to pay your property taxes, or replace your roof with appreciation.

Here is what I think you should do - sell all 3 properties ( 1031 them), get the equity out of them and purchase 1 property CASH. Depending on the equity you have in them, you can look at different markets, as some are less expensive than others. Possibly look into FL ( that is where I am currently operating and can give you more inside info if needed), as prices are lower in some areas and there is not State Income Tax on the income generated from Fl. You can expect to get 8-10% CAP RATE here for a brand new property if purchased cash.

When you purchase the property cash, please get BRAND NEW construction, with warranty and do not buy anything with HOA. That way you will insure you have warranty on the property, it is nice and desirable and built up to the new codes and has what the consumers like nowadays. It will be also highly unlikely that in the next 10 years, you will have to worry about roofs, AC issues, etc, so your cash flow will be substantial. Keep the home for 7-12 years, then sell it ( 1031) and get another brand new home after that. You will save yourself a lot of headaches, it will be easier for you to find tenants and will not have to deal with renovations and expensive repairs. You will also be able to generate substantial cash flow , which you can use to purchase another property after that. Remember - it s not about the quantity of properties you have, it is about the quality.

Let me know if I  can answer more questions for you.

[Jay Hinrichs]

Quote from @Michael Stoyanov:

Hi Becca,

I am sorry to hear about  your situation. It seems that it is not working well for you.

I see that with a LOT of  " investors" - buying a property with debt to cash flow $200 per month, banking on appreciation. It rarely works, and unless we get a lalapalooza in the real estate market, like we got in 2020-2022 , when the value of real estate increased dramatically, you will always be struggling.

You should always buy for CASH FLOW  - nothing else. The appreciation will be an added bonus and since you can not predict it and control it, do not account for it. It is nice to have, but you will not be able to pay your property taxes, or replace your roof with appreciation.

Here is what I think you should do - sell all 3 properties ( 1031 them), get the equity out of them and purchase 1 property CASH. Depending on the equity you have in them, you can look at different markets, as some are less expensive than others. Possibly look into FL ( that is where I am currently operating and can give you more inside info if needed), as prices are lower in some areas and there is not State Income Tax on the income generated from Fl. You can expect to get 8-10% CAP RATE here for a brand new property if purchased cash.

When you purchase the property cash, please get BRAND NEW construction, with warranty and do not buy anything with HOA. That way you will insure you have warranty on the property, it is nice and desirable and built up to the new codes and has what the consumers like nowadays. It will be also highly unlikely that in the next 10 years, you will have to worry about roofs, AC issues, etc, so your cash flow will be substantial. Keep the home for 7-12 years, then sell it ( 1031) and get another brand new home after that. You will save yourself a lot of headaches, it will be easier for you to find tenants and will not have to deal with renovations and expensive repairs. You will also be able to generate substantial cash flow , which you can use to purchase another property after that. Remember - it s not about the quantity of properties you have, it is about the quality.

Let me know if I  can answer more questions for you.

I did the new construction when there was go zone tax bene,s what I found out though 10 years down the track to retail them they needed to be almost totally redone to match what new builds were doing in the same area. Even though the basic structure was fine .. needed new counters appliances flooring interior exterior paint and other upgrades to get top dollar. At least in the deep south were there was not a ton of appreciation and the new product was selling for basically the same as used houses. so for the 12 new homes i bought to the tune of 2.5 million by benefit was the 50% tax right off for Go Zone day one and those were my high earning years before the GFC so that was the benefit just for an investment not so much benefit.. I think folks dont count on what needs to be done to actually sell 10 years or 15 years down the line.

[Michael Stoyanov]

HI Jay,

When you rented the homes, you should have gotten decent ROI - I hope around 10%, which is a substantial benefit. Painting, flooring and appliances after 10 years is expected and it is not a major expense - probably 4 months rent and it takes about a week or 2 to complete it. The idea is to exchange for newer property while there is still substantial useful life left in the old one, so you do not have to incur the expensive CapEx down the road. The appreciation will be irrelevant as you are exchanging it for a similar property, not cashing out. The benefit is the cash flow.

[Collin Hays]

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.  

This  

[Linda West]

Quote from @Carlos Ptriawan:

Quote from @Michael Smythe:

Real estate is a long term investment and investors should look at things in 5 year projections, even 10 year projections.

Rents will eventually increase to cover the property taxes and your equity will continue to build.

Landlords are typically asset-rich, but cash-poor.

 hahahaha how true is that.... asset rich cash poor
this is why after year 6-8 is coming to realization that for asset is better to be sold at after certain years, i still remember the ranting from myself why i can't just sell these house.. now i move to different strategy to make landlording asset rich cash richer.

btw if we follow multifamily GP cycle they area avoiding capex at year 4 by bring the problem to the next buyer, hence the cycle continues...

So very true - asset rich/cash poor.  What's your formula for knowing when to sell and becoming 'asset rich, cash richer'?

[Jessie Dillon]

i feel the stress in your post!! but it can be so helpful to share all these details and get others' objective opinions so i hope these comments are helping. IMO, if you want to leave your day job, your investments need to be high-cashflow. i would personally sell anything that's not giving you at least a 10-15% return on your equity, and 1031 into something that will be a little diversified but heavy on cashflow, like a 3-4 unit multifamily in a great STR and MTR market, using a few units for each of those two strategies. you can do this long distance easily & would 100% meet RE PRO status if you're self-managing a STR unit (double check with your CPA as everyone's situation is unique - this is not tax or legal advice). if you can buy a crappy one and BRRRR it, you could do this twice with the same startup capital from the 1031, and idk what your monthly cashflow goals are but that would put you in a pretty good position so long as you buy right! :) feel free to msg me if you need support! i have experience with LTR MTR STR, value-add, & buying with less capital

[Carlos Ptriawan]

Quote from @Linda West:

Quote from @Carlos Ptriawan:

Quote from @Michael Smythe:

Real estate is a long term investment and investors should look at things in 5 year projections, even 10 year projections.

Rents will eventually increase to cover the property taxes and your equity will continue to build.

Landlords are typically asset-rich, but cash-poor.

 hahahaha how true is that.... asset rich cash poor
this is why after year 6-8 is coming to realization that for asset is better to be sold at after certain years, i still remember the ranting from myself why i can't just sell these house.. now i move to different strategy to make landlording asset rich cash richer.

btw if we follow multifamily GP cycle they area avoiding capex at year 4 by bring the problem to the next buyer, hence the cycle continues...

So very true - asset rich/cash poor.  What's your formula for knowing when to sell and becoming 'asset rich, cash richer'?

 i know from beginning the problem with real estate is asset rich cash poor hence my strategy is bit different, I purchased two or three homes locally and keep moving in between, so I don't have equity rich issue I have rich cash issue LOL. I don't buy OOS as main strategy because that would be lackluster investment even from long term perspective.

When to sell ? I check zillow home appreciation, once the neighborhood is hard to create new high, I sell.

but myself I'm good now because my primary has DSCR 1.01 ; and all other rentals has DSCR 1.5 at least. Real estate is actually easy once we understand the risk (not the return).

[Carlos Ptriawan]

Quote from @Michael P.:

Quote from @Becca F.:

Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it.

This is not correct. The midwest never appreciates.

- Everyone on BP

 they only adjusted to inflation (3%)

[Carlos Ptriawan]

Quote from @Becca F.:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

 There are many strategies, and they all have their merits. Investors should do a self assessment periodically to figure out which strategies best allign with their lifestyle and limits. Then chose the one that is most efficient and tolerable.

Carlos, the investment foundation that you just laid out is very basic, but very realistic and reliable. It has been tried and trued. It's very hard to counter long-term fixed debt in a good location. It safe and less stressful of an investment. Allow time to do it's magic.

 it has implication though.

since long term fixed debt is limited by DTI thus the best approach for savvy investor is to invest to maximize their DTI first before venturing to any other strategy (OOS/MF1-4/syndication,commercial,etc).

for example, sometimes in BP is asking something that doesn't make sense, for example, they are renting in CA but wanna start two OOS in Indiana.

 Great point! A lot of people are renting in the Bay Area for $3000+ and wanting to go buy RE OOS. I've talked to a few in person at a local RE meet up - don't buy Class C cheap properties in a location you know nothing about and keep renting here, better to house hack here and get roommates in to help you pay the mortgage. House hacking doesn't always work especially if you have a spouse/significant other and kids though but if someone is young and single with high W2 income here, it's a good strategy.

I'm not renting, bought primary residence here, not my dream house (which I would get in another state but my W2 salary would be much lower like by 40% if I leave Bay Area). 

 A lot and a lot of education in real estate has been wrong if not to say sub-optimal, hence the stress. @V.G Jason able to comprehend this aspect nicely. My basic rule is always double investing locally, never rent , use long term fixed debts, and make every assetp has dscr one. if i can't do that, i would not invest in secondary method like oos, CRE, syndication,etc.

[Damian Velazquez]

HI! Just got here. I know I'm fashionably late to the party (sips glass of bourbon). However, couple of strategies for you. If you have equity tap into that. Consolidate, cross-collateralize (if necessary), access equity, and work on either paying down debt enough to cash-flow, or, exit strategies. Hope this helps! Cheers!   

[Becca F.]

Quote from @Michael Stoyanov:

Hi Becca,

I am sorry to hear about  your situation. It seems that it is not working well for you.

I see that with a LOT of  " investors" - buying a property with debt to cash flow $200 per month, banking on appreciation. It rarely works, and unless we get a lalapalooza in the real estate market, like we got in 2020-2022 , when the value of real estate increased dramatically, you will always be struggling.

You should always buy for CASH FLOW  - nothing else. The appreciation will be an added bonus and since you can not predict it and control it, do not account for it. It is nice to have, but you will not be able to pay your property taxes, or replace your roof with appreciation.

Here is what I think you should do - sell all 3 properties ( 1031 them), get the equity out of them and purchase 1 property CASH. Depending on the equity you have in them, you can look at different markets, as some are less expensive than others. Possibly look into FL ( that is where I am currently operating and can give you more inside info if needed), as prices are lower in some areas and there is not State Income Tax on the income generated from Fl. You can expect to get 8-10% CAP RATE here for a brand new property if purchased cash.

When you purchase the property cash, please get BRAND NEW construction, with warranty and do not buy anything with HOA. That way you will insure you have warranty on the property, it is nice and desirable and built up to the new codes and has what the consumers like nowadays. It will be also highly unlikely that in the next 10 years, you will have to worry about roofs, AC issues, etc, so your cash flow will be substantial. Keep the home for 7-12 years, then sell it ( 1031) and get another brand new home after that. You will save yourself a lot of headaches, it will be easier for you to find tenants and will not have to deal with renovations and expensive repairs. You will also be able to generate substantial cash flow , which you can use to purchase another property after that. Remember - it s not about the quantity of properties you have, it is about the quality.

Let me know if I  can answer more questions for you.

Thank you. I won't be able to pay cash for house with the proceeds I get from 3 houses. I would get about $100,000 to $120,000 net proceeds after paying off the loans, realtor commission, and closing costs. With Indy #1 Class A I did a cash out refi during 2021 when rates were low to help pay for the renovation of the Bay Area SFH. Indy #2 and #3 Class C, haven't owned #2 house long enough to have enough equity, one year. If I can get my 20% down payments back on the 2 houses I'll be happy.

I should have just left everything alone, just make the best of Bay Area SFH (pulled equity out of Indy #1 SFH, did renovation so it's up to code and rented out now but not at market rate), the 11 unit apartment building (co-owned) and the Class A Indy SFH. My property tax is very reasonable because I acquired it a while ago and in California, property taxes go up 2% a year max (unless you start adding rooms, ADUs, etc with permits and it's reassessed by the county). Indianapolis has high property taxes, 2.77% (house #1) and 2.78% (houses #2 and #3) that go up with no limit. So any cash flow I got from house #1 is being diminished by the tax increases.

This experience of buying OOS has really turned me off from buying anymore properties. I would have cash flowed more leaving my money in HYSA at 5% with a lot less stress. Even my IRA is getting a better return than those homes.I don't think I'll be able to leave my W-2 job unless I move to another country with a significantly less cost of living (e.g. Mexico, Guatemala, Philippines, Vietnam, maybe Portugal). There is no way I can create enough cash flow to replace my W-2 income unless I buy more properties or partner with people for bigger deals, which I feel is risky to keep taking out mortgages. I appreciate everyone's advice but I'm so confused now, still gathering more information.