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. 

[Carlos Ptriawan]

Quote from @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 

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.

 If any investment is causing stress you should just sell it, if w2 is too stressful you should just change jobs.
Also if there is idea that's causing too much stress like pressure to replace income from w2 with income from investment, if that idea is creating stress then one should ignore that idea.

Ignore chasing cash flow, ignore chasing appreciation. Ignore you should do this or do that.
If living in vietnam is the best idea then go for it LOL

Maybe when we have nothing and have no idea then that's where one have no stress LOL

[Carlos Ptriawan]

what I can learnt from Becca thread here is like many investors, investor has money but has no investment thesis so investor keep following what other investors do even that may not be the best interest for yourself. For example investment advice like CRE or OOS is not suitable for every investor. For me lot of investment advices here in BP doesn't make sense and only gives benefit to the sell-side.

[V.G Jason]

Quote from @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.

 The problem with everyone re-assessing is you'll see every 3-5 years there's a new method to the madness. You need to find the right risk tolerance to your goal and that being a 30 year goal likely, and then just more or less sit on it. Only enter when it hits those qualities, and realize the gain on it once you're in closer to that "goal" area periodically. The long-term fixed rate debt + very quality location(at the expense of quantity) is going to probably be most people's abilities here. But they like to "scale" and tell people how many houses they have.

The other people replying here saying it needs to have very high cash flow, or buy new build it'll save expenses, maybe that works year 0. It's doubtful a high cash flow asset right now is in a long-term great area, it's likely the inverse. New builds have a host of problems, and some builders put up a fuss to fix anything. It's also going to be at a high price point you're paying for those problems to go away. It's better to buy slightly distressed in great areas and put some quality upgrades into it, and capture that gain then pay for the cherry on top at first.

None of that stuff matters if your goal is truly well positioned. If you're entering physical assets and think this is a 5-7 year tap out game, you're doing it wrong. 

[V.G Jason]

Quote from @Carlos Ptriawan:

what I can learnt from Becca thread here is like many investors, investor has money but has no investment thesis so investor keep following what other investors do even that may not be the best interest for yourself. For example investment advice like CRE or OOS is not suitable for every investor. For me lot of investment advices here in BP doesn't make sense and only gives benefit to the sell-side.

 Combine that with nearly 90% of the folks here needing to sell something, it's just garbage on repeat. There's a few excellent posters, but most just have something to plug. 

[Sam Yin]

Quote from @V.G Jason:

Quote from @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.

 The problem with everyone re-assessing is you'll see every 3-5 years there's a new method to the madness. You need to find the right risk tolerance to your goal and that being a 30 year goal likely, and then just more or less sit on it. Only enter when it hits those qualities, and realize the gain on it once you're in closer to that "goal" area periodically. The long-term fixed rate debt + very quality location(at the expense of quantity) is going to probably be most people's abilities here. But they like to "scale" and tell people how many houses they have.

The other people replying here saying it needs to have very high cash flow, or buy new build it'll save expenses, maybe that works year 0. It's doubtful a high cash flow asset right now is in a long-term great area, it's likely the inverse. New builds have a host of problems, and some builders put up a fuss to fix anything. It's also going to be at a high price point you're paying for those problems to go away. It's better to buy slightly distressed in great areas and put some quality upgrades into it, and capture that gain then pay for the cherry on top at first.

None of that stuff matters if your goal is truly well positioned. If you're entering physical assets and think this is a 5-7 year tap out game, you're doing it wrong. 

 Makes good sense to me. I will not disagree.

I will always defer back to each individual's unique set of experiences and risk tolerance. I do believe there is no one size fits all. I feel that the strategies that have been laid out here, and on other threads, would work for some people, but not all. It would only align with those that have an almost exact set of standards and goals.

for me, I have reassessed periodically, and just as you said, I have changed my strategy a few times. It evolves as I evolve. It has enabled me to achieve faster FIRE. But it's not for everyone.

[Andrea G.]

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.

It's not possible nowdays to get 8/10% cap rate buying a brand new property in Florida

[Alex Breshears]

You are unfortunately finding out the hard way there are two main ways to invest in real estate - invest for equity and invest for cashflow. Most methods will do a bit of both - but will often highly favor one over the other. Unless you have owned a property a long time, low leverage, lower expenses because the property has been well maintained and cap ex is low - that’s where the magic of cash flow happens. It could be the first 5 years of a rental it will be a money pit - for reasons you describe. The hard parts are at the beginning. What you really build with rentals is equity - but also as you have discovered you can’t eat equity. That’s why you really are a cash flow investor. Cash flow investing can look really different. For example I do private lending - so it’s alllllll cash flow with zero appreciation or tax benefits. So if those two things are important to you - then private lending doesn’t fit your goals at all. It’s about finding the right way to invest in the first place that gets you to your goal. From your post you sound like a cash flow investor because you want to leave your W2. It’s totally possible and many have done it using real estate - but the play is cash flow focus not equity focus. 

[Jay Hinrichs]

Quote from @Alex Breshears:

You are unfortunately finding out the hard way there are two main ways to invest in real estate - invest for equity and invest for cashflow. Most methods will do a bit of both - but will often highly favor one over the other. Unless you have owned a property a long time, low leverage, lower expenses because the property has been well maintained and cap ex is low - that’s where the magic of cash flow happens. It could be the first 5 years of a rental it will be a money pit - for reasons you describe. The hard parts are at the beginning. What you really build with rentals is equity - but also as you have discovered you can’t eat equity. That’s why you really are a cash flow investor. Cash flow investing can look really different. For example I do private lending - so it’s alllllll cash flow with zero appreciation or tax benefits. So if those two things are important to you - then private lending doesn’t fit your goals at all. It’s about finding the right way to invest in the first place that gets you to your goal. From your post you sound like a cash flow investor because you want to leave your W2. It’s totally possible and many have done it using real estate - but the play is cash flow focus not equity focus. 

I have been doing private lending since the middle 80s and In California to do private lending you need a Real Estate Brokers license to legally lend on any non owner occupied transactions and a MLO for owner occ. So since I got a RE license at 18 and my Brokers at 20 and have worked as an independent broker all these years.. I used lending to supplement my Brokerage activity did both at the same time. IN those days of course I was brokering money for others ( probably like Alex does now) as I had no real personal cash. But I also had my sales business going.. And one of my clients that I was the Broker for his 100 unit townhouse project ( very successful developer from SoCAL) would always tell me he wants Write on's not Write Off's that kind of stuck with me. And that's where lending money either your own or Brokering does for you pure Write On's and far exceeds rental income of properties that have max debt ( 70 to 80% levered) with a fraction of the effort and time involved. Now its not all Wine and Roses, the GFC took a huge bit out of our personal wealth etc and I would say 90% of all PML or HML that were up and running then went out of business. I had to retool myself.. So virtually all PML and HML you see today started after 2009. And have had a great run since there has been very linear line upwards in the markets and a ton of stability not to mention the Turnkey business that is in virtually every mid west city has brought in outside investors to those markets and really propped them up.. Without those companies and OOS investors coming into those markets they would look very very different if the only activity was from locals.

[Carrie Matuga]

@Becca F. It can feel very daunting to figure out how to stack your door count to generate enough cash on to leave your W-2. I've found that I've had to get very conservative when I underwrite my own deals to factor in more vacancy (including economic vacancy), higher opex/capex if I didn't do the repairs myself via BRRR, and higher upward changes in taxes and insurance while lowering the expectation for rent increases to something like 2-3%. I'd suggest starting to explore those markets you mention and spending time each day for a month analyzing deals 5 deals per day in a single market. This will help you better understand how they CF and what things are selling for and renting for. You can also balance looking at turnkey vs. value-add properties. In the midwest, it seems like properties are generally more CF than appreciation. In the west, it's the opposite, so maybe an approach could be looking at a portfolio that diversifies by having a mix of CF, Appreciation and turnkey vs. value add properties.

[Jay Flaggs]

Coming to this post a bit late. None of the comments I've read seem to address the solution that seems quite obvious to me....

It sounds like you have a bunch of equity, negative cashflow, and a big headache from all the rentals. If your goal is just to replace a good part of your W-2 income, then why not rotate that pile of equity into a CASH DEAL. Of course your tradeoff is leverage, ROI, and tax write-offs; but again, if your goal is just to replace your current income it seems like a no-brainer to me. Especially if you lack the skills or time to do value-add deals or find better priced off market deals.

I think so many people discount the *psychological effect* of financial independence. Cashflow can allow you to establish a new baseline for how you make money from working. What I mean by that is, take some time off from working, live your life on your own terms for a while; and then when you become bored with golf, beaches, and hiking all day you can start looking into a new (less stressful) career. Perhaps that means pursuing art, consulting, teaching, etc. 

Whatever it is, removing the stress of making ends meet can open up doors that may even be more profitable and/or rewarding than your W-2 was.  

[Carlos Ptriawan]

Quote from @Jay Flaggs:

Coming to this post a bit late. None of the comments I've read seem to address the solution that seems quite obvious to me....

It sounds like you have a bunch of equity, negative cashflow, and a big headache from all the rentals. If your goal is just to replace a good part of your W-2 income, then why not rotate that pile of equity into a CASH DEAL. Of course your tradeoff is leverage, ROI, and tax write-offs; but again, if your goal is just to replace your current income it seems like a no-brainer to me. Especially if you lack the skills or time to do value-add deals or find better priced off market deals.

I think so many people discount the *psychological effect* of financial independence. Cashflow can allow you to establish a new baseline for how you make money from working. What I mean by that is, take some time off from working, live your life on your own terms for a while; and then when you become bored with golf, beaches, and hiking all day you can start looking into a new (less stressful) career. Perhaps that means pursuing art, consulting, teaching, etc. 

Whatever it is, removing the stress of making ends meet can open up doors that may even be more profitable and/or rewarding than your W-2 was.  

what most people doesn't realize also, making cash-flow from liquid investment in stock/etf is way easier+safer+liquid than the traditional real estate (direct and CRE investment) and it's almost stress free. there's fund outthere that what they do day and night is just long the bond and short the asset and gives 10%.

(Meanwhile I come to realization that the best use for real estate actualy comes from appreciation and use of leverage PLUS we can live in the property when needed (eg: vacation,second home)

The total return (in direct RE) is created from real estate appreciation using leverage so by paying off a property we are actually losing money compare if we buy in mortgage (this is especially true if rate of return of appreciation is higher than mortgage rate).

in other word, buying real estate with cash is actually fake or money losing game. Sorry to say that.

[Becca F.]

Quote from @Carrie Matuga:

@Becca F. It can feel very daunting to figure out how to stack your door count to generate enough cash on to leave your W-2. I've found that I've had to get very conservative when I underwrite my own deals to factor in more vacancy (including economic vacancy), higher opex/capex if I didn't do the repairs myself via BRRR, and higher upward changes in taxes and insurance while lowering the expectation for rent increases to something like 2-3%. I'd suggest starting to explore those markets you mention and spending time each day for a month analyzing deals 5 deals per day in a single market. This will help you better understand how they CF and what things are selling for and renting for. You can also balance looking at turnkey vs. value-add properties. In the midwest, it seems like properties are generally more CF than appreciation. In the west, it's the opposite, so maybe an approach could be looking at a portfolio that diversifies by having a mix of CF, Appreciation and turnkey vs. value add properties.

Thanks for the feedback but I'm completely burned out on analyzing deals. I've been doing this for almost 7 months and made 6 offers in Indy. There's no cash flow in CF markets with 7% interest rates - I have been buying off MLS, no tax liens, no deals with wholesalers, subject to etc. I recently learned some new information which is going to steer me in a different direction. A very honest PM told me that how people who profit with Class C properties are buying volume and buying lots of them (the good properties offset the losers). This is risky as an OOS investor especially if you're not a big time multi-millionaire experienced investor who knows what they are doing. Yet these Class C properties are the ones recommended to beginning investors or those of us in California, NYC etc.

Someone else commented about changing jobs. I'm in the best position I could possibly be with my current W2 job - the people who know me know my horrible experiences with previous employers. I have a great boss who's supportive, generally a positive work environment but it can be a lot of work sometimes, and my salary is 30% higher than my previous employer and more than double of what I made in Indiana (Indy rental SFH#1 was my primary residence in a great suburb, moved back to CA).

I also have children and I don't think constantly leveraging and taking out mortgages is a good move (e.g. do a HELOC against my primary, more cash out refis, etc). They and my friends also see the stress I'm under. I don't think there's anything wrong with being a small investor - I have 2 solid appreciating Class A Bay Area properties (one is multi-unit) and 1 Class A Indy SFH but when I hear people on BP, it's constantly about "acquiring more doors". I'm done - for all the money spent on inspections, sewer line scopes, etc. I could have taken my kids on a nice vacation.

[Carlos Ptriawan]

Quote from @Becca F.:

Quote from @Carrie Matuga:

@Becca F. It can feel very daunting to figure out how to stack your door count to generate enough cash on to leave your W-2. I've found that I've had to get very conservative when I underwrite my own deals to factor in more vacancy (including economic vacancy), higher opex/capex if I didn't do the repairs myself via BRRR, and higher upward changes in taxes and insurance while lowering the expectation for rent increases to something like 2-3%. I'd suggest starting to explore those markets you mention and spending time each day for a month analyzing deals 5 deals per day in a single market. This will help you better understand how they CF and what things are selling for and renting for. You can also balance looking at turnkey vs. value-add properties. In the midwest, it seems like properties are generally more CF than appreciation. In the west, it's the opposite, so maybe an approach could be looking at a portfolio that diversifies by having a mix of CF, Appreciation and turnkey vs. value add properties.

Thanks for the feedback but I'm completely burned out on analyzing deals. I've been doing this for almost 7 months and made 6 offers in Indy. There's no cash flow in CF markets with 7% interest rates - I have been buying off MLS, no tax liens, no deals with wholesalers, subject to etc. I recently learned some new information which is going to steer me in a different direction. A very honest PM told me that how people who profit with Class C properties are buying volume and buying lots of them (the good properties offset the losers). This is risky as an OOS investor especially if you're not a big time multi-millionaire experienced investor who knows what they are doing. Yet these Class C properties are the ones recommended to beginning investors or those of us in California, NYC etc.

Someone else commented about changing jobs. I'm in the best position I could possibly be with my current W2 job - the people who know me know my horrible experiences with previous employers. I have a great boss who's supportive, generally a positive work environment but it can be a lot of work sometimes, and my salary is 30% higher than my previous employer and more than double of what I made in Indiana (Indy rental SFH#1 was my primary residence in a great suburb, moved back to CA).

I also have children and I don't think constantly leveraging and taking out mortgages is a good move (e.g. do a HELOC against my primary, more cash out refis, etc). They and my friends also see the stress I'm under. I don't think there's anything wrong with being a small investor - I have 2 solid appreciating Class A Bay Area properties (one is multi-unit) and 1 Class A Indy SFH but when I hear people on BP, it's constantly about "acquiring more doors". I'm done - for all the money spent on inspections, sewer line scopes, etc. I could have taken my kids on a nice vacation.

 Over leveraging is path of destruction, just yesterday I read one of the biggest landlord of Multifamily somewhere in Tx lost everything after their apartment collapse due to cross-collaterallization.

Overleveraging is not worth it.

also you should not follow any advice in BP because it is mostly coming from sell side. However if the math works then it is good to follow. I found getting a normal return in real estate is actually not difficult as long as the math works and the risk is well understood , however folks in BP usually does not like talking about risk and headache LOL

[Carlos Ptriawan]

also since most of the advice in BP is coming from sell side, the return we got is the normal return hence why I am no longer interested.
I am interested to gain abnormal return.

my exerience
- making 80k-100k per flip from 500k home is possible, only in CA
- Out of state could be a good appreciation vehicle too
- the wealth builder is created when we invest in expensive state only (CA/HI) with at least two properties
- invest locally is thousand time better than investing outside because of the potential it creates
- househacking and ADU is finance freedom LOL

But i develop a strong very atypical thesis also:
- there' nothing passive about real estate investment
- investing in syndication is more active than direct ownership
- the risk of the unknown of unknown is the biggest issue in any real estate
- at the end of the day, the probability of we as landlord is hitting problem with tenant/city is like 100% so be prepared
- the difference between different type of real estate investment is the unknown factor and that's always the least discussed
- strategy is always different depending on macro climate, if mney is cheap leveraging equity is the best, if money is expensive then buying debt is good option
- don't chase best return but chase the most understood risk and capital preservation as a goal
- not all RE investment has equal return/risk , syndication in multifamily for example is outsourcing all risk to investor while gp makes the most money lol
- direct investment is always always better than indirect investment, except in certain asset class and extremely good sponsor that could find a noticeable return/risk reward.
- donot follow the crowd, when everybody else is buying then it's good time to sell, vice versa LOL
- if the math doesn't pencil, GTFO lol

[Samuel Diouf]

Quote from @Becca F.:

Quote from @Carrie Matuga:

@Becca F. It can feel very daunting to figure out how to stack your door count to generate enough cash on to leave your W-2. I've found that I've had to get very conservative when I underwrite my own deals to factor in more vacancy (including economic vacancy), higher opex/capex if I didn't do the repairs myself via BRRR, and higher upward changes in taxes and insurance while lowering the expectation for rent increases to something like 2-3%. I'd suggest starting to explore those markets you mention and spending time each day for a month analyzing deals 5 deals per day in a single market. This will help you better understand how they CF and what things are selling for and renting for. You can also balance looking at turnkey vs. value-add properties. In the midwest, it seems like properties are generally more CF than appreciation. In the west, it's the opposite, so maybe an approach could be looking at a portfolio that diversifies by having a mix of CF, Appreciation and turnkey vs. value add properties.

Thanks for the feedback but I'm completely burned out on analyzing deals. I've been doing this for almost 7 months and made 6 offers in Indy. There's no cash flow in CF markets with 7% interest rates - I have been buying off MLS, no tax liens, no deals with wholesalers, subject to etc. I recently learned some new information which is going to steer me in a different direction. A very honest PM told me that how people who profit with Class C properties are buying volume and buying lots of them (the good properties offset the losers). This is risky as an OOS investor especially if you're not a big time multi-millionaire experienced investor who knows what they are doing. Yet these Class C properties are the ones recommended to beginning investors or those of us in California, NYC etc.

Someone else commented about changing jobs. I'm in the best position I could possibly be with my current W2 job - the people who know me know my horrible experiences with previous employers. I have a great boss who's supportive, generally a positive work environment but it can be a lot of work sometimes, and my salary is 30% higher than my previous employer and more than double of what I made in Indiana (Indy rental SFH#1 was my primary residence in a great suburb, moved back to CA).

I also have children and I don't think constantly leveraging and taking out mortgages is a good move (e.g. do a HELOC against my primary, more cash out refis, etc). They and my friends also see the stress I'm under. I don't think there's anything wrong with being a small investor - I have 2 solid appreciating Class A Bay Area properties (one is multi-unit) and 1 Class A Indy SFH but when I hear people on BP, it's constantly about "acquiring more doors". I'm done - for all the money spent on inspections, sewer line scopes, etc. I could have taken my kids on a nice vacation.

I think you need to look at different markets and really think about your goals and reverse engineer from there. Firstly if you wanted cash-flow why would you buy a house in an A neighborhood. Also are you looking at only deals that are on the MLS? Almost all of the fast money will be in finding the right deal. Everything else will be building equity and appreciation. Maybe look into other markets as well. In Cleveland or Cincinnati you can find properties that cashflow over $400. You need to find off-market deals either through sorcing them yourself or working with someone who finds them. 

[Dan H.]

Quote from @Carlos Ptriawan:

also since most of the advice in BP is coming from sell side, the return we got is the normal return hence why I am no longer interested.
I am interested to gain abnormal return.

my exerience
- making 80k-100k per flip from 500k home is possible, only in CA
- Out of state could be a good appreciation vehicle too
- the wealth builder is created when we invest in expensive state only (CA/HI) with at least two properties
- invest locally is thousand time better than investing outside because of the potential it creates
- househacking and ADU is finance freedom LOL

But i develop a strong very atypical thesis also:
- there' nothing passive about real estate investment
- investing in syndication is more active than direct ownership
- the risk of the unknown of unknown is the biggest issue in any real estate
- at the end of the day, the probability of we as landlord is hitting problem with tenant/city is like 100% so be prepared
- the difference between different type of real estate investment is the unknown factor and that's always the least discussed
- strategy is always different depending on macro climate, if mney is cheap leveraging equity is the best, if money is expensive then buying debt is good option
- don't chase best return but chase the most understood risk and capital preservation as a goal
- not all RE investment has equal return/risk , syndication in multifamily for example is outsourcing all risk to investor while gp makes the most money lol
- direct investment is always always better than indirect investment, except in certain asset class and extremely good sponsor that could find a noticeable return/risk reward.
- donot follow the crowd, when everybody else is buying then it's good time to sell, vice versa LOL
- if the math doesn't pencil, GTFO lol

 I do not agree with everything in this post but agree with a lot of it so I thought I would add my view.

>making 80k-100k per flip from 500k home is possible, only in CA

corollary: 6 figure rehab value adds are only possible in higher end markets.  

>investing in syndication is more active than direct ownership

I do not understand this view at all.  Choosing a good syndication may be work that approaches determining a property to buy, but after investing in the syndication there is little to do but monitor the sponsors/syndication, pray the investment performs, and provide documentation to your tax man.

>there' nothing passive about real estate investment

I agree with the statement but there are various levels of effort required. as stated, I think syndications are low effort. NNN is low effort until lease expires. At the opposite end is development and flips. Even in an asset class, it can vary by choices. Example residential whole unit LTR with a PM is a lot less effort than renting by the room on a short-term basis without a PM.

>not all RE investment has equal return/risk , syndication in multifamily for example is outsourcing all risk to investor while gp makes the most money lol

commercial MF has struggled for a few years and therefore the returns of any syndication that was hoping to profit from buying undervalue and improving management is likely not doing well.  However, prior to the last couple/few years, commercial residential syndicators had many years producing outstanding returns.  

>direct investment is always always better than indirect investment, except in certain asset class and extremely good sponsor that could find a noticeable return/risk reward.

If you were active in the process and decent at it then likely.  However, syndicators do much of the work and for ~10 years following the Great Recession (GR) produced outstanding returns.  The sponsors should be experts with a lot of experience in their product area (if not, do not invest with them).  They have already had the learning curve.  They should be able to perform better than a newbie to that product area but then they charge the acquisition fee, operating fee, and profit share bringing down the return to the LPs.  My point is from ~2012 to ~2021 RE syndications were producing very good returns with little effort from the LPs (LPs only needed to vet the syndication and sponsors prior to investing).  Last couple/few years have been more challenging as office space has been crushed.  commercial RE is way down.  Money costs more than it has in years.  The sponsors are facing similar challenges to many RE investors.  It is a challenging market.

Best wishes

[Todd Dexheimer]

@Becca F. It sounds like you need to sell those properties and start fresh. If you are looking to replace your W2 income, then you need to think much bigger. That could lead to a lot of strategies. You could buy, rehab and rent houses/small MF. Adding value increases the value, so when you sell, you can buy a bigger property with more cash flow. You can keep repeating this until you have enough units to replace your income. This will be hard in todays market and will take patience, but it's possible. You could also sell and invest passively and use W2 income to continue with that. This again will take time and patience. Partnering with others and having them bring in the capital could be another option. This allows you to grow with your money and other peoples funds as well. These are just a few options - so many more available.

[Carlos Ptriawan]

Quote from @Dan H.:

Best wishes

This goes back to my prev. alignment that you invest differently in different market circumstance. 

In my view , the problem with indirect is problem with math. Simple, when money is expensive, leverage equity investment in negative spread climate including short term financing like in syndication got hit. That's why the residential sector in Germany is falling because their residential uses ARM instead of 30YFRM. In US our residential is fine although spread is negative, but commercial got hit due to short term financing. If they able to get low interest rate fixed debt, then their investment would be just fine. When money is expensive like today, the better reward/risk investment is on the conservative debt investment and moving out from equity. 70% of investment result is outcome of market rather than the quality of the landlord. In this market where asset is having high valuation in relative to rent income and money is expensive, if Becca is buying another OOS she would create more infinite rabbit hole as upside is quite limited and may need more time to work out.

[David M.]

@Carlos Ptriawan yup.  its all about investing where there are "opportunities."  Don't just keep "ramming it down" the one technique all year, every year.

[Carlos Ptriawan]

Quote from @David M.:

@Carlos Ptriawan yup.  its all about investing where there are "opportunities."  Don't just keep "ramming it down" the one technique all year, every year.

 yes we are running based on reward/risk return. I would not invest to investment that the probability of losing money is 89 percent during certain climate although 999 people in BP pushing us to invest on that. We follow the math.

But Alternatively I would creatively create an investment vehicle that either creating good return or reducing my monthly expense.  And by saying creatively is I do not follow the majority of how people invest. 

Good thing about RE is since we are the owner of real estate, I can do lot of tricks to make the investment work with less headache/risk. Real estate is still one of the best investment , it is just for everything needs lot of adjustment. Most problem for us as investor is we receive asymetrical information and most of the investor math analysis, is not good LOL..... negative spread would make profitability very difficult.

[Becca F.]

Quote from @Samuel Diouf:

I'm not sure if your read my previous response or all the previous 100+ comments. To put all of this in context, I always knew that wealth in real estate was built more on appreciation as evidenced by coastal California, Seattle, NYC, etc. The 2 Bay Area properties (my SFH and the apartment building which is co-owned with other investors) were acquired pre-2008, so before the Great Financial Crisis. I don't want to specify the dollar amount but it's obvious they're well over $1 million and I have a significant amount of equity in them. The Class A Indy suburb is when I moved to Indy (long story) but I lived in it, rented it out and moved back to California

I start watching YouTube videos, listening to RE gurus who got into RE in 2013-2016 and some of the people on BP, "buy OOS because you can cash flow and scale to 80 doors etc." Buying a $800,000 or $1 million SFH in the Bay Area and now at 7% interest rates is going to cost a lot of money. So I looked to buy in Indianapolis area again (considered Memphis, Cincinnati, St. Louis). I made at least 6 offers to attempt to BRRRR including one off market attempt at a flip. I appreciate the suggestion but I won't be buying in Cleveland, Cincinnati or any other Midwest market.

Like Carlos said, I'd be going down another rabbit hole in an unknown market where I can't see physical properties easily. I will value add to my Bay Area properties, get the Bay Area SFH up to market rate rent, which will cash flow way more than buying 10 OOS Class C properties and I have a very reasonable property tax (Proposition 13). I know this is a RE forum but what is wrong with having some liquidity? Why do we need leverage up to our eyeballs - I hope these beginning investors have lots of cash reserves. 

[Jerry W.]

@Becca F., its ok to take a few months or even longer to catch your breath and get comfortable where you are at.  In me experience real estate is get rich slow.  I started investing in real estate in the late 70s, but didn't really push it until the late 1980s and early 90s.  Once I decided I would be an investor it would get scary at times.  I had to take awhile to get comfortable.  I am not exactly big time even now as it was a sideline to my regular career.  Initially my investing was buying my own trailer house to live in, then it became a bigger nicer trailer, then land and trailer, then house, then a second house, etc.  I think I am about 60 doors now but I actually don't know as I have not counted them in awhile.  I have an old 12 unit apartment complex that is really a series of 3 large houses.  I have a few duplexes and lots of little houses and now 5 short term rentals.  I will be adding 2 more vacation rentals this year.  I was not able to retire after a few years, instead I just kept working up and now I have a level of financial comfort I never expected.  I lost my government job that paid poorly about 5 years ago and there was virtually no stress because my finances were so strong.  If it keeps you up at night it is not the investment for you.  There were times when I pushed hard to get bigger, and there were times I just consolidated what I had.  Find your own pace.  It doesn't hurt to be a little uncomfortable, I still get that way on every purchase, but I really enjoy the hunt.  My last 2 purchases at 9.5% and 9% interest are at best losing a little money each month, but I am still in the game.  I expect to refinance them in a year or so when rates drop and hopefully they will be cash positive or at least break even.  Many of my best houses were break even but are now cash cows 15 years later.  I did use equity to expand my portfolio, but at the time I knew I could make my monthly payments from my W2 if I had to.  Now of course there is no way I could make all of those payments, but my monthly income in rental income staggers my mind from what it was back then.  I simply reinvest every single penny back into acquiring or improving properties.  I got to where I enjoyed the game.

Anyway, move at your own pace, take your time, smell the flowers, and enjoy the ride.  Best of luck.

[Joe Fish]

@Becca F. - if I were in your shoes, I would try to stick it out with the Indy properties for a little while longer. Losing money in the first year should be expected, but hopefully after the investments you’ve already made, the Class C property will start to cash flow or at least break even, and you might see some appreciation as interest rates fall a bit over the next year. Maybe consider selling then if you really want to get out. There’s nothing wrong with that.

The Class A will probably continue to appreciate and it sounds like you may not have much equity anyway so there’s no point in selling from a financial standpoint. Investing in index funds also isn’t a guaranteed return and not a quick path to retire early unless you have a lot of capital to invest. 

[Becca F.]

Quote from @Joe Fish:

@Becca F. - if I were in your shoes, I would try to stick it out with the Indy properties for a little while longer. Losing money in the first year should be expected, but hopefully after the investments you’ve already made, the Class C property will start to cash flow or at least break even, and you might see some appreciation as interest rates fall a bit over the next year. Maybe consider selling then if you really want to get out. There’s nothing wrong with that.

The Class A will probably continue to appreciate and it sounds like you may not have much equity anyway so there’s no point in selling from a financial standpoint. Investing in index funds also isn’t a guaranteed return and not a quick path to retire early unless you have a lot of capital to invest. 

 I'm still weighing recent information from 2 honest property management companies I talked to who gave me feedback on all of the properties. May keep the first Class C home (the one being rented out) and get rid of the second Class C home.

With the Class A home I have enough equity that the net proceeds would enable me to put 20% down on a SFH, maybe a duplex in Northern California (not Bay Area, probably Sacramento area) or Nevada but now I would have a much larger mortgage at 7% interest rates and it would be cash flow negative as LTR, may perform better as MTR or STR. Class A home has 3.875% interest rate - we won't be anywhere near 4% rates for several years (if that even happens). Nevada property taxes are much lower than Indiana property taxes and I think the appreciation would be better. The combined monthly payments PITI of all 3 Indy homes would equal one higher quality property - I'm just not sure if taking on a large mortgage is financially smart for me.

I don't think I'll be able to retire early realistically - probably age 60 to 62 not the 67 of full current Social Security age. All the stress of a W2 job and finding RE deals (which aren't even good deals recently) has probably taken 10 years off my life. 

I just want to know all of these people who quit their W2s in their 30s/40s to be full time RE investors, are they just saving up a lot of money considering long term care? All I see is them posting about financial freedom to travel, have my own time, etc.  The best thing is to die of a heart attack at home and not some prolonged illness and need nursing home care which is super expensive in the USA. Sorry I'm being morbid but I've seen elderly family members either die quickly or the slow way. 

[Carlos Ptriawan]

Quote from @Becca F.:

I just want to know all of these people who quit their W2s in their 30s/40s to be full time RE investors, are they just saving up a lot of money considering long term care? All I see is them posting about financial freedom to travel, have my own time, etc.  The best thing is to die of a heart attack at home and not some prolonged illness and need nursing home care which is super expensive in the USA. Sorry I'm being morbid but I've seen elderly family members either die quickly or the slow way. 

 you don't have to believe (or pursue) with what anyone telling you on internet.

in fact, i don't like word "financial freedom", that word is scammy to me LOL

that's why i blocked all social media so they don't or can't influence me.