Net Worth vs. Cash Flow

[Micah Redden]

Hello,

I have a question about long term strategy. I currently have several rental properties that I own and that generate great cash flow. However, I was able to purchase these when the market was more depressed than it is now and those deals are difficult to find. In order to cash flow on a SFR in my area I need to have a total acquisition cost of no more than 70% ARV; these deals are increasingly rare. I do have access to more deals that I can acquire at no more than 80% ARV which would allow me to BRRR in a 12 month period. But, I can't cash flow the property on a monthly basis.

So here is my question:

If I can buy 5-6 properties a year with my current cash position and then use the BRRR principle I can accumulate about $100K a year in a net worth position and technically have none of my personal money involved. Do this for several years and you see the long term growth of net worth. However you can't retire solely on net worth, you need cash flow from these properties. Does the cash flow kick in at some point later? Am I missing something in this scenario?

[Steve Vaughan]

I am running into the exact same dilemma in my area @Micah Redden.  Just grateful I've been doing it a while and was able to get some cash-flowing homes early on.  It's always been tough, though.  I moved into the 7-10 unit asset class specifically for that reason.

With homes (some I'm 'looking' at are at .5% rent/mo. Stupid land!) I need terms. Seller financing offers me multiple exit strategies, especially when I also get assumability. No way I'm trotting in to a bank with their underwriting criteria, fees and DOS clauses to buy assets with a negative ROI. At least I can rehab the paper. Lots of tired landlords with free and clear properties looking for headache-free income monthly.

As far as your 'will these ever cash-flow' question, my answer is most likely eventually if rent rates increase over time.  I remember the last easy money bubble. A lot have forgotten about it already.  Ask the folks that got left with no chair how investing for net worth worked out for them.  For the most part, balance sheet net worth is a secondary benefit for me and not a primary driver in my purchasing decision.  Good discussion!