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Negative Cash Flow
Hey guys, I'm a super noob( I literally got into this 2 days ago, but I've spent all my free time doing research). So I'm gonna pose my question through this example:
Say I buy a 100k property with 20k down. I find a tenant to occupy my property, but due to certain circumstances the amount I can rent for does not exceed mortgage and other expenses. Let's say my cash flow after cole ting rent and paying fees is -$75 per month.
Even though I'm losing $75 per month on average, eventually, the tenant will pay off my property(10yrs?), and then my property will most likely, after appreciation, be > $100k. Even if it stayed around buying cost, I now have a paid off house that I can continue to rent mortgage free, or sell.
I guess what I am tying to get across is that real estate is a ssuper solid investment that is low risk, even if you are receiving cash flow. Sure, investors desire positive cash flow, but even if you have to pay a bit out of pocket each month, in the long run you still have an asset that is valued much more than you put in to it.
Please scrutinize my thoughts. Am I thinking right about this? Any advice would be greatly accepted. Thanks!
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Never buy for negative cash flow. That means you are paying down the mortgage...not your tenant.
As far as cash flow not being profits, that's ludicrous.
Banking on events in the future that you have no control over is speculative, and risky. Banking on current positive cash flow is not.
Oh, and here's the big one. How many negative cash flow properties can you afford at the same time? How many positive cash flow properties can you afford at the same time? How many additional properties can you buy using the negative cash flow from the negative cash flow properties? How many additional properties can you buy using the positive cash flow from the positive cash flow properties?
One more thing. If you are buying correctly, that positive cash flow property should have as much future gain as the negative one. Which would you rather have.
OK, I guess two more things. "Cash flow is for poor people and poor investors". I buy for cash flow. WOW. I love being "poor".
Joe. there is too much competition for cash flow that it makes it hard to be profitable. I am able to scoop up profitable properties JUST because they don't initially cash flow. Funny that you think your cash flow is reliable and predictable but my cash flow that is calculated for a later date is not!
Also you'd be surprised how many properties you can buy when they have doubled in value in less than two years. The banks actually give you full credit for the equity whereas most cash flow is discounted by about 75%!
Banking on the future? Do you collect your rents 12 months in advance? Do you anticipate your cash flow to stay the same year in year out, slowly being eroded by inflation and capex? Sorry way to invest in my opinion and you are still speculating just with a way lower bar.
I guess it is a good thing you love being poor. That's what I see in your future.
And inflation increases Cash flow, because rents rise with inflation. it makes no sense that cash flow woud Be eroded by inflation. Capex woud make negative cash flow even worse whereas with cash flow you can absorb it.
Nope. I got Vegas property bought in 1994 that has similar rents 20 years later. My CA and Hono properties have rent growth of 6%+. Indy cash faux properties that sell for $60,000 were worth about $60,000 10,15,20 years ago. Rents are mostly the same. That's how inflation and CapEx erode the cash flow.
How does one spend equity?...and when?
Freely! I just pulled out almost $400,000 in appreciation thru a cash out refi paid for by the rent increases over the last couple of years. I can pull out a minimum of $100,000 a year of appreciation equity. That's over $8,000 a month cash flow just from the appreciation and rent growth. TAX FREE!
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Originally posted by @Jerry W.:
@Adam Juodis, sorry it looks like your thread has been hijacked. Here is my take on on your investment. First what about the property you have bought or are thinking about buying makes you want to buy it? Is it because you think the value will go up? Because it looks cool? Because you need to buy a property now and cannot wait?
I have bought several properties with negative cash flow intentionally. I had a specific reason for buying them. You first need to get the actual numbers ran. Did you use a 30 year amortization or a 10 year? You mentioned a 10 year sort of. If you can do a 10 year loan and pay the property off by adding $75 per month I say great. If you pay $75 per month and it is on a 30 year note I say very bad. Yes you can still come out money ahead by buying and adding $75 per month because of negative cash flow, but why not buy a property that does have positive cash flow? I know some exist in your market. The reason I bought knowing I was going to have negative cash flow is that I got a much nicer house than any of my other rentals, and I did for no money down. I used a 15 year amortization, and the sellers financed my down payment for 5 years on a balloon payment. Since I did not have the $20K plus to put up for down payment it enabled me to buy a nice house for no money down. For $6K made in payments over 5 years, I still used less money than if I made the down payment in cash at closing. I would have to refinance at the end of 5 years and pull the equity I built up to pay off the 5 year balloon payment to the sellers. While I like all of the houses I have bought this way it has a danger. Too many will kill your business. Truth be told I have found higher class rentals like B to be much less work than C class properties. However B class properties make much less per unit than C class properties. there is a trade off. You need to run real and actual numbers past us in order to give you good advice. I hope that helps.
I'm not sure how a post about negative cash flow has been hijacked about discussions on negative cash flow. I think a sophisticated investor should look to appreciation and rent growth numbers. Jerry, why do you think all these "cash flow" properties are jut sitting there waiting for investors? Maybe the real investors have decided that the cash flow , isn't.
Anyway it's about knowing your markets and then making your decisions based on factual research.
When we gonna see that Haywaiian shirt with the cowboy hat?
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Never buy for negative cash flow. That means you are paying down the mortgage...not your tenant.
As far as cash flow not being profits, that's ludicrous.
Banking on events in the future that you have no control over is speculative, and risky. Banking on current positive cash flow is not.
Oh, and here's the big one. How many negative cash flow properties can you afford at the same time? How many positive cash flow properties can you afford at the same time? How many additional properties can you buy using the negative cash flow from the negative cash flow properties? How many additional properties can you buy using the positive cash flow from the positive cash flow properties?
One more thing. If you are buying correctly, that positive cash flow property should have as much future gain as the negative one. Which would you rather have.
OK, I guess two more things. "Cash flow is for poor people and poor investors". I buy for cash flow. WOW. I love being "poor".
Joe. there is too much competition for cash flow that it makes it hard to be profitable. I am able to scoop up profitable properties JUST because they don't initially cash flow. Funny that you think your cash flow is reliable and predictable but my cash flow that is calculated for a later date is not!
Also you'd be surprised how many properties you can buy when they have doubled in value in less than two years. The banks actually give you full credit for the equity whereas most cash flow is discounted by about 75%!
Banking on the future? Do you collect your rents 12 months in advance? Do you anticipate your cash flow to stay the same year in year out, slowly being eroded by inflation and capex? Sorry way to invest in my opinion and you are still speculating just with a way lower bar.
I guess it is a good thing you love being poor. That's what I see in your future.
And inflation increases Cash flow, because rents rise with inflation. it makes no sense that cash flow woud Be eroded by inflation. Capex woud make negative cash flow even worse whereas with cash flow you can absorb it.
Nope. I got Vegas property bought in 1994 that has similar rents 20 years later. My CA and Hono properties have rent growth of 6%+. Indy cash faux properties that sell for $60,000 were worth about $60,000 10,15,20 years ago. Rents are mostly the same. That's how inflation and CapEx erode the cash flow.
How does one spend equity?...and when?
Freely! I just pulled out almost $400,000 in appreciation thru a cash out refi paid for by the rent increases over the last couple of years. I can pull out a minimum of $100,000 a year of appreciation equity. That's over $8,000 a month cash flow just from the appreciation and rent growth. TAX FREE!
So in the end, you do depend on cash flow to access your equity?
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
Your first post started with "Cash flow is for poor people or poor investors. Negative cash flow properties are so much better because the buyers for these properties are limited and poor investors are chasing cash faux."
If that was supposed to be interpreted as you like both cash flow and appreciation then I am mistaken. I stated multiple times I like both, but don't thin investing for just appreciation Is wise.
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Never buy for negative cash flow. That means you are paying down the mortgage...not your tenant.
As far as cash flow not being profits, that's ludicrous.
Banking on events in the future that you have no control over is speculative, and risky. Banking on current positive cash flow is not.
Oh, and here's the big one. How many negative cash flow properties can you afford at the same time? How many positive cash flow properties can you afford at the same time? How many additional properties can you buy using the negative cash flow from the negative cash flow properties? How many additional properties can you buy using the positive cash flow from the positive cash flow properties?
One more thing. If you are buying correctly, that positive cash flow property should have as much future gain as the negative one. Which would you rather have.
OK, I guess two more things. "Cash flow is for poor people and poor investors". I buy for cash flow. WOW. I love being "poor".
Joe. there is too much competition for cash flow that it makes it hard to be profitable. I am able to scoop up profitable properties JUST because they don't initially cash flow. Funny that you think your cash flow is reliable and predictable but my cash flow that is calculated for a later date is not!
Also you'd be surprised how many properties you can buy when they have doubled in value in less than two years. The banks actually give you full credit for the equity whereas most cash flow is discounted by about 75%!
Banking on the future? Do you collect your rents 12 months in advance? Do you anticipate your cash flow to stay the same year in year out, slowly being eroded by inflation and capex? Sorry way to invest in my opinion and you are still speculating just with a way lower bar.
I guess it is a good thing you love being poor. That's what I see in your future.
And inflation increases Cash flow, because rents rise with inflation. it makes no sense that cash flow woud Be eroded by inflation. Capex woud make negative cash flow even worse whereas with cash flow you can absorb it.
Nope. I got Vegas property bought in 1994 that has similar rents 20 years later. My CA and Hono properties have rent growth of 6%+. Indy cash faux properties that sell for $60,000 were worth about $60,000 10,15,20 years ago. Rents are mostly the same. That's how inflation and CapEx erode the cash flow.
How does one spend equity?...and when?
Freely! I just pulled out almost $400,000 in appreciation thru a cash out refi paid for by the rent increases over the last couple of years. I can pull out a minimum of $100,000 a year of appreciation equity. That's over $8,000 a month cash flow just from the appreciation and rent growth. TAX FREE!
So in the end, you do depend on cash flow to access your equity?
Yes! Yes! Yes! Cash flow AND the appreciation equity. The bank is happy to see a property that has increased in value $500,000 and all I want is $400,000 because I have other rentals that are producing cash flow NOW that can support that payment PLUS they have also increased in value so higher earnings and higher net worth.
Try going to a bank and saying I have ten $50,000 properties that were worth the same 10 years ago so there is a little equity caused by mortgage pay down but you want to pull out $400,000 because you have maybe $1,000 in cash flow!
@Adam Juodis, have you been getting more entertainment value out of your question than you bargained for / wanted? (I have). It seems like the negative vs positive "usual suspects" have been playing cowboys and indians, leaving the provisional winner:- the "it depends" camp! Cheers...
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
Your first post started with "Cash flow is for poor people or poor investors. Negative cash flow properties are so much better because the buyers for these properties are limited and poor investors are chasing cash faux."
If that was supposed to be interpreted as you like both cash flow and appreciation then I am mistaken. I stated multiple times I like both, but don't thin investing for just appreciation Is wise.
Please reread the whole thread. Hoping for cash flow on day one of your purchase prevents you from buying profitable properties.
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
Your first post started with "Cash flow is for poor people or poor investors. Negative cash flow properties are so much better because the buyers for these properties are limited and poor investors are chasing cash faux."
If that was supposed to be interpreted as you like both cash flow and appreciation then I am mistaken. I stated multiple times I like both, but don't thin investing for just appreciation Is wise.
Please reread the whole thread. Hoping for cash flow on day one of your purchase prevents you from buying profitable properties.
Maybe in Hawaii, but there are many areas of the country to invest in. There is no rule that states you must buy 50k Properties to cash flow. That is a myth that some like to push forward. There are many places that cash flow from day one that are not in the midwest, are higher value and have appreciation potential
#4 All Forums Contributor
- Plymouth, MI
Still not clear on why a property that cash flows must have negative appreciation. All my properties have both. I won't leave home without them. Maybe that's because I only invest in markets that do have both....and I don't have to rationalize a deal (negative cash flow) by saying negative cash flow is for "poor investors".
I like being "poor". I'm so poor with positive cash flow, that I retired off of it within 3 years...and it has given me raises too.
And that refi that allowed you to access your equity, guess what, I can access mine in 6 months because I have positive cash flow from the start....enough to cover the refi loan. That must also mean that I have enough equity from the start to satisfy the lender...and, I can take that cash from the refi, and invest it in the next property which makes me even more "poor" with positive cash flow. I like this idea so much, I refi that 2nd property and reuse the original cash again from the 2nd refi to, you guessed it, buy another cash flow property...and getting even more poor. I can do this with a partner (since I can only get so many loans), because the cash flow is so high.
I'm pretty sure my partners like getting poorer every 6 months too.
Oh, one more thing. When my tenant pays off the loan (all by themselves) in 15 years, I can refi again and guess what...my property appreciates just like your's did...and I get that same "...appreciation and rent growth. TAX FREE!..." you are getting.
Now here's the really fun part. I can do this refi every year on a different property (or two) and take advantage of that same (new) "...appreciation and rent growth. TAX FREE!..." all over again.
All of this because I have the "poor investor's" positive cash flow.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
Your first post started with "Cash flow is for poor people or poor investors. Negative cash flow properties are so much better because the buyers for these properties are limited and poor investors are chasing cash faux."
If that was supposed to be interpreted as you like both cash flow and appreciation then I am mistaken. I stated multiple times I like both, but don't thin investing for just appreciation Is wise.
Please reread the whole thread. Hoping for cash flow on day one of your purchase prevents you from buying profitable properties.
How does positive cash flow from day one prevent you from buying profitable properties?
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:
Never buy for negative cash flow. That means you are paying down the mortgage...not your tenant.
As far as cash flow not being profits, that's ludicrous.
Banking on events in the future that you have no control over is speculative, and risky. Banking on current positive cash flow is not.
Oh, and here's the big one. How many negative cash flow properties can you afford at the same time? How many positive cash flow properties can you afford at the same time? How many additional properties can you buy using the negative cash flow from the negative cash flow properties? How many additional properties can you buy using the positive cash flow from the positive cash flow properties?
One more thing. If you are buying correctly, that positive cash flow property should have as much future gain as the negative one. Which would you rather have.
OK, I guess two more things. "Cash flow is for poor people and poor investors". I buy for cash flow. WOW. I love being "poor".
Joe. there is too much competition for cash flow that it makes it hard to be profitable. I am able to scoop up profitable properties JUST because they don't initially cash flow. Funny that you think your cash flow is reliable and predictable but my cash flow that is calculated for a later date is not!
Also you'd be surprised how many properties you can buy when they have doubled in value in less than two years. The banks actually give you full credit for the equity whereas most cash flow is discounted by about 75%!
Banking on the future? Do you collect your rents 12 months in advance? Do you anticipate your cash flow to stay the same year in year out, slowly being eroded by inflation and capex? Sorry way to invest in my opinion and you are still speculating just with a way lower bar.
I guess it is a good thing you love being poor. That's what I see in your future.
And inflation increases Cash flow, because rents rise with inflation. it makes no sense that cash flow woud Be eroded by inflation. Capex woud make negative cash flow even worse whereas with cash flow you can absorb it.
Nope. I got Vegas property bought in 1994 that has similar rents 20 years later. My CA and Hono properties have rent growth of 6%+. Indy cash faux properties that sell for $60,000 were worth about $60,000 10,15,20 years ago. Rents are mostly the same. That's how inflation and CapEx erode the cash flow.
How does one spend equity?...and when?
Freely! I just pulled out almost $400,000 in appreciation thru a cash out refi paid for by the rent increases over the last couple of years. I can pull out a minimum of $100,000 a year of appreciation equity. That's over $8,000 a month cash flow just from the appreciation and rent growth. TAX FREE!
So in the end, you do depend on cash flow to access your equity?
Yes! Yes! Yes! Cash flow AND the appreciation equity. The bank is happy to see a property that has increased in value $500,000 and all I want is $400,000 because I have other rentals that are producing cash flow NOW that can support that payment PLUS they have also increased in value so higher earnings and higher net worth.
Try going to a bank and saying I have ten $50,000 properties that were worth the same 10 years ago so there is a little equity caused by mortgage pay down but you want to pull out $400,000 because you have maybe $1,000 in cash flow!
So does that make you a "poor investor" when you end up refinancing, and getting positive cash flow with your cashing out?
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
Originally posted by @Account Closed:
Originally posted by @Mark Ferguson:
This is going no where. Not sure why you feel the need to call investors who like cash flow "poor". It seems a little strange you count on 6 percent rent Increases on some properties but claim others will have no increase for 20 years depending on which Point you want to prove.
Mark there is information here if you want to be open to it. You have totally misinterpreted this information if you think I don't like cash flow. That is what the 6% rent growth is ALL about. As far as MARKETS that have no rent growth or appreciation and others that have both.....well that is what real estate is all about..location, location, location.
Choose to invest where there is no rent growth or appreciation or NOT. That is your choice. I could care less and am not trying to convince you of anything. So please, go no where if that is your choice.
Your first post started with "Cash flow is for poor people or poor investors. Negative cash flow properties are so much better because the buyers for these properties are limited and poor investors are chasing cash faux."
If that was supposed to be interpreted as you like both cash flow and appreciation then I am mistaken. I stated multiple times I like both, but don't thin investing for just appreciation Is wise.
Please reread the whole thread. Hoping for cash flow on day one of your purchase prevents you from buying profitable properties.
Maybe in Hawaii, but there are many areas of the country to invest in. There is no rule that states you must buy 50k Properties to cash flow. That is a myth that some like to push forward. There are many places that cash flow from day one that are not in the midwest, are higher value and have appreciation potential
I am sure. I always suggest looking at both sides of the tracks. What high appreciation areas are you familiar with?
Originally posted by @Joe Villeneuve:
Still not clear on why a property that cash flows must have negative appreciation. All my properties have both. I won't leave home without them. Maybe that's because I only invest in markets that do have both....
This is sound advice, especially for someone new who will want to finance more property later on. I think lenders only consider a portion (think it's 75%) of your rents that exceed PITI, anyway, but they count negative amounts 100% against your income, so negative cash flow for a new investor (unless you have disposable income) can severely limit your choices going forward. I would never invest in an area just for positive cash flow; it has to be somewhere I'm confident will appreciate as well. But too many factors out of your control (new high-power lines right behind your house, schools redistricted, base closes, etc.), to count on appreciation and rents rising when you need them.
And also consider, especially when starting out, you usually have limited access to funds for investment, so learn your target market extremely well and be ready to jump in when a true deal does surface, but be ready to pass when it's not a good fit for your overall plan. You won't have time to analyze from scratch if it's a good deal or not as you'll have competition. We have a number, and if we lose out, we're okay with that as we know they had to pay more than we were willing to in order to get it.
@Adam Juodis One important thing to remember after reading all of this is that every market is different. What works for @Account Closed in Hawaii (which has historically some of the highest and most consistent appreciation of any real estate in the world) won't work very well for me in Western New York, which has little to no appreciation historically.
The other half of that is that Bob is like the guy who does really well in the stock market, so he think all investors should be able to do well in the stock market. Think of appreciation in real estate as being the same as picking individual stocks in the market, and that'll give you an idea of how to approach it (for us mere mortals anyway.)
You need to figure out what works in your market. Not knowing your particular area of Illinois, I would still say it's a safe bet that you can find a property within an hour or two drive from your house that will both cashflow well, and appreciate slightly - you just have to keep looking.
Focus on properties where you control the appreciation - buy it under market value, put a little bit of money into it, then rent it out and sit on your newfound equity. If a deal is so thin it can't survive a drop in value, or a drop in rents, I would walk away and wait for the next one. And there's always a next one.
Holy cow this thread blew up! I woke up expecting to see 1 or 2 responses, instead I see 2 full pages of responses.
Thank you for all the different advice. Guys, this was more of a theoretical question. I have not bought any properties, but when I do, I'll certainly look for aspects of a property that will bring in positive cash flow as well as the ability to appreciate over time.
The question was more of a self-reassurance that real estate is pretty rewarding compared to the risks required. Even if you buy a property that gives you no cash flow, or slightly negative, you might have to pay a little, but still- a tenant is paying the majority of your mortgage, and eventually the property that is much more value than you put into it is yours. Hopefully this clarifies what I was trying to get out of this post. Some of you definitely helped me answer certain aspects of it. Thanks!
Originally posted by @Joe Villeneuve:
How does positive cash flow from day one prevent you from buying profitable properties?
I think Bob is saying (among other things), that he prioritizes appreciation. Therefore he is buying in growth markets. Location, location. These growth markets tend to have higher purchase prices, making positive cash flow from day 1 nearly impossible. Think Miami, Austin, Seattle, etc.
So, from his viewpoint, those that are buying in Jacksonville (for example), MAY see some appreciation, but in reality, those investors are prioritizing that $180 a month positive cash flow. Which is the less profitable venture, in his opinion.
I do not understand why you would buy a property that does not cash flow (especially as your first investment property). But i DO understand why you would NOT buy a property Solely on Cash Flow alone. It seems like you are focused on appreciation, which is "ok". If I were you, I would target those properties that have a large opportunity of appreciation (which is harder than it sounds) and only move forward with the properties that put money in your pocket today (even if its 50 bucks).
Only in rare cases would i consider buying a negative cash flow property and I would never recommend a rookie investing in that strategy to begin with. Just remember: a problem could arise and make your "cash flow" property become non profitable for a month or 2 but the same problem could arise that makes a "negative cash flow" property become a VERY BIG HEADACHE.
Good luck!
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Robert G.:
Originally posted by @Joe Villeneuve:
How does positive cash flow from day one prevent you from buying profitable properties?
I think Bob is saying (among other things), that he prioritizes appreciation. Therefore he is buying in growth markets. Location, location. These growth markets tend to have higher purchase prices, making positive cash flow from day 1 nearly impossible. Think Miami, Austin, Seattle, etc.
So, from his viewpoint, those that are buying in Jacksonville (for example), MAY see some appreciation, but in reality, those investors are prioritizing that $180 a month positive cash flow. Which is the less profitable venture, in his opinion.
If I was only getting 180/month cash flow I wouldn't be doing the deal either. My minimum is $450/month...with PM and loan in place.
Originally posted by @Joe Villeneuve:
At what price point? You may be the exception, not the rule. A ton of buy-and-hold investors are buying properties in low growth areas and profiting $200-$300 a month (when things go well). I'm assuming that is what Bob is speaking out against.
Classic case of my way is better than your way. The best part about real estate investing is for every 100 investors you will find 100 different ways to invest. Cash flow, appreciation, and debt pay down are all positives. All depends on what you are trying to achieve.
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Robert G.:
Originally posted by @Joe Villeneuve:
At what price point? You may be the exception, not the rule. A ton of buy-and-hold investors are buying properties in low growth areas and profiting $200-$300 a month (when things go well). I'm assuming that is what Bob is speaking out against.
Buy and Rehab cost between $50 - 65k...and these are not warzone of class C properties. These are just in a different market, with a different cost of living. The midwest is filled with these markets, or very similar. It just costs less the buy and rehab in these markets than say Hawaii.
Anticipating your next questions:
1 - 1000 - 1250 sq ft
2 - 3 bed
3 - 1 - 2 bath
4 - With basement
5 - With garage
6 - With PM
7 - With debt
8 - ...and the rents are between $1000 - 1200/month
Rent $1100
T/I 230
PM 110
DS 310 ($56k @ 5.25/30)
CF $ 450
Originally posted by @Alan Sweeten:
I agree with Joe Villeneuve , negative cash flow is not optimal. I had a negative cash flow property that I was stuck with for 5 years during the down turn. It hurt every month and could've funded both my kids college. Now I have a positive cash flow 2 unit and I can see clearly now the rain is gone......
Negative cash flow may not be good for high income earners either due to phaseout on losses. Earners from 100-150k have their losses phased out and they can't take them. They become loss carry forwards. Of course talk to your cpa and it depends on participation and if your a real estate professional.
https://www.irs.gov/pub/irs-pdf/p527.pdf#page13
My best,
Regardless of income, passive gains will offset passive losses. Worst case, as you said, the losses will carry over (in case you didn't have any passive income for a given year) and will offset any gains (capital gains included) the following years. Of course, I am not a cpa or an expert in this, so take it with a grain of salt.
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#1 Mobile Home Park Investing Contributor
- Rental Property Investor
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Hi Adam
I think all investors should be investing first and foremost for cash flow and secondly capital appreciation, the icing on the cake. A negative 75 bucks can turn ugly real quick with a few vacant months.
If you look back at the last down turn, everyone was buying with no regard for cash flow, the greater fool theory. When the music stopped, a lot of people were left holding the bag.
You never really know what the future holds. Real estate tends to appreciate, but if you need to sell during a down market, then you're in trouble. If the asset is cash flowing, then you have the option of holding on
Gino