Looking For Advice on Turnkey Midwest Rental Properties!!!

[Jon Licht]

Hi all!  I am looking for some advice.  I have been a real estate investor for 3+ years.  I purchased (3) turnkey properties with conventional mortgages under my name. In analyzing my portfolio this weekend, I identified a few things that surprised me. I would love any advice on next steps.

Key Findings:

• The concept of ‘passive cash flow’ has turned out not to be true. In 3 years, all of my properties are negative aggregate cash flow (if I include closing costs).
• My properties are all overperforming expectations due to appreciation. Pre-COVID, my ROIs were 20%, 20% and 50%. Post-COVID, due to massive appreciation, ROIS are all above 50%.

Conflicting Ideas for Next-Steps:

• Who cares about cash flow when you have a 50%+ passive investment. Transfer all of these properties to a non-recourse loan and hold.
• The COVID appreciation spike won’t last. 1031 exchange these properties to a multi-family that cash flows.

[Jim Pfeifer]

I used to buy turnkey single family homes as passive investments looking for cash flow.  Like you, I did not get the cash flow I had been hoping for, but the appreciation definitely made up for it.  I learned, however, that these are not passive investments.  I spent a lot of time managing the property manager and eventually had to replace several of them.  It was a hassle and I spent a lot of time on frustrating emails and phone calls.

Since then, I have sold all of my rentals and started investing in passive syndications.  After the initial vetting of the sponsors and deals it is completely passive.  I receive the passive income I have been hoping for and the appreciation on the back end is similar to that of my active rentals.  .

I didn't do a 1031 because I didn't want more active investments - instead I did a "Lazy 1031" where I used the cost segregation and bonus depreciation to defer and offset all of the taxes the active properties I sold.  When these deals go full cycle, I will buy into new syndications and start the deferral process again.

I am making the same money I was with active investments with fewer headaches and much less time spent managing the assets.