HELP: Positive Cash Flow ?? - Boston South/Cape Cod

[David Ward]

Newbie contemplating RE market. I have 20+ years of experience in business but the concept of positive cash flow has always tricky to ME.  

Devil's Advocate:  If I put 20% of my money down, I struggle with the concept of positive cash flow as my down payment is now tied up and is NOT being taken into consideration for the "cash flow positive" scenario.   Additionally, in my mind, I say I could put 100k in Apple or Amazon and prob make more without lifting a finger.  Now don't get me wrong, I get the someone else is paying down your mortgage, forced appreciation, tax benefits, diversification etc.   But the numbers don't seem compelling to use my 100k to essentially subsidize others to live in my property.  What am I missing?  Do I determine cash flow positive with my 100k in property or without?  When most discuss cash flow positive examples they usually look like this to me...500k property, 100k down, mortgage 400k...if the property profits 300-500 per month, I feel like the 100k of my capital is being tied up to create the "positive cash flow and/or subsidizing someone else".   Am I correct, am I missing something ?

RE Advocate:  On the flip side, my friend owns 20+ units and always says "you need to find positive cash flow properties".  He's uses a formula uncovered 5 years ago while he attended an investor conference focused on identify "positive cash flow" properties.   (IN HIS MARKET) monthly gross revenues x 7 x 12 months in a year = purchase price.  IF the property is in great condition he adds 10%.  Example, 3 family property lists for 600k, each property is renting for 2k each (6k per month).  That means 6k x 7 = 42k x 12 months = 504k purchase price.  

Bottom line - His formula does not work in my expensive market.  None of the 50+ properties I've analyzed = PROFITS.  Almost all = being underwater.  The properties in Boston South are high due to metropolitan location but I'm always 200-300K UNDER asking price using his formula. Thoughts ? 

I'm really struggling with how to determine what is the BEST FORMULA to determine/analyze a positive cash flow property when purchased price is higher, particularly bc I would easily need to put down 100k, not the 10-20k that some people need for low end markets!  Please help...

Thanks you!

[Jarrod Kohl]

You are not wrong. It is hard to find those properties (and basicilly impossible on MLS/Zillow) in Boston and other 'high end markets" there are other advantages to buying properties (MF or SF) in a market like Boston, but just looking for cashflow it is probably not the best option.

You can either find something that you could BRRRR (buy rehab rent out) that will then cash flow, or find something that is stabilized and barely cashflows (if at all) and just bank on staying level and making money off the appreciation or selling in a few years.

It gets back to cap rates. Looking in Boston 4-6% cap rate is 'great' around here. However, if I was going to buy a multifamily out in Ohio I wouldn't even consider a 6% cap rate and can expect to find 10-15% cap rates in some markets which will cash flow nicely. This is why you see so many people from major coastal cities (Boston, NYC, LA) buying in Ohio, Iowa, TN, etc. I have family real estate connections in Ohio and where we get "Foreign money" in Boston from China and other places, Ohio gets "foreign money' from LA or NYC haha.