Are buy and hold's really making money? Big picture question

[Philip Hy]

I'm wondering if we're really making money. Not a rhetorical question, but would like genuine feedback. Here's the scenario. I want to live off of cash flow so I buy a lot of SFR. I then currently make about 550 cash flow per property, but after you figure maintenance/repairs, it's probably 300 per month per unit: $3,600/yr

The longer we hold a property, the more things break. Most expensive is probably the roof, which I estimate is $10k. So when the roof needs to be replaced, that wipes out approximately 2.5 years of cash flow. Then there are water heaters and AC units, etc.

As a result, living off of cash flow seems like a distant dream. While my rents will increase over time, property taxes are rising really fast in TX, so it's a wash.

Seems that I'll make money from appreciation and if cash flow once property is paid off. Depreciation is a benefit, but you have to pay it all back when you sell the property (unless I 1031). So basically is everyone's plan to pay off their houses and then live off of cash flow? Or is everyone buying houses as such a steep discount that they can live off of cash flow immediately? Or own such a huge portfolio that the little streams of cash flow become a torrent?

I feel like I'm missing something and would like to find out before I get disenchanted with SFR.

[Account Closed]

Philip,

Congrats on figuring this thing out. A lot of this game is all smoke and mirrors. The more I analyze, the more it doesn't make any sense to invest in non-appreciating markets because repairs, maintenance and cap-ex will catch up to you and your cash flow is all gone. Could this be the reason many properties in these markets get foreclosed multiple times during each downturn?

Forced appreciation and growth markets are where the money is. Forced appreciation allows you to recycle your capital to build wealth while growth = rent increase and equity increase. For every $500/month increase in NOI on forced appreciation, it's equivalent to $100k in equity in MY market. $50/month rent increase on a 10-unit bldg = $100k in gained equity. So it takes over 15 years of cash flow to get $100k in equity in non-appreciating markets.

Imagine you buy one 10-unit building and force appreciate $5k/month in NOI? How many of these deals do you need to do per year to make a comfortable living? Isn't this better than working a W2? Ironically, CA is a great place to invest long-term thanks to Prop 13. While our rent growth and appreciation have been averaging about 6% annually for the last 45 years, our property taxes go up at 2% annually. Buying assets below market value also keep our property taxes low for years and decades to come too.

If you look at all the posts from newbies on BP, they all want cash flow. Until they can change their mindset, they'll learn it the hard way. One has to build his wealth first, and the wealth will generate the cash flow for decades to come. Appreciation markets are what offer us this opportunity. Of course, this is only one man's opinion. Please take it with two grains of salt.