Positive Cash flow

[Shaheen Ahmed]

I picked Las Vegas because it’s close to me and California is out of reach. I see lots of properties on the market but almost none of them makes the .5% let alone 1% rules, so why would any investor buy them? In most cases I have to pay out of pocket every month because rents are not high enough or the property is too expensive. What am I doing wrong? 

[Bill B.]

You’re trying to invest for cash flow in a world where you’d make mor “cash flow” putting your money in the bank.

You have to appreciate the many over reasons people invest in real estate or you need to invest in something else. 

As I’m sure you know, Las Vegas is SUPER cheap compared to most of California, Miami, or NYC. And yet 1000’s, 10’s of thousands, maybe millions of people invest in those areas. The argument you make against Las Vegas is a joke compared to those markets, and yet people invest there. Why? 

Because real estate investing is not for people who NEED cash flow. Can you imagine the “cash flow investors” who needed that cash flow when COVID hit? They were told appreciation was speculation when it turned out cash flow was speculation. That won’t happen again you say? E government won’t use its ne found power to invalidate contracts to reward a bigger group of voters at the expense of a smaller group? I’d say that’s pretty naive. 

But it won’t take that kind of event for someone who needs cash flow to fail. If you have $150/mo cashflow and your $2,400/mo property is vacant 2 weeks during a turnover you’re down to $50/mo. Better hope paint,carpet,advertising, commissions, and utilities don’t cost $600 or you blew your cash flow, it’s zero. Or it takes a third week for your new tenant to move in, now your negative $200 if all the previous expenses were paid by the landlord fairy. (Do you really want an applicant who can and wants to move in tomorrow?

God forbid the ac dies 5 years or there goes 5 years of cashflow. 

On the other hand, if you “just” break even for 30 years on your previous primary home with 5% down. It will probably quadruple in value at less than 5% annual appreciation. So that’s a 8000% tax free return. Hopefully you did that 4-5 times in your lifetime and you’re sitting on many many millions in tax free equity you can pull out at anytime. Oh yeah, you can leave it tax free to your heirs, like an unlimited 401k. Oh look, you get to deduct your cell phone, your internet, your tax prep, all kinds of other things regular people don’t. 

If you truly don’t believe the property will appreciate and that rents will increase faster than expenses you should NEVER buy that property. Your cashflow will increase yoy if it does. It will go away if it doesn’t. 

In 10 or 20 years you can be told you “got lucky” because you invested back when houses were cheap. Because obviously there was no skill or courage involved, and houses will definately be cheaper in 20 years. 

Sorry the rent went on and on. But as I once heard a young entrepreneur say. “This is Las Vegas. If you can’t make it here. You can’t make it anywhere…”