All Forum Posts by: Marcus Auerbach

Yes, it takes a while to stabilize an asset. And frankly we tend to over-improve a little bit, because I don't want to touch a house again in the next decade or two. For example, we replace marginal roofs, rip out all the old galvanized plumbing because it saves me a lot over the long run. Wouldn't do that for 3-7 years.

I understand what Joe is saying, but it's a little beside my point I want to make to new investors: short-term cash flow to replace W2 with little capital is not a viable strategy. 

If cash flow is what you are after, set up a coffee trailer, wash houses, sell digital assets, launch a Shopify store, set up ATMs, buy a title company, coin laundry, a party rental business a car body shop etc.. and then invest the cash flow in real estate!

@Joe Villeneuve - ah I see, basically you are optimizing for ROE - return on equity. Makes sense. You could also hold it and refinance to avoid selling and access the equity gains.

Totally agree with having both, that's IMO a balanced investment. But why would you sell a property that is performing well? Amongst other issues selling will cost you at least 6%. And then you have to find another one, 1031 etc. If the asset continues to perform well, why would you sell it, like.. ever?

And to clarify, you are leaning heavey towards cash flow? If your trigger point is to accumulate CF to match your original cash outlay (buy+rehab). If you have a unit that cashflows $200 per month, $2400 per year it takes 10-30 years to get there depending on how much you originally spent. Whereas, if appreciation just follows inflation (no real gain) you reach your equity goal within 10 years, at the moment more like 3-5 years.

In either case, it takes time. If a new investor wants to get started and use cash flow as a propellant to grow, it has to come from somewhere else and not from the first property they bought.

Hear me out.

Over the last years, more and more of the BP discussions circle around cash flow. As LTR was getting harder 2018-2020 STR became the new thing everyone started chasing. Until that started getting difficult. So now what?

The idea aspiring investors get mesmerized with is basically to start in real estate and somehow build a portfolio out of thin air. And gurus are happy to feed that dream. Basically, they suggest to buy a property with very little money, collect the cashflow, then refinance to pull money out of the property, buy more real estate for more cash flow and quit the W2 they hate.

The first flaw is that a lot of the books written before 2020 will tell you to analyze more deals until you find one that cashflows. The problem is that the market landscape has fundamentally shifted. Back then looking at more deals would eventually get you a "quality" deal, today it will get you a deal in the hood. And as you can read here on BP this is probably the number one recipe for financial failure. Best case, you learn a lot, survive financially and trade up. You certainly won't achieve any significant wealth in that asset class. The second flaw is the idea that you can refinance your way to wealth - that has always been very risky even with low interest rates.

It is called in-vesting for a reason. You are putting money in. Let me explain.

The goal of real estate investing is to allocate your capital in a low-risk investment that grows your net worth predictably over long periods of time - think at least decades if not longer! The superpower of real estate investing is equity growth: the asset appreciates, while inflation and loan payments erode the underlying debt until you own the asset free and clear and can leverage it again. When you run numbers in a BP calculator you can see quickly that equity gains DWARF cash flow. So, for anyone who wants to go into real estate primarily for cash flow, they have not yet understood the concept! 

Don't get me wrong:  cash flow is still an important factor, it keeps the lights on, it pays for repairs and upgrades. And eventually, it helps you buy more real estate (until when you start milking your portfolio to cover your living expenses).

If cash flow is what you want, buy a business. 

A business has an inverted financial profile: it is literally designed for cash flow. That's the main objective. And not just $200 per month per door (which has been the long-standing average, at least here in Milwaukee) Yes, you can also create equity with a business, if you are growing it to a size where it becomes a sellable asset, you replace yourself, hire a manager and a team of workers. But ask anyone who ever sold a business: it is not easy!! That's why many businesses just close instead of being sold.

Real estate investing provides a lot more creative angles than the stock market, but on a conceptual level, nobody would seriously attempt to replace their W2 income in a few years by investing a few thousand dollars in the stock market. In a way, STR is a hybrid because while real estate is part of it, you are really running a one-room hotel.

So if you are an aspiring real estate investor, the first question you should ask is where do I have a consistent source of free cash that I can use to invest? That can be excess income from your W2 job, or it can be a business you run on the side. Then you can take that cash and buy quality real estate, accumulate the cash flow and grow your portfolio-wide before you grow it deep - meaning paying off loans. 

The day you start siphoning cash flow out of your real estate portfolio, you are stifling future growth. So you will have to decide if your portfolio has grown enough to support your goals and dreams at that point. Otherwise, keep pushing!

OOS investing is hard. Anything you do remote will come at a cost of operational inefficiencies and a higher cost of doing business. I could tell you to invest in Milwaukee, you can still find cash flow positive duplexes here in good neighborhoods around 350k and we have had very consistent 8% appreciation over the last years. Look up Milwaukee real estate market on YouTube.  

However. My team works with a good amount of OOS investors and over the years a pattern has emerged. Financially it only makes sense to invest remote if you have a sufficiently large economic delta between the market you live/work and Milwaukee. For example, we have a lot of Chicago investors look into Milwaukee, but it never makes good financial sense, because the difference is not large enough. If you live in CA, NY, Boston etc - the financial difference is big enough.

Investing in your home town is always best, you have the home-field advantage and you can buy, rehab and manage a lot more efficiently. In your case, you are probably better off buying a break-even deal in Tampa then a deal with $200 cash flow OOS. Over time your Tampa investment will start to cash flow. Look at it as a piggy bank. 

I should probably add, that I do the same thing here: most of what I bought in the last 3 years does not much better than break even, but I am buying in the best possible neighborhoods that still work as a rental.

@Chelsea DiLuzio welcome to Milwaukee! House hacking is financially a no-brainer and no city in the US (including Chicago) has more duplexes than Milwaukee. The downside is that you have to share your home with a neighbor and since most of our duplexes are upper/lower configurations you will usually hear them a little - at least know when they are home. That said having the right tenant goes a long way. There are a few things to watch for: if you are a nurse and work night shifts and your tenant has kids that make some noise, it may not be a good situation. You can find a lot of information about Milwaukee real estate on YouTube including the most of the neighborhoods and also house hacking.

There are several good hard money lenders in Milwaukee, but I guess they will have the same question I do: what are you planning on building for just 213k? 

OOS is hard. Even for LTR. And even a good PM will not watch your money like you do. My advice is generally: seldom sell. 

But you should also invest in your backyard and use your home-field advantage. One side vacant is the best time to sell. My vote is sell it.

Yes!! 

BRR(hold)RR.

It has definitely changed. I have been BRRRR-ing in Milwaukee since 2009 and while it got progressively harder to find deals the game really changed after 2020. We went from buying light rehabs to buying major foundation and mold issues to make numbers work until even that did not work anymore.

Even before only every 5th deal or so would truly allow to recycle all cash and generate 25% equity. My last few BRRRRs I ended up with negative equity, even though after a full gut rehab, still worth it in a market full of old houses. 

The last 5 deals I bought were all basically move in ready, bought only at a slight discount after deals fell through. We did some paint, carpet and light fixtures - and let the market appreciation do the heavy lifting. 

The median home price in Milwaukee went up 8.2% in 2024 - and I had to do nothing but wait, compared to a 4 month major construction job.

So yeah: BRR(hold) and maybe refinace at some point if/when rates get lower

Hi Zoe, welcome good for you to start early, time is the most important ingredient with investing. It's really tough to start investing when you are 60 and realize in 30 years you'll be 90 (if you are lucky). 

Now to the bad news: it is REALLY hard to be a 20yo real estate agent and make a living wage, let alone generate cash for a down payment. It's not that you would not have the skills, but most clients want to work with someone who is at least their own age. So you are fighting an uphill battle. 

Look for downhill. One thing you should always look for in life and as an investor is to use your "unfair advantages". Things that you can do or have access to that not everyone does. Not my idea, this is from RichDad, but really good advice.

I would suggest to do that on the side and think about a W2 job. It can be in the real estate industry, property management, construction, lending etc.