Quote from @Luka Jozic:
Quote from @Min Zhang:
Hi Luka ! Totally hear you—went through the same early on. Even with full rehabs, older homes in C areas can bleed cash with repairs and tough tenants. Switching PMs helped me a lot too—vendor pricing and screening make a huge difference.
You're not alone in this. Curious if you're thinking of shifting strategy or just exploring new markets?
My goal was always cashflow, and what I've realized is that since like 2020, real estate is a terrible vehicle for cashflow and if you look at the avg rent vs avg home price trends, you can see its only getting worse. The only markets left with any type of cashflow are markets like Cleveland, that for the most part have old home with lots of issues, and a very unstable tenant base. With the minimal cashflow available, capex, repairs of old homes, and tenant issues and how expensive turnovers are in areas like Cleveland, I think the odds of actually having a successful rental these days are extremely low UNLESS you have been doing this for years and have access to amazing deals that others dont, with systems in place.
Additionally, to reach any meaningful income you'd need 30-50 units. Even with a PM, thats a lot of work. If Im gonna deal with all that headache, I might as well buy a blue collar business. With SBA leverage goes further, and a business cashflows 10-20x more than a rental does. For $100K you can buy 3-4 properties in Cleveland and cashflow maybe $5-10K a year best case. For the same money, you can buy an $800K business and cashflow $200K a year. Its a no brainer for me.
Unless you are buying a company and putting a GM in place, it isn't directly comparable to real estate with a PM. And I am a big proponent of buying small businesses.
Buying lower end rentals is definitely a weak short-medium term cashflow play, and not even a great play long term, when compared with other asset categories. And generalizing this market based on your experience is a bit of a stretch. Your plan didn't quite work, I get that. "Passive" real estate investing strategies are more for storing wealth, not generating it.
Lots of investors locally have better access to deals than out of towners. And many don't invest in the City at all, and if so, in very limited areas.
The data on ETA business purchases show IRRs of low 30's over time, but that is far from a passive play backed by an asset. Your property value shouldn't go to zero, a business purchase absolutely can.
If you bought that 800K business that cashflowed 200K a year, with your 100K down, the SBA debt would take half of that 200K (standard rule of thumb). So you would be left with 100K to pay the GM (to make it semi passive), leaving no return on your investment or cash to fuel growth.
I agree with your thoughts on buying a business, and I am part of a local group here that supports those efforts, but it is hard to directly compare it to your real estate endeavors. Check bizbuysell, axial, etc, and connect with local brokers, and see if you find something compelling. Good luck.
Cheers.
