All Forum Posts by: Andrew McGuire

 Agree, cashflow is great and is something every investor wants but most of my cashflow has been created by appreciation and refinancing then buying more properties that are heavy cashflow. If that makes sense...

Cashflow has been a tough find in the Phoenix market for a while now. The crazy amount of appreciation combined with interest rates rising that seem to be steadily rising since the summer of 2022 making it very difficult to find any residential deals that make sense from a cashflow perspective. Yet almost daily I speak with an investor or client that is looking to find the elusive cashflow deal. I commonly get asked what is the best way to find a cashflow deal? Should I get set up with wholesalers, should I look Pre Foreclosure route?

This chase for the hard to find cashflow inevitably turns in to what management strategy to utilize that would turn buying a bad deal to a cashflow positive deal. Okay this is probably a harsh and unfair comparison, but when I join calls of a large investing group that I am part of founded locally in Phoenix it reminds me of a problem I had with a property I own in E Mesa. I own and manage this property as 3 separate Airbnb units. They are sharing walls but are individual units. I got a call no Landlord is excited to take, that there were roaches and more than one that the guest found throughout their stay. We vacated the unit and begin treatment which seemed to be working great at first. This is until I got a call from the adjoining unit a few days later saying that they now had several unwanted guest that I assume that had made their way over following the treatment of unit 1. This went on for another few weeks with the unwanted guest going from unit to unit. The pest treatment supervisor then told me that we were going to have to vacate all three of the units for at least a couple of weeks to thoroughly all parts of the triplex at the same time. See German roaches go from one home until it is uninhabitable then will go through the ducts and other paths to anywhere they can find a new home.

This is what it feels like for myself and what I see with other large investment groups. Airbnb is over saturated, let's try Furnished Finder. Furnish Finder makes great returns and then everyone else gets in, let's try the Roomster app and on and on. A never ending game of finding the latest rental strategy that will make my bad deal cashflow. It sounds like I am bashing but I am speaking about myself as well, I've tried everything with some great successes and some a waste of time and effort.

I am in no way advocating not to get into investing or saying that there are no cashflow deals to be found anywhere. What I believe investors especially new to Real Estate should focus on is to go back to old school tactics and strategies. Many of the investors I know that have been in the game a while believe in buying properties that cashflow or at least break even as a traditional rental. This means putting a much larger amount down and having a safe reserve. I know this is not exciting and leverage is one of the key components of wealth building through Real Estate but I do not believe now is the time to be heavy leveraged. These properties will reward you greatly in the future while not stressing you out today and saving you from having to find the next crazy rental platform to hit the market.

Cashflow has been a tough find in the Phoenix market for a while now. The crazy amount of appreciation combined with interest rates rising that seem to be steadily rising since the summer of 2022 making it very difficult to find any residential deals that make sense from a cashflow perspective. Yet almost daily I speak with an investor or client that is looking to find the elusive cashflow deal. I commonly get asked what is the best way to find a cashflow deal? Should I get set up with wholesalers, should I look Pre Foreclosure route?

This chase for the hard to find cashflow inevitably turns in to what management strategy to utilize that would turn buying a bad deal to a cashflow positive deal. Okay this is probably a harsh and unfair comparison, but when I join calls of a large investing group that I am part of founded locally in Phoenix it reminds me of a problem I had with a property I own in E Mesa. I own and manage this property as 3 separate Airbnb units. They are sharing walls but are individual units. I got a call no Landlord is excited to take, that there were roaches and more than one that the guest found throughout their stay. We vacated the unit and begin treatment which seemed to be working great at first. This is until I got a call from the adjoining unit a few days later saying that they now had several unwanted guest that I assume that had made their way over following the treatment of unit 1. This went on for another few weeks with the unwanted guest going from unit to unit. The pest treatment supervisor then told me that we were going to have to vacate all three of the units for at least a couple of weeks to thoroughly all parts of the triplex at the same time. See German roaches go from one home until it is uninhabitable then will go through the ducts and other paths to anywhere they can find a new home.

This is what it feels like for myself and what I see with other large investment groups. Airbnb is over saturated, let's try Furnished Finder. Furnish Finder makes great returns and then everyone else gets in, let's try the Roomster app and on and on. A never ending game of finding the latest rental strategy that will make my bad deal cashflow. It sounds like I am bashing but I am speaking about myself as well, I've tried everything with some great successes and some a waste of time and effort.

I am in no way advocating not to get into investing or saying that there are no cashflow deals to be found anywhere. What I believe investors especially new to Real Estate should focus on is to go back to old school tactics and strategies. Many of the investors I know that have been in the game a while believe in buying properties that cashflow or at least break even as a traditional rental. This means putting a much larger amount down and having a safe reserve. I know this is not exciting and leverage is one of the key components of wealth building through Real Estate but I do not believe now is the time to be heavy leveraged. These properties will reward you greatly in the future while not stressing you out today and saving you from having to find the next crazy rental platform to hit the market.

@JT Thomson - I like using some of the local housing and jobs fakebook pages. Also I'm putting one in MLS as a Lease option with option fee, some risk with that as they could pull the trigger on the option but I've heard statistically 90% are never executed. Oxford House and Padsplit are other options for potentially doing room by room to push up rents, Oxford House is Sober Living but they don't like HOA.

I agree that leverage is one of the things that makes Real Estate a powerful wealth generator and is a good thing. I was using as an example as a low risk easy way to attain financial freedom, if of course you were okay not going big and living on that income that the 5 homes would provide. I personally have a goal of putting 10 paid off homes into a bullet proof structure that will always be there should I shoot for the moon and leverage larger multifamily properties and it doesn't work out, will have that to fall back on worry free. 

You hit it right on, it would be much easier to own 5-10 properties that out earn 40 in the cheaper markets and you will likely gain many times more appreciation on those 5-10. 

I agree with that, the idea of only one roof, water heater, electric box etc. sounds better to me as well. 

@James Walworth Well said. First one that said this to me in a much shorter and direct way was ben leybovich. I asked him what is one thing you wish you knew about Real Estate when you first started out? He told me you don't get into Real Estate for cashflow, you get in it to build massive wealth and that is done through appreciation. 

I know this title might be confusing but this is what I tell new investors or friends when I meet with them. 

Cashflow Should Not be the only thing you Consider when Buying Rental Properties. Like many I started my Real Estate Investing Journey obsessed with the idea of Cashflow and gaining my own Financial Freedom. I mean in theory it makes perfect sense, If I could create more cashflow than my monthly expenses. Than theoretically I would be financially free. I wouldn't have to work another day in my life doing things that I didn’t want to do.

I think a lot of other new investors come to that conclusion as well. If I could get X amount of rental properties bringing me this amount of cashflow monthly, I'll be financially free. While I think cashflow has its purpose, it’s the way we get to the heavy cashflow and financial freedom that I have a different perspective on.

I see this with a lot of friends, beginner real estate investors and others on platforms like Bigger Pockets. As I did my first couple of years, a lot of these investors want to invest in markets that are really cheap to get into but have high cashflow

I know friends who bought homes in states like Ohio for 50K, and it rents for $800/month. This easily achieves the 1% rule which means its rents are 1% of the total purchase price.

And theoretically this would be a great deal. The problem with these cheap rentals are that when you really start to look at the true cashflow. After all the headaches, maintenance and management issues it doesn’t end up being much. And then when you go to sell the property after you realize that you end up selling it for about the same as what you paid for it. That's why I don't invest in these markets…..for now.

A couple of reasons I don't like investing in cheap markets. #1) a lot of times when the rents are lower your property has a lot more issue and headaches with the tenants, they are generally more challenging to manage.

Another reason I don't like them is that one repair can completely wipe out your cashflow for the year. If your rents are 1000/month only call it 20% of that is kept from cashflow that amounts to $2400 for the entire year. One repair like a furnace or electric panel will eat up all of that cashflow. Let's cross our fingers and hope that we don't have any issues with larger ticket items like the roof or sewer.

I also don't mind putting nice things into a home when it raises the value of the property but in a lot of these cheaper markets that's the thing it doesn’t increase the value. The biggest reason why I don't like cheap markets is because of the appreciation. That's the trade off markets that have a high cashflow right out of the gate typically don't appreciate. If I buy a house for 80K today chances are its going to be about the same price in 10 years if I go to sell it or refinance.

So these are some of the reasons I don't like cashflow markets. Now let's talk about what I do like……the high appreciation markets. If you buy properties in these markets, like Phoenix. These markets give you the best chance to build your net worth. Let's look at what happened from 2019 to 2023 in the Phoenix market.

If you purchased a home for 300K in 2019 chances are that home almost double in value in the 4 your period up to 2023, that same home is probably worth about 550K today increasing your net worth 250K.

That's just one house. What if you owned 5 properties. If each of these properties went up by 250K in value your net worth would have increased $1.25M. Not bad and for most of us that would easily surpass our income over that same period. Now I know its not realistic that home prices double again over such a short period of time but if you look at how much money our government is printing and how bad inflation has been over the last couple of years. Real Estate is a hedge against inflation and inflation is directly responsible for home prices going up so drastically.

Do I think home prices will double again over the next 10 years in these high appreciation markets?

I personally do believe they will.

Now let's take a look at your average home here in the Phoenix market and how you really get a huge monthly cashflow that can not only greatly increase your net worth but also give you the monthly cashflow you need to retire comfortably.

If you purchase a home for $550K it will typically rent for $2700 a month which doesn't get you even close to the 1% rule and is likely not going to cashflow. However I would still rather buy this property than the cheap property in the midwest that makes me 200-300/cashflow a month. In 15 years from now the 550K property in Phoenix could potentially be valued at over $1M. Your going to make some great cashflow once its paid off and it is still renting for $4K/month. Now what's that 80K property in the Midwest worth, I don't know but I'm guessing best case $100K to $120K.

My philosophy is this, while you are working and making a good income and you don't need the cashflow, you don't need to be financially free right away. I would rather increase my net worth and balance and then take the cashflow later on. It’s not like you will not have cashflow forever, it will cashflow in time. I'm not suggesting that you buy properties that are losing money monthly. What I am suggesting is find properties in high appreciation markets, rent them aggressive strategies such as Airbnb or Room by Room. To where your mortgage and utilities are covered by the rents. Then let the market do the work to greatly increase your net worth.

If you want do get financially free buy more homes than you need. If you think it will take 5 paid off homes to make you financially free. Do your best to acquire 10 of these homes. Let the market do the work. Once they’ve increased in value, sell half of them off and payoff the remaining mortgage on the 5 properties you keep

In conclusion I don't think you should not only be thinking about cashflow. You should also be thinking about increasing your net worth and balance sheet. We just talked about appreciation, but there is also so many other benefits to owning more expensive real estate. Depreciation being one of them. I do want to say this video was in relation to single family homes. When you are looking at larger multifamily properties. I do think it makes sense to go to these cheaper and higher cashflow markets because of scale and the ability to force appreciation when improving the properties cashflow.