All Forum Posts by: Chris John

Genuinely curious to those of you opposed to the Fed raising interest rates to fight inflation, what would you do instead?  Are you unconcerned about inflation or do you have a better answer.  Also, I'm new to the thread so I apologize if you've already answered this is the first 9 pages. 

The first page started pretty chippy, so I figured I'd skip ahead to see where we're at in the conversation now.

@Tenley Sage Houghton

I really apologize for never having had responded to this.  I sent you a private message if you're still on BP and have any questions.

Sorry again!

I'm a big appreciation guy, for sure.  However, I feel like people pooh-pooh cashflow way too much on this site nowadays.  Cashflow allows liquidity, plus a reinvestment opportunity that isn't as easy to find in a property that you are waiting to appreciate.

Appreciation in a house is great, but you have to refinance or sell to access it.  It quits growing exponentially and starts growing linearly if you don't.  Also, if you do refinance it and buy more and the new properties are also "appreciation plays", you now have to bankroll multiple properties each month with a negative cashflow to survive.  Granted, if you have diamond hands and can hold for decades, you'll make a fortune, it's just having to kick 8k each month to hold multiple properties that's the problem. 

Additionally, are you subtracting your monthly cash infusion from your ROR?  Are you calculating the opportunity cost of using present dollars to simply cover mortgages instead of investing it at 15-25% and calculating that growth too?

However, cashflow gives you the opportunity to reinvest again and again very easily.  It's liquid every single month.

If you bought property A for appreciation and property B for cashflow, it's totally unfair to compare property A to property B.  In theory, if invested correctly, property B should have allowed you to buy properties C - G, for example.

When you now compare property A to properties B-G, the results should be a lot closer.  Plus, you've had liquidity the entire time.  Also, you've been able to diversify your risk across properties and locales.

I'm not saying cashflow is better, I'm just saying there's definitely a place for it and I'm not sure it's always considered.

@Osazee Edebiri

Here's my argument against California (besides the obvious regulation and rent control).  If I were going to invest $1M, I wouldn't buy $1M worth of property.  I would leverage it and buy $4-$5M worth of property.

At that point, I wouldn't expect to be able to cashflow that in California currently, so I'd have to make up some of that $3-$4M worth of mortgage payment out of pocket (not happening.  I'm just a teacher!  haha.) 

However, I could buy properties in Jacksonville that would cashflow (and most likely appreciate too).

The problem with appreciation is that it doesn't help if you can't hold onto the property long enough to realize it.  Some of us need cashflow too...

@Shilpa Matlock

I'm just curious what kind of property this is.  Are these duplexes/triplexes/quadplexes?  If so, why are you paying for utilities and landscaping?

@John Dare

If I were in your position, I might just consider buying in markets where you could get appreciation and cashflow.  Then, with your cashflow, you could still mitigate (or completely cover) your rent payments (probably more so than you could if you bought something in Toronto). 

In the end, I wouldn't care as much about owning the property I lived in as long as I owned property somewhere and my net monthly cashflow was maximized.  Obviously, you might not feel the same.

Best wishes

@Robert Steele

Real estate is too much work for low returns, imo.  I'm just not seeing what some people are in terms of what's out there right now (obviously, off market deals are a different animal - I'm too lazy for those though).  I'm perfectly content to stick with stocks and mutual funds until things go back the other way.

@David Maldonado

Unfortunately, I don't know that answer to your question, but I'm EXTREMELY curious to hear the answer.  I hope you come back and update what you learn.

Thanks

@Tenley Sage Houghton

That's a great question and a great point.  It would definitely be a consideration that I'd want to run the numbers on if I were you (and it sounds like you are, so kudos).  Also, what type of borrowing you might be planning would be important too.  For instance, the last time I made a purchase, I had to put 25% down and got slightly worse rates because it was my 9th and 10th loans.  However, my buddy bought his first investment property (doubles as a vacation home) and he only had to put 10% down and got better rates.  Obviously, his perspective and my perspective on the same property would be totally different. 

In the end, if your are happy with the $400/mo cash flow as compared to what you are having to put down, then I'd go with it.  Everyone has their own metrics.  I don't really think about the 1% rule and instead I like to divide my expected yearly cash flow (once the property has been turned) by the total amount of cash I'll have to put in (down payment, rehab costs, etc.).  If my expected yearly cash flow is 15% or more of my outlay, I proceed.  I've found that it provides enough margin to pay for the stuff that eventually comes up and I don't have to come out of pocket for stuff.  As @Nathan Grabau points out, we've made our money in real estate in other ways besides the cash flow.  The cash flow just greases the wheels for us and usually gives us a little extra too. 

My metrics probably wouldn't be enough for real pros, but I was finding these things off of MLS and not putting a lot of effort into things, so it worked for me...