Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
Pick markets, find deals, analyze and manage properties. Try BiggerPockets PRO.
x
All Forum Categories
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

All Forum Posts by: Christopher Morris

Christopher Morris has started 25 posts and replied 72 times.

I second what Vaughn said. Union city might not be the best option in the area but the prices are somewhat reasonable for the area. I house hack in Bayonne and am very pleased with the returns. I'd look into Bayonne / Bloomfield / South Amboy if I were you! 

@Jason Wray thank you for this! That makes sense with the higher rates. I'll look for alternative methods and consider a cash out refi (when that makes sense). 

Hello BP! 

I am trying to plan the future for myself and would like to "diversify" by investing in a smaller market that has decent appreciation and decent cash flow (Northampton County PA).

 I currently own one duplex in an expensive market in NJ but this PA market has multi family listings for 200-500k which is what has piqued my interest. I plan on buying one more in NJ before I take the lower priced PA option, but I am anticipating liquidity being tighter at that point. 

If my cash flow from the first two properties could help pay a HELOC down short term (pay off would hopefully be 1-2 years), does it make sense to use a HELOC as a down payment?

It's my understanding HELOCs should only be used when they can be paid off quickly. 

BP let me know your thoughts! 

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $645,000
Cash invested: $60,000

Two Unit property with lots of living space
3000 sqft
One parking spot
Brand new kitchen added
W/D in both units
Good for Long term / Mid Term / Short Term

What made you interested in investing in this type of deal?

Good appreciation play. The city is working on getting a a ferry to NYC which should increase rent / appreciation.

How did you find this deal and how did you negotiate it?

Through my real estate agent. Sellers weren't on the same page which made closing tough.

How did you finance this deal?

Using FHA owner occupied.

How did you add value to the deal?

Added kitchen
Painted the whole place
Added walls
Added doors to have the units flow better

What was the outcome?

Forced appreciation / better rental value

Lessons learned? Challenges?

Vetting tenants on my own to avoid paying broker fees is the way to go

Quote from @James Hamling:

@Christopher Morris I get the sense that your falling into the all-too common fallacy of absolutes. 

Let's re-frame this to help better understand. 

Real Estate Investing is for the vast majority of time not classical "investing", it's a business. And with much more in commonality with starting and running say a restaurant. 

With running this "business" there will be operational input costs. Things wear out over time, require updating, upgrading, replacement etc.. If let it get outdated and go into disrepair, well, that will dictate the clientele we can attract right. 

Does that operational aspect have to devour all cash-flow, no not necessarily but it could, all depending on situation specifics right. 

And over time, as those assets to make our product we sell had a fixed price, the dollar does not sit fixed, our cost of product increases meaning increased cash-flow. Or the market get's better, the product we sell get's more scarce etc etc.. 

Now if your thinking location jumps out as a big factor to all this, you hit the nail on the head, location location LOCATION. 

This is why very often "buying for cash-flow" has less than desirable outcomes. Because the often dynamics of those locations. It's often C-class or worse areas meaning not a place anyone really wants to be and more people get stuck having to be, that's not a recipe for appreciation. 

Thanks for this example, James! Staying with that example, I understand the operational costs and all that fun stuff. What I am trying to better understand is at what pointy that restaurant owner able to either delegate or reposition so he / she doesn’t have to the restaurant every day. 

do they need to obtain more restaurants or keep offering more to their current customers? These are all things I am trying to plan for. 

I like what you said about searching for cash flow. I can see how that can bite you in the back overtime. 
Quote from @Ken M.:
Quote from @Christopher Morris:

Listening to all of the podcasts and reading the BP books / Rich Dad Poor Dad types makes it seem like building a portfolio and scaling smart could lead to early retirement and living on cash flow that ultimately replaces your income. 

But, talking to real life investors at RE meetups seems to come with a different answer. Many investors told me cash flow is a myth that all of it just goes right back into the property for repairs, vacancies, etc. 

I’m sure it’s a combination of both - but what should we believe as newer investors? Many investors seem to flip houses or have another form of income coming in (not a W2). I’ve been much more interested in flipping but I’m curious if that’s the common way to retire with RE on top of long-term holds with cash flow. 

Thoughts?

I believe you have to be creative in real estate to live off cash flow and by that, you do what others aren't doing. For instance, using bank financing to buy in expensive places like California, Washington, New York or Illinois are really tough to cash flow. People that buy in those places say they make up the negative cash flow in appreciation. Maybe. But you still have to eat today.

Buying in  Ohio, Indiana, Missouri, and Michigan might be cheap and you can make a little cash flow but, the trouble with vacancies, trashed properties and evictions off sets a lot of that.

What I have found, is that by buying decent properties in decent areas, before they even get listed and taking over the current financing at 3% or 4% provides cash flow in almost any situation. It's just that you have to have some money to do these, they are not zero down. So to make money, you need money. I started off by doing flips, built my "bank" and real estate knowledge and started looking for "off market" properties, which has turned out quite nicely. Yes, it can be done and it can be done correctly. Not like the hype on Youtube which will eventually get you into trouble.

Thanks for this! I do want to get into flipping at some point. I have a good team (contractor, agent, mortgage) and think I can figure it out. But time will tell!
Quote from @Marcus Auerbach:
Quote from @Christopher Morris:
Quote from @Marcus Auerbach:

What RichDad does not tell you is that it takes a driven personality to build a portfolio and if you have that type of personality you will not enjoy a retired state. It does however give you a degree of independence to choose what you want to do.

As your portfolio grows you'll also feel the weight of future capex responsibility more, which ironically points you to growing more cash flow through more real estate.

The other issue is that you are chasing a moving goalpost. The number you feel would be enough to retire on will keep moving. But that will be your decision and at least you have options. It may take you 10 years to get there, real estate is slow, but it works reliably and it's not rocket science.

Agreed Marcus. I’m about to be 29 and I’m hoping this really takes effect in my life in my 40’s. I’m aware it’s never about quick cash or retiring in the matter of years. 

im just trying to figure out the ways to retire earlier than 60 and not working for someone else making them wealthier at my expense. 

Good advice! 

You've got time on your side at age 29, so you can definitely retire earlier. But there are so many milestones in between, the first one is when you realize REI works and you are now actually a real estate investor. Another one is when you start to feel a little weight off your shoulders because you don't depend entirely on your boss. And then your REI income matches your W2 income the first time etc

To your question: equity is the name of the game. Cash flow is basically a function of equity. The more equity you have, the more cash flow. Equity first comes in the form of down-payment, but you can also force it into existence with rehab or wait for it with appreciation.

This is why it is so important that you re-invest your cash flow into more equity. It's like full dividend re-invest on an index fund. It grows so much faster and that early growth compounds over time, so having a little more invested early on is worth more than a ton invested later.

There is a metric called cash on equity return. It is typically lower than cash-on-cash and you can put it somewhere around 6% conservatively. So for every million dollar in equity you'll get about $60,000 in net cash flow.

Play around with a BP calculator, plug in a million worth of RE with 20% down and see what happens over time. Change some of the variables, it will give you an intuitive feel for where you need to focus next given the opportunities at hand.

Finally, the ultimate combination is having a business AND invest in real estate. Flipping is a production business. But it could also be a coffee shop or an etsy store and the cash flow goes into real estate. Even part-time is fine. Any type of business income will supercharge your investing.

I was lucky that I started in Milwaukee in 2008, but I was always trying to sail downwind", so whatever the market provided. When foreclosures dried up, we went after short sales and when those dried up we started to focus on properties with mold or foundation issues and learned how to fix those and when that started to become too difficult and the rehab was not worth it anymore I had to pivot again and we buy properties in good shape that fell through with another buyer. Today I would probably figure out to make money online with AI, that's an opportunity that did not exist in this form.

Thanks for this Marcus! I have one two family under my belt and I am ready for more. 

I’ll keep reinvesting as many of the greats do. 
Quote from @Bill B.:

Hey Christopher, congratulations on making it through that mess. 

I have a dozen properties. They generate about $300k in rent, I get to keep about $250k of that in cashflow. But, ON AVERAGE those properties appreciate about $325-$400k per year. No, I do not extract that income to live on because I don’t even need the $250k to live a pretty extravagant (To me a boring Midwest guy who never made more than $60k/yr while working. Plus with no state income tax, cheap insurance, and very low property taxes, I’m probably starting $20k ahead of most people, and that’s a tax free $20k.). Then think about writing off your cellphone, your internet, you car, your home office, your tax prep, etc etc etc.  And there’s another $20k tax free head start I have over the “worker bee”. 

It’s like I have a bunch of clones out earning money for me. (Others would be more boring and say it’s just my money earning money. But it’s also saving me taxes. :-))

But yes, I could take a $200k or $300k tax free loan every year on the appreciation if I couldn’t manage to make ends meet at $20k/mo. But to me that would be a spending problem, not an income problem. 

Imagine something as simple as deciding tomorrow to spend 3-6 months in Australia because it’s too cold here, or I haven’t been, or a friend dared me. Most people couldn’t afford to do that. Either they don’t have the money, or more likely they don’t have the freedom. They’re a slave to their job. If they stop going the income stops. More importantly to me. Most of the people who could would just do it, leaving their home empty.  I would rent out my primary and end up making more than I spend living in Australia. And it wouldn’t even be ONLY profit motivated. To me, having my home sit empty is wasteful. It’s the reason the lake front “retirement” home I bought on Lake Minnetonka in MN has had a tenant in it for the last 10 years. The idea of it sitting empty caused me emotional damage. 

I think a lot of it is mindset, or personality or whatever it is that controls how you act in certain situations. My classic example is:

The richest man in the world works harder and longer hours AFTER becoming rich than almost anyone else is willing to work to become rich. It has to be a personality trait. People talk about being a rush to retire early on $1-5-$10 million. Here’s a guy with 400,000 billion working his butt off. And the world’s a better place for it. Don’t be wasteful and try to make the world the better place while generating income and it won’t even seem like work. 

And I’ve rambled on again. Hopefully you found a nugget in there somewhere. And congratulations if you made it to the end again. 

Ps. Can you believe how much time and information Tax, 1031 exchange, accounting, and financial experts give away here? Many of them have already “made it” and do it just to make the world a little better. So I try to thank them every time for providing information I would have to pay for, if I knew who to ask and who to trust. They are a more local and relatable example. 

Thank you Bill - I did make it through the message FYI lol. 

that’s good advice. I guess you are one of the cases that actually live off cash flow which gives me hope. I’m still young and plan on continuing to put all my money in real estate for the next 10-15 years. I’m not super risky so I am perfectly fine with average, but consistent returns. I always have been a fan of doing the little things right. 

Hopefully that can get me in the same position as you! 
Quote from @Bill B.:

I tried to skim most of the replies so I wouldn’t repeat what’s already been said but here’s my response to OP about real estate and retirement. 

Treat it like a retirement plan, in fact I replaced my retirement contributions with real estate. This means…

Don’t count on it to cashflow, your 401k or your ROTH doesn’t cash flow, they never have. And yet every retirement expert tells you to sink every dollar you can afford in to these accounts. 

From 2015-2020 everyone on BP was cash flow, cashflow, cashflow. Cashflow is guaranteed, Appreciation is gambling, blah blah blah. Then in 2020 it turned out cashflow wasn’t guaranteed, the government could burn your cashflow to the ground and you could lose everything. To me this was always a false narrative. All my rentals were in Vegas during the Great Recession. You tell me a market that was hit harder than Vegas? Well.  I never made more money than that time period. Rents were skyrocketing, 10-20% annually. I had waiting lists of tenants for the first and only time in my career. 

Personally I don’t think you are ready or that you should buy real estate if you NEED the cashflow. Especially if it’s less than $1,000/months per property. It’s just too easy for it to go away. In fact I went out of my way to get 15 year mortgages because I knew that even if I had zero or even negative cashflow I was literally making more money as my interest expense was lower. I care about income waaaay more than cashflow. I sank every dollar my rentals provided back in to paying off debt and acquiring more properties. (You know, zero cashflow, just like a retirement account.)Even today with only paid off properties generating a boatload of cashflow I generally make more every year on appreciation. 

Sure, it took almost 10 years to retire, but compared to the 30-40 year plan most people use it was a dream come true. And none of that counts the 10’s of thousands in tax advantages I reap without any advanced skills or planning, the government just hands them out. 

It’s not a binary on/off choice. Not convinced? Buy a new primary every 2-5-10 years, whatever you can afford. Keep it as a rental and I GUARANTEE your life will be better in 20-30 years than if you ignore me and the simple get slow plan. After all, if your 5% down properties only double in 20 years you’ll have 40x your money. And that extra $40-$50k a year will be life changing. Every single new investor wants to say it was easier “back then” or “it’s too hard/impossible today” so they don’t have to start today. When I was buying 1/2 price homes not ONE person I talked to said it was smart. EVERY single one said “aren’t you afraid they’ll keep dropping?”  Now they tell me I was lucky I bought back then. I was buying homes for $100k with $25k of my money, and the mortgage was paid off by the tenants. Did they really think 3 year old Vegas homes would drop below $25k? Now they’re hoping they’ll drop below $525k. 

You’re surrounded by a support group I never had, and that’s a positive. But I also didn’t have all the negative Nancys (sorry Nancys of the world) saying it was too risky too late or couldn’t be done. Maybe that’s why it was easier doing it alone. I literally didn’t know a person that owned 2 homes, much less a rental. I just did the math and it was obviously better than stock account retirement. And experts said that was a good idea. So if this was better it couldn’t be a bad idea. Get started and look back on today in 5-10 years with all your new knowledge. Keep asking questions. And Good luck. Sorry again to rant but I never plan my response beyond the first paragraph and I’m sure it shows. 

Thanks for this Bill. Some great insight here. 

When you say “I generally make more every year on appreciation.” Are you putting these profits back into RE or somehow extracting this income to live off. Is this via cash out refi / heloc or some other method? I’ve heard this statement before and am never sure what it means exactly. 

Quote from @Marcus Auerbach:

What RichDad does not tell you is that it takes a driven personality to build a portfolio and if you have that type of personality you will not enjoy a retired state. It does however give you a degree of independence to choose what you want to do.

As your portfolio grows you'll also feel the weight of future capex responsibility more, which ironically points you to growing more cash flow through more real estate.

The other issue is that you are chasing a moving goalpost. The number you feel would be enough to retire on will keep moving. But that will be your decision and at least you have options. It may take you 10 years to get there, real estate is slow, but it works reliably and it's not rocket science.

Agreed Marcus. I’m about to be 29 and I’m hoping this really takes effect in my life in my 40’s. I’m aware it’s never about quick cash or retiring in the matter of years. 

im just trying to figure out the ways to retire earlier than 60 and not working for someone else making them wealthier at my expense. 

Good advice!