All Forum Posts by: Nathan Yarnell

ALL RENTAL PROPERTIES HAVE TAX BENEFITS. When you find that deal that cashflows it will have the same tax benefits as the weaker deals she is presenting. Tax benefits are a reason to buy investment property in general, not a reason to buy the two negative cashflow deals presented to you. 

Unless you're running very conservative expenses or putting very little or no money down (0% VA Loan for example) you should not buy deals that don't cashflow. The one exception I'd make is the VA loan and certain FHA loans - you put so little cash into the deal that expecting it to cashflow on day one in the 2021 market may not be achievable.

If she pivots and the next deal she sends is better I'd keep working with her though. Sometimes agents send properties without thoroughly analyzing them (we're busy too!) but that should be more of an exception than a rule.  If she continues to send you bad deals and push you to buy them start shopping for a new agent.

@Nathan Yarnell

Negative cash flow is great if you need to loose money to make the books work in your favor.

I like making money, and taxes are not totally out of line for me right now.

When I get more properties this may change.

@Nathan Yarnell

Ask her to send you something that has a better ROI and see what she comes up with. Next, figure out what CAP rate you require and look for properties that fit the bid. Just know that the higher rates of return usually mean that a property is either not in great condition or not in a great area.

@Nathan Yarnell negative cash flow is not neccesarily a problem but it limits your scalabilty. There is a point where you cant afford to buy negative cash flowing properties. Also it prevents from saving up money for capex and future investments.

The tax benefits get limited if income is too high and are meaningless if your income is too low so you have to be in the sweetspot. Then it is only a deferral not a true reduction, so don't factor it in. Consider it a bonus if it materializes.

Negative cash flow is ok in high appreciation markets if you can afford it, even when vacant (high income or deep reserves). I recommend against it for those starting out. A small mistake or random event takes a negative $175 and become negative $400, better to be positive $175 and then end up negative $50.

When you have many positive cashflow properties you can have a negative few as long as in total of all the properties is positive.

Hope this helps.

Find a broker/agent that is already a multi-millionaire and owns real estate to work with. Now if you are just starting out will be harder because that type of broker is in demand and established in their field whether for residential, commercial, etc. They likely are picky who they take on for new clients. Ones buying smaller properties or starting out will ask lots of questions for a smaller return.

So the question becomes to try and find the best broker/agent you can for the deal level and stage of your investing career you are at.

Just remember if only buying on potential and that potential never materializes then can be a big waste of time.

Another benefit to a wealthy broker/agent is they like doing transactions to help clients and for the ART of the deal. They do not need to live off of transactions so can tell you point blank this a POS you shouldn't buy it. On the commercial side I love telling clients what I think. I own my company and do not have to work. I can give them my unfiltered opinion and thoughts because I do not live transaction to transaction. Brokers and agents that have to stack deals to live off of the income it provides are caught in a vicious circle with no end in sight. They can often struggle with giving their true opinion versus making a sale to feed their family and keep the lights on one more week.     

I think alot of people are wanting killer deals that are turn key and on the MLS. which is very hard to find and if you do you will need to act quickly. As I help first time investors I say do not worry much about cash flow as the first deal may be a little worse cash flow wise but it gets you in the game. That being said I would never recommend buying something negative cash flow. The two things I would suggest is shop around to see if you could improve your loan terms in your calculations and find a price it does cash flow and tell your agent you would be interested at that price.

@Nathan Yarnell,

Either your agent is not an investor or the deal may makes sense for her ... not necessarily for you.

Remember: for deductions to make sense, you must have the income to offset using deductions. Perhaps you can carry deductible losses forward to a point (ask your financial professional - I'm not one, and this is not financial advice).

That said, if you can work the numbers so you know what price point you must have to break even or be slightly positive, you can then consider ways to either force appreciation or reduce expenses, or both. That price point gives you a negotiating target to work toward with the seller.

My $0.02 ...

If the cash don't flow, the money don't go.  

A different perspective than all about cf if you're in an expensive market or are in more of the capital preservation stage is to buy for equity capture. 

With enough equity going in and a clear strategy (not buy and hope), I'll take a non-cashflowing asset all day.

$175/mo is really close.  Is there a PM in there?  Most of my op expenses run about 36% self-managed, 50% with a PM.