All Forum Posts by: Sam B.
Sam B. has started 7 posts and replied 240 times.
Post: Are Single-Family Rentals Still a Strong Play in Indianapolis?
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
Quote from @Josh C.:
@Drew Sygit
Read all these posts and responses. You and I are the only people writing our actually thoughts in this thread. Everyone else is ChatGPT. The question is ChatGPT and the answers are ChatGPT. I don’t understand it at all. Who is this benefiting?
See I knew I wasn't crazy.
Post: Anyone ever done a successful chicken farm for profit?
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
BiggerPockets getting desperate for ROI.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
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This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Something can be bad without previously being exceptional. Being bad does not imply that previous was exceptional or vice versa. This challenging market is a combination of high prices, high rates, and low rents (compared to the P&i on a high LTV purchase).
as stated, 2 recent studies referred to the cost of owner occupancy to be at an all time worst compared to renting. I suspect you can see how comparing high leverage ownership to renting can correlate to the cash flow on a high LTV purchase. Today is the exception (exceptionally bad - all time bad if we use the results of the 2 recent studies). It does not imply that the past was exceptionally good.
Rates are not high and rents have outpaced median incomes for a couple of decades. Not sure where you're getting your numbers or how you're doing your math. In any case a glance at inflation adjusted case shiller seems to me to indicate pretty clearly that recent housing appreciation is not normal. Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
That's exactly the output of our money printing inputs. We created a short from the 2008 disaster, printed a ton of money in 2020, and the short squeeze happened.
It doesn't need to be normal, it's just not going to totally revert still due to the underlying short in primo areas. @James Hamling hit it too. There's no law saying it needs to revert.
The game is now find where could next the squeeze happen. You go where the puck is going, not where it's been.
People saw housing got squeezed, finally got some cash in 2022 ran up the STR and low hanging fruit markets(Cleveland, Detroit, Indianapolis, Memphis, etc.) to get their "fix". Thinking this is linear growth, but in reality they bought after the rally. Primo will not revert for term, garbage will still be garbage, and the little diamonds in the rough are the catch. Real estate is still a sound investment, just same underlying thesis needs to apply with a new set of barriers to entry.
>That's exactly the output of our money printing inputs.
I'd find the devaluation theory a lot more convincing if people didn't randomly pick and choose which asset classes get the memo and which don't.
Also not once did I say it "had to revert" that was not even close to my point. Ironically you restated my point in your post here.
What does that even mean?
It's not a randomly picked asset class.
It's an asset class where there's a short that gets picked on when there's a debasement.
Yes housing gets the memo but other markets don't. Or maybe this is exactly what I was referring to in my previous post about pattern seeking.
I am simply replying to this point.
Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
Past that, I didn't read or look at your other posts besides not understanding why debasement squeezes asset shorts.
If we agree on the former point , and I'm restating things then cool. If we don't, then cool. The facts stay the same.
>not understanding why debasement squeezes asset shorts
tiresome
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
Quote from @V.G Jason:
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This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Something can be bad without previously being exceptional. Being bad does not imply that previous was exceptional or vice versa. This challenging market is a combination of high prices, high rates, and low rents (compared to the P&i on a high LTV purchase).
as stated, 2 recent studies referred to the cost of owner occupancy to be at an all time worst compared to renting. I suspect you can see how comparing high leverage ownership to renting can correlate to the cash flow on a high LTV purchase. Today is the exception (exceptionally bad - all time bad if we use the results of the 2 recent studies). It does not imply that the past was exceptionally good.
Rates are not high and rents have outpaced median incomes for a couple of decades. Not sure where you're getting your numbers or how you're doing your math. In any case a glance at inflation adjusted case shiller seems to me to indicate pretty clearly that recent housing appreciation is not normal. Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
That's exactly the output of our money printing inputs. We created a short from the 2008 disaster, printed a ton of money in 2020, and the short squeeze happened.
It doesn't need to be normal, it's just not going to totally revert still due to the underlying short in primo areas. @James Hamling hit it too. There's no law saying it needs to revert.
The game is now find where could next the squeeze happen. You go where the puck is going, not where it's been.
People saw housing got squeezed, finally got some cash in 2022 ran up the STR and low hanging fruit markets(Cleveland, Detroit, Indianapolis, Memphis, etc.) to get their "fix". Thinking this is linear growth, but in reality they bought after the rally. Primo will not revert for term, garbage will still be garbage, and the little diamonds in the rough are the catch. Real estate is still a sound investment, just same underlying thesis needs to apply with a new set of barriers to entry.
>That's exactly the output of our money printing inputs.
I'd find the devaluation theory a lot more convincing if people didn't randomly pick and choose which asset classes get the memo and which don't.
Also not once did I say it "had to revert" that was not even close to my point. Ironically you restated my point in your post here.
What does that even mean?
It's not a randomly picked asset class.
It's an asset class where there's a short that gets picked on when there's a debasement.
Yes housing gets the memo but other markets don't. Or maybe this is exactly what I was referring to in my previous post about pattern seeking.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
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This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Something can be bad without previously being exceptional. Being bad does not imply that previous was exceptional or vice versa. This challenging market is a combination of high prices, high rates, and low rents (compared to the P&i on a high LTV purchase).
as stated, 2 recent studies referred to the cost of owner occupancy to be at an all time worst compared to renting. I suspect you can see how comparing high leverage ownership to renting can correlate to the cash flow on a high LTV purchase. Today is the exception (exceptionally bad - all time bad if we use the results of the 2 recent studies). It does not imply that the past was exceptionally good.
Rates are not high and rents have outpaced median incomes for a couple of decades. Not sure where you're getting your numbers or how you're doing your math. In any case a glance at inflation adjusted case shiller seems to me to indicate pretty clearly that recent housing appreciation is not normal. Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
That's exactly the output of our money printing inputs. We created a short from the 2008 disaster, printed a ton of money in 2020, and the short squeeze happened.
It doesn't need to be normal, it's just not going to totally revert still due to the underlying short in primo areas. @James Hamling hit it too. There's no law saying it needs to revert.
The game is now find where could next the squeeze happen. You go where the puck is going, not where it's been.
People saw housing got squeezed, finally got some cash in 2022 ran up the STR and low hanging fruit markets(Cleveland, Detroit, Indianapolis, Memphis, etc.) to get their "fix". Thinking this is linear growth, but in reality they bought after the rally. Primo will not revert for term, garbage will still be garbage, and the little diamonds in the rough are the catch. Real estate is still a sound investment, just same underlying thesis needs to apply with a new set of barriers to entry.
>That's exactly the output of our money printing inputs.
I'd find the devaluation theory a lot more convincing if people didn't randomly pick and choose which asset classes get the memo and which don't.
Also not once did I say it "had to revert" that was not even close to my point. Ironically you restated my point in your post here.
What does that even mean?
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
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This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Something can be bad without previously being exceptional. Being bad does not imply that previous was exceptional or vice versa. This challenging market is a combination of high prices, high rates, and low rents (compared to the P&i on a high LTV purchase).
as stated, 2 recent studies referred to the cost of owner occupancy to be at an all time worst compared to renting. I suspect you can see how comparing high leverage ownership to renting can correlate to the cash flow on a high LTV purchase. Today is the exception (exceptionally bad - all time bad if we use the results of the 2 recent studies). It does not imply that the past was exceptionally good.
Rates are not high and rents have outpaced median incomes for a couple of decades. Not sure where you're getting your numbers or how you're doing your math. In any case a glance at inflation adjusted case shiller seems to me to indicate pretty clearly that recent housing appreciation is not normal. Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
That's exactly the output of our money printing inputs. We created a short from the 2008 disaster, printed a ton of money in 2020, and the short squeeze happened.
It doesn't need to be normal, it's just not going to totally revert still due to the underlying short in primo areas. @James Hamling hit it too. There's no law saying it needs to revert.
The game is now find where could next the squeeze happen. You go where the puck is going, not where it's been.
People saw housing got squeezed, finally got some cash in 2022 ran up the STR and low hanging fruit markets(Cleveland, Detroit, Indianapolis, Memphis, etc.) to get their "fix". Thinking this is linear growth, but in reality they bought after the rally. Primo will not revert for term, garbage will still be garbage, and the little diamonds in the rough are the catch. Real estate is still a sound investment, just same underlying thesis needs to apply with a new set of barriers to entry.
>That's exactly the output of our money printing inputs.
I'd find the devaluation theory a lot more convincing if people didn't randomly pick and choose which asset classes get the memo and which don't.
Also not once did I say it "had to revert" that was not even close to my point. Ironically you restated my point in your post here.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
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This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Something can be bad without previously being exceptional. Being bad does not imply that previous was exceptional or vice versa. This challenging market is a combination of high prices, high rates, and low rents (compared to the P&i on a high LTV purchase).
as stated, 2 recent studies referred to the cost of owner occupancy to be at an all time worst compared to renting. I suspect you can see how comparing high leverage ownership to renting can correlate to the cash flow on a high LTV purchase. Today is the exception (exceptionally bad - all time bad if we use the results of the 2 recent studies). It does not imply that the past was exceptionally good.
Rates are not high and rents have outpaced median incomes for a couple of decades. Not sure where you're getting your numbers or how you're doing your math. In any case a glance at inflation adjusted case shiller seems to me to indicate pretty clearly that recent housing appreciation is not normal. Home prices in the US have never outpaced inflation to this degree, ever, except in the runup to 2008.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
Quote from @Dan H.:
Quote from @Sam B.:
Quote from @Dan H.:
Quote from @Becca F.:
Quote from @Dan H.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.
We (family) have been doing RE long before 2000 and doing great. However, the cash flow on high leveraged has never been worse in my market. The early 1980s may have been less affordable with the crazy interest rates but the rent with respect to price was better.
San Diego residential RE has appreciated almost 6%/year since 2000 (source neighborhoodscout). Do you think that is noticeably higher than 1970 to 2000? I do not. In 1969 we purchase for $19.5k a home that we sold in 1977 for $54k. My appreciation calculator show that was a 13.5%/year rate of appreciation.
My view therefore is different than your view. In my market you can go back 60 years and invested in an average quality investment and have done good without a value add. I am not sure I would say that today. Today you need the value add, far below market purchase, alternative financing, or patience (I am not that patient) to have a good investment. Note there are options in that list
So my view is not that 2000 to 2022 was that special of a market, but today's is bad. One of my friends is one of the largest private residential holders in San Diego (almost totally under the radar). They already seemed large in the 1980s but it is all relative. He is mostly on pause right now. They did not pause through the GFC, but is pausing today. I am the same. Still look. Still place some offers (placed one 2 weeks ago $92.5k over original list and was told 4 offers were higher. I was hoping my reputation could swing it my way but it did not happen. I probably could have closed in a week if the seller got me everything I needed from HOA, HOA was my only contingency).
2 fairly recent studies showed in virtually every large city market it is cheaper to rent than to own with high leverage. Both these studies referred to the current state as all time worse. Note OO does not have vacancy, pm duties, and typically have lower maintenance/cap ex than rentals.
My view is today is the exception (exceptionally bad) and 2000 to 2022 was little different than much of 1970 to 2000. Not saying either period was monolithic, there were periods with high appreciation and periods that did not have high appreciation. The commonality was that you could find positive cash flowing RE in San Diego until recently.
Good luck
>Do you think that is noticeably higher than 1970 to 2000?
I don't know about San Diego specifically - and I don't think it matters because you can't build an investment philosophy on a cherry picked location and time frame - but it's not a matter of opinion that for the entire 20th century US real estate values as a whole roughly tracked inflation.
I don't understand your reasoning, it sounds like you are agreeing with me, you say today is the exception, but how do you get to an exceptionally bad market without taking exceptional steps to get there? Seems like a tautology.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
Quote from @Becca F.:
Quote from @Dan H.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
People operate in whatever mindset has worked in the preceding 5-10 year period because they have short memories and a desire to see patterns that don't actually exist. That sums up about 90% of these arguments by the way, hindsight bias being confused for insight.
This is why 15 years ago cash flow was king and now appreciation is king and when the pendulum swings back which it will at some unknown future time everyone will be on here putting together a new theory of everything and talking about how obvious it all was in retrospect no less confidently than they do today.
Post: Why markets with low appreciation grow your net worth twice as fast
- Investor
- Indianapolis, IN
- Posts 270
- Votes 215
Quote from @Dan H.:
Quote from @Becca F.:
Quote from @Dan H.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
Quote from @Mike D.:
Quote from @Becca F.:
This post generated over 100 comments...wow.. I agree with many of the comments about owning a higher quality asset in an appreciating market. I invest in the San Francisco Bay Area and Indianapolis metro area.
My appreciation and net worth from my California properties far surpasses my Indiana ones. For context my appreciating properties in CA and the Class A Indiana were acquired in 2013 or before. Class C Indy purchased in 2023.
I know a lot of multi-millionaires in the Bay Area who had middle class incomes (teacher, librarian, janitors, etc) who bought long ago (as in 2008 or going back to 1970s) with with just one or two rentals. This was when CA was more affordable and home prices weren't out of reach.
Example (not mine but someone I know):
- S.F. Bay Area home 3 bedroom, 2 bath 2100 sq ft (lower level living area brings it up to 2700 sq ft) purchased in 1960s for $68,000
- listed for sale in 2014 for $1.25 million, bidding war, sold for $1.71million.
- New owner renovates it, listed in in 2021 for $2.5million, bidding war sells for $3.078 million. Owner #2 made $1.368 million (minus commission and closing costs) in 7 years. That's a pretty good return to me.
I tried to read every single post but stopped on page 4. I didn't see anyone mention this but in California our property taxes go up a max of 2% a year (from Proposition 13 passed in 1978). Long time owners (primary home owners and investors) benefit from this but newer buyers pay high property taxes.
I had an Indy property management company do an analysis of my 3 homes. Class A could keep for appreciation, doubled in value but my property taxes go up significantly, 17% the last assessment (at this rate the property tax will surpass my California properties in a few years - not joking). For the Class C homes, he said I'm unlikely to get a good return unless I get a great tenant and they stay for a long time and the properties stabilize (repair calls reduce). The tenants will likely be lower income for a very long time. I sold one of the Class C and the other one is still rented. By the time the Class C appreciates enough I'll be over 100 years old.
If I was going to be cash flow negative from the start, I would have bought one higher quality asset instead of 2 Class C homes. To the OP, Mike D. meaning buying in Hamilton County suburbs (where my Class A) instead of east side of Indianapolis.
I think people who live in low cost markets do better investing there instead of investors who live 2000 miles away. I also think there are sub markets with lower cost markets and I recommended to CA investors to buy higher quality assets OOS not the cheapest house they can find.
If I were evaluating Class A vs Class C I would figure out the amount I need to put down to cashflow and then run an ROE calculation on both. Nothing wrong with Class A as long as you understand the difference in return and make a tradeoff you like. Its ROE will be much lower, but less volatile, less maintenance calls, less annoyance.
Yes, the outskirts of Indy such as Hamilton County give truly amazing ROE due to even better cashflow and lower property taxes than Indy and for some reason are neglected by investors.
Thanks for the feedback!
Mike, I didn't know you had property in CA. Do you mind sharing what counties your Indianapolis properties are in?
I did consider other cities and states but it would have taken months of research and I knew Indy best:
Tennessee: Nashville and suburbs Brentwood and Franklin (have visited before) - possibly, Memphis - no (was sent numbers by a turnkey company)
Detroit, St. Louis, parts of Ohio - no (optimistic numbers sent by turnkey company)
In the turnkey companies ads/sites they say "passive investing" LOL...if OOS investing is passive, I'm the Queen of England
I'm going to address the "grow your net worth twice as fast". Based on the Indy PM analysis, how would my net worth be growing by buying Class C properties on the east or west sides of Indy, if I'm -$300 to -$500 most months? Just as I thought it was stabilizing and received two months of full rent (minus PM fee), I get another repair notification the other day with a $385 repair. I really appreciate this Indy PM's honesty - he could have said, "hey just switch to my PM and I'll make it all better." It's possible I bought a lemon of a house but I'm not going to take anymore chances and buy 5 or 10 more of these types of properties.
I know this is a RE forum, but my net worth has grown more in the last 2 to 3 years from the S&P500 than this east side Indy home. I log into my retirement accounts and brokerage account and have more "cash flow" from these than 3 years of Indy rentals (the Class A and C combined). Yes I'm paying taxes on all this interest income and dividends but I have far less stress. I have a large amount of passive losses on these rentals which can only be unlocked by selling since I'm not a Real Estate Professional and can't offset my W2 income with these losses.
I'm going to try one more time with Nevada. If this doesn't work, I'll just add value to CA properties, raise rents and maybe keep the Class A Indy one and call it a day and invest in index funds, a few REITs, etc. The stress is probably taking years off my life and current happiness level.
Hmm, let's see. First off, I would never invest in class A if you're looking for cashflow, or at all. Class C small multifamily properties are the real meat and potatoes. I'm not here advertising for anybody to buy any real estate investment. It's hard to invest profitably at all right now with interest rates where they are. That said, I am currently in the process of growing my portfolio, so obviously I think it's worth it. These are my suggestions: a) pay the loan down until you can cashflow, b) audit your PM's maintenance expenses, consider dealing with other vendors, c) invest in small multifamily, d) be conscious of property taxes and consider investing outside the city of Indianapolis, where they are high.
I am currently getting around 15% returns on my stuff in Indy, including stuff that's paid down more than it needs to be, and it can be tightened up more to get closer to 20% while still cashflowing. If you are focused on cashflow, note that your total return will always be lower, and I myself accept this to have some cashflow. Total returns are always higher when you use enough leverage to barely cashflow. I wonder if you have calculated ALL your returns including principal paydown and appreciation.
Hope this helps.
I've talked to the PM and the Maintenance Coordinator multiple times and audited the financials. I feel that the repair requests are reasonable - again, if I were local, I'd go there and possibly do some of the repairs myself. I'm paying for a PM since there's no way I'm self managing Class C with this many issues and I'm paying for convenience. They're going to have trip charges built in the repairs invoices.
How are you getting 15% returns? Is this cash on cash or IRR? When did you buy these properties? Over the last 10 to 15 years or more recently?
On the Class A IndyI bought it in 2013 and did a cash out refinance during COVID (to help pay for renovations on my CA rental). On this cash out refi mortgage, my rental property calculator says I'm 1.35% cash on cash return at Year 4 (refi done in 2021), not including the cash I pulled out of it. On the IRR it's much higher over 45% so not sure if this number is correct. Another CA investor briefly calculated my return as about cash on cash return as 8%, if I use my original purchase price. I have about 45% equity on this home with the cash out refi loan now.
On the Class C I'm not paying down an extra $1 towards the mortage on this sinking ship. I'm not trying to be flippant but I could set up a stand at a Farmer's Market and bake cookies and sell them and cash flow more than this house. For cash flow I'm looking at starting a business, which is a lot of work with a W2 job.
With Nevada, my intention is to leave an appreciating asset to my kids and if they want to move into the home later or continue renting it out or leave CA and move into as my primary when I retire - lots of moving parts so my plan may not work after I look in Vegas. If I cash flow or break even I'd be ok, I'm increasing my net worth property wise but liquid cash wise, no.
Are you self managing your Indy rentals? How are you getting 15% to possibly 20% returns? If you pay cash and don't use leverage, you're locking up more of your money. Someone please explain this to me - my brain hurts from thinking about this.
He discusses an allocation of about $200/month sustaining maintenance/cap ex and I believe he self manages based on his role with the maintenance. 15% would not be good considering PM alone in his market would be charging at least 10% all inclusive (placing tenant, tenant renewals, inspections, managing maintenance, dealing with tenants including collecting payments and dealing with late and delinquent payments, etc.)
I also believe he maybe including the appreciation. I hope it is not including the appreciation for his sake.
I suspect you know this, but IRR is superior to COC on measuring the overall quality of an investment.
Have you calculated IRR on your CA property? I have one property that I have not done the calcs in real long time but the worse I have done calcs on is in the 70% to 80% per year. This is using to date actuals since purchase plus projections to the various exit times. this is better than my sustains projections which makes sense as I allocate pm in my projection but is not in my LTR actuals because we self manage the LTRs and because a lot of the large cap ex items have ever been replaced.
S&P has lifetime near 10% return. Investing in RE as owner (not including as LP, REIT, etc) should produce returns far greater than this because it requires significant more effort even with the use of a pm. If you are self managing, the value of the effort should be subtracted off the return because your time is precious and deserves to be compensated. I would highly recommend self managing property if the projected return is not significantly above 25%/year (6% to 12% is PM value, near 10% is S&P historical).
Inexperienced RE investors under estimate expenses, the value of the effssciated with self managing, and the effort involved with being the asset manager even with the use of a pm. They think 20% self managed is a good return; it is not.
best wishes
Based on the comments from the OP, it seems like he's including appreciation in his 15% return. Are you using 25%/year with IRR as the return, meaning it's better to self manage if it's lower than 25%?
I have 2 CA properties (one SFH, one multi-unit). I haven't done an IRR calc on them but the financials from the PM on multi-unit, my return is really good. I self manage the SFH.
I find the calculations with S&P500 and rentals to be challenging because it's not an apples to apples comparison. I don't get tax write offs on my index funds or stocks. It could very well be that my return on the Indy Class A is more than than 8% - it's doubled in value and I pulled out a cash out refi during COVID.
For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest. If it was going to double or triple in value in 5 years, might be worth it but when I ran the rental property calculator out 20 years using 3% appreciation and 3% rent increase, using $3000 for annual maintenance (took -$300/month and multiplied by 10 months), could be more. My beginning IRR is negative then slowly increases to 0.7% at Year 10, 2.5% at Year 20. it's worse than I thought.
I just talked to an Indy agent and investor who confirmed that it's better to buy a higher quality asset. I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
if you are self managing and not achieving/projecting more than 25%/year IRR, why are you investing in RE? the reward does not justify the effort and risk. For me because I am spoiled from the RE market prior to 2022, I have hard time wanting IRR less than 50% and ideally much higher.
LTR pm fees vary by market. Typically he higher the rent point the lower the pm fee as a percentage of rent. But if we use an exclusive pm cost of 10% meaning including everything (tenant placement, lease renewal, tenant turn over, tenant interface (rent collection, late payments, delinquent payments, evictions, tenant drama, etc), handling maintenance, unit inspections, etc) and use an S&P lifetime of 10%, it means you are risking a lot of money and time to be an asset manager for 5% of additional return above S&P lifetime.
is it worth it for a projected 5% extra return? Not to me, but maybe to someone just starting their journey.
>For Class C which I would never buy anywhere even in CA, being -$300 to -$500 is terrible for Midwest.
I own some class c (maybe c-) in San Diego. 1) if I were doing it again I would try to have gone a little higher class 2) the c class tenants in San Diego pay their rent and typically take pretty good care of the units because of the housing shortage and difficulties getting decent unit at a fair price without a strong LL reference.
higher class means even better tenants. After a few years of holding the cash flow gap between the class c property and class b property is inconsequential compared to the other sources of return. This knowledge came with experience. So I have some class c units.
>I've been on BP since 2022 but I had heard cash flow was pushed from 2008 to 2018ish. Look like some people are still operating in that mindset.
I have been on BP almost exactly 10 years with a profile (this month is my 10 year anniversary). I was a lurker for a while, but not long (maybe 2 months). My view about appreciation being so much more critical in the wealth building was very much in the minority back then. I did not have as much RE assets then as now (I was not yet to 8 digits), but if we only pulled the users that were at 8 digits or on their way to 8 digits in RE, the appreciation would have been king even back then. The tide has definitely shifted. Back then investing for appreciation was called in many posts not investing. I posted multiple times definitions of investing. People viewed it as gambling. Some/many viewed cash flow as certain. It was also around the time I first saw the case shiller rankings on residential return since 2000. It was interesting not because the top of the list was all appreciation markets, but because those markets also ranked highest in the cash flow. There were now stats. Circa 2018 BP put out its ranking since I believe 2010 residential return. The calculations had a big flaw for CA in that the prop tax did not take into account prop 13, but it showed the appreciation markets had high appreciation but it showed the cash flow in just 8 years went from bad to ok (my market was near the middle in cash flow in just 8 years). I viewed the BP data at confirmation of the case shiller data as the appreciation markets were climbing on the cash flow and given more time would continue to rise. Now there were 2 sources that basically showed the same thing (except 8 years was not long enough to fully replicate the case shiller data). Case Shiller very recognized source as their case shiller index some still look at as the gold standard for appreciation (it emphasizes same property sales) .
Today most BP users recognize the wealth building of the appreciation. They realize gains from appreciation are tax deferred even if extracted via a refi or ELOC. The gains from cash flow get taxed annually. Prior to the rate increase, I actively worked at keeping my leverage high. It was mostly to leverage the money on other investments to maximize the return. However, it had the side benefit of minimizing cash flow which minimizes my taxes. I claim my cash flow is modest, especially after accounting for depreciation. Seeing I am not thrilled at the prospect of doubling my rate, I have been less active in maximizing my leverage and my cash flow is slowly increasing. The lower leverage impacts my return, but so would a higher interest rate.
This thread demonstrates how much the BP user community has moved from cash flow is king to appreciation is where the real wealth is created.
Good luck
Post 2000 real estate appreciation is a historical anomaly. We got lucky and there's really not much more to it than that.