Mike, I think we'll just have to disagree on this point, as I see positive cash flow on retail properties with 20% or less down all day long. Any investor that has looked for them has found them and can still find them if they look in the right markets (Biloxi, Baton Rouge, Raleigh, Charlotte, etc.) Those that are reading this thread already know this. I say you can do it, you say you can't, and the readers will just have to decide for themselves.
Now that's some faulty thinking from someone who should know better. That was the big claim in Las Vegas over the past few years.
No that is NOT what was going on in Vegas and Phoenix and South Florida. People were NOT buying with equity in the property, they were buying based on past appreciation and hoping that the appreciation would continue. You even say this later in that paragraph.
Again, please use valid debate processes, not false ones. You only weaken your point by twisting things so obviously. I want a good debate here, not a weak argument. There are good things to debate on the side of cash flow, so use them!
And this is the exact reason for this thread, to open the minds of investors to understand that which you do not. You need to gain the proper perspective to understand whether you are "losing money" or scoring big to begin with. To obtain that perspective, you need to start from the very beginning of the investment.
MikeOH buys a $200,000 property for $200,000, provides a $40,000 20% down payment to make $200 a month. SeanBrown buys a $200,000 property for $160,000, only provides $5,000 to get into the deal, and has a negative cash flow of -$200 a month. Assuming a similar appreciation and annual repairs, SeanBrown is coming out of pocket $2,400 a year while MikeOH is making $1,200 a year.
From the beginning MikeOH is out $40,000 and has to wait 33 years to get that $40k back. MikeOH "lost" or was "in the hole" by $40k from the very beginning, while SeanBrown was "in the hole" by $5k.
Let's say they both sold their properties in 5 years, and neither of them appreciated and they had the same expenses (just to make the math easier). MikeOH made $1,200x5=$6,000 and got his $40,000 back. SeanBrown lost $2,400x5=$12,000, lost his $5,000 in buying the property, and gained $40,000 in equity when he bought the property, so he made $40,000-$12,000-$5,000=$23,000.
To summarize:
MikeOH invested $40,000 for 5 years and made $6,000.
SeanBrown invested $5,000 for 5 years, invested $200 a month over those five years (for a total of $12,000) and made $23,000.
Which sounds like the better investment opportunity?
Obviously, both MikeOH and SeanBrown would not intentionally buy in markets that didn't appreciate over the 5 years, and they would probably expect to have some kind of increase in rent over those years. (And they would also know there are other expenses like occasional repairs, property management, and vacancies.) But to compare the investment to investment opportunity, you need to equal out the variables to see where the return is going to come from.
Again, I'm not trying to convince any investor to fill their portfolio with properties that are negatively cash flowing. I'm just trying to raise awareness that just because something doesn't cash flow positively doesn't make it a bad investment opportunity. So many people are beating the positive cash flow drum that a lot of readers are forgetting there are other factors in each of the deals. I think it's just as wrong to fill your portfolio with properties that are only positively cash flowing and don't have any equity in them as it it so fill it with only rapdily appreciating properties or with only properties that have some equity in them.
Sean
