If you're breaking even income:expenses (inc mortgage), then you'd effectly be at $0 cashflow, not positive but not negative, however you can use -$100 or -$200 cashflow. However, your property should average 1-3% appreciation, maybe even more. And, you're going to be paying your mortgage down, which would of course vary depending on your rate. Also, don't forget the tax benefits that come with real estate and even mortgages. But, with a $500k property, $0 cashflow, you could still be building wealth. 1-3% appreciation would be $5000-15000 annually, not including say $3-4k a year principal paydown, the very first year, and with an 8% rate. I know this comment isn't laid out too well, and might be hard to read, and I'm sorry for that.
Challenge accepted. Here’s the caveat. An equity play works when it’s a small portion of an investors portfolio. It doesn’t work for a new investor who isn’t making 6 figures but still wants financial freedom in less than 10 years. You guys nailed it at the beginning ing when you talked about out “where you are in your investing”
This is very dangerous for a new investor or an investor with few properties and an average income. Equity/appreciation doesn't pay the monthly bills. No alligator. I am on Dion's team. Can't wait for the debate.
These two far-flung examples are from people who have ample cash, extensive real estate investing knowledge, and have been in real estate for years. These examples don’t seem appropriate for a typical investor. Also, an aspect of investing that is ignored is “opportunity cost.” Mr. Daninard mentioned the Seattle deal where he didn’t tell us what year he purchased the property (I’m sure it was eons ago). Where did you get the initial money to make this investment? There’s always an opportunity cost, meaning that money could be put in an asset that is returning positive cash flow and ROI as opposed to putting money into something negative. What would make this topic instructive is to actually buy a property on Zillow, perform the actual analysis on how you would make this investment with the initial down payment, then provide the details in an episode. Thank you.
Something like this was probably the first big lesson I learned in real estate. I had purchased a home at the top of the market in 2005 and sold it at the bottom of the market in 2012, mostly because I had an adjustable rate mortgage. To keep the property, I would’ve had to come out of pocket around $600 a month. But, I had a renter in and the long-term outlook in San Diego. California was great. I decided that the monthly out-of-pocket cash was too much for me to bear. But, looking back, if I would’ve kept this property, I would have had overall a $450,000 equity gain for, a very very low out-of-pocket cost. I lived and I learned, and I will never do it again.
My first adj rate was 11th district cost of funds from 1987 - 2003. Then we refied into a 6mth LIBOR starting around 1.85% with a margin of 1.5. It went as high as 6.875% and down to 1.65% when we refied in 2021 into a 30 yr loan at 2.5%. Here is the real crazy part ... I purchase our home for $64,500 n 1978. I've pulled a ton of money out over the yr's. at our last refi it was $420,000 @ 2.5% fixed/ Pulling out $215,000. That money with some we added now earns approx $930/mth in CD's. Our payment is approx $1657 PI. So we are paying approx $700/mth on our Oakland home. But wait. The CD money is growing at a rate that in 5 yr's it will have grown enough to pay off the loan as our balance is dropping like a rock. In just two yr's we are paying more to principal than interest! I'm an OG at 76. Our girls can pay it off if they want. 2.5% is like FREE money!
Love you guys, love the show, but I think one dangerous message comes across, especially from the Lady's experience: INTEREST RATES WILL GO LOW. I don't think this is something anyone should bank on in this environment, especially because if we go back in history and see why interest rates were dropped to begin with is to respond to big crisis and economic recessions. Be careful for what you wish for, because maybe before the interest rates go back to 1% you may get a margin call on your line(s) of credit because of a global crash.
so loosing 800 instead of gaining 1500 cashflow? thats an overall loss of 2300 /month right? so more like 27600/year over two years is 55K loss. waiting for the equity to go up (plus the money /cost that will be spent to build that equity, if the house needs work to build it up / renovate etc)... and you just pray that rates go down and prices go up? sort of. i see the logic but sounds a bit too risky. i think cashflow is very important piece , a dollar today is worth more than a dollar tomorrow, important rule for me. prob not a good strategy for a new investor, but for experienced ppl who def know what they are doing.
So is it me or is this guy speculating? You can’t predict the market ahead. What if the market takes down turn and the math he had in his head of gaining equity doesn’t equate to that. Now he has negative cash and the equity is not there. Also did he explain how he plans on doing force appreciation?
We bought 2 properties during covid, 20% down each and with a theoretical cash flow of $350 each so OK, we went with variable mortgage with something like 3.5%, why not, we had just paid off our own house within 7 years and interest went up and down a bit. This time it was different, we are beyond 6.5% interest now and a year ago we owed about 2/3 of each house to the bank and our payment didn't cover the interest anymore. So what do you do, throw some money in there, raise your monthly payments and now, one year later we owe about 1/2 of each house and will own both within the next 3 years. We will never renew these mortgages, (we are in Canada). New debt later, yes, for tax reasons.
i currently have a investment property with negative cash flow of 500+ per week. As im on a single income and have to pay this plus my own living costs/rental with raising interest rates and crashing house prices i have decided to let the property go.
we bought 3 condos and did 10 year fixed on 2 and a 15 on another, no cash flow, even a bit negative, however they have doubled in value. They will be paid off soon and then the cash flow will be amazing. I did tons of research and bought in a great neighborhood with high tenant occupancy. Rents have also increased a lot.Buying these allows us to retire early. The condos we bought were highly sought after so we know we can sell easily ( they rarely go on the market market, we watched for them and bought on same day as listed and even had bidding wars. Loved the point you made is it is investment. The return we will get on our initial investment which was just the down payment. You definitely need some cash on the sidelines! Still a very very great investment if you can do it. Must be great property too.
question here. Why not execute a cash out refinance or HELOC? I'm wondering . I've done this with my portfolio with house hacking with VA and FHA a total of 4 times and done BRRRR's, seller financing. Bought 1st, 4plex September 2017 I've held on to everything and just completed cash out refinances and reinvested the proceeds back into more properties. haven't sold anything yet. have 10 apartment buildings with 45 units. Cash flow $17k per month after, all expenses and debt payments. Properties are worth approximately 10 million with 7 million debt And 3 million net worth in Phx metro Arizona. Makes me wonder if I should set aside funds for a property where I can force the equity sell it and do a 1031 into another property to repeat the same thing to grow a larger equity position
Good question. I'm wondering the same thing. I've done this with my portfolio with house hacking with VA and FHA a total of 4 times and done BRRRR's, seller financing. I've held on to everything and just completed cash out refinances and reinvested the proceeds back into more properties. haven't sold anything yet. have 10 apartment buildings with 45 units. Cash flow $17k per month after, all expenses and debt payments. Properties are worth approximately 10 million with 7 million debt And 3 million net worth in Phx metro Arizona. Makes me wonder if I should set aside funds for a property where I can force the equity sell it and do a 1031 into another property to repeat the same thing to grow a larger equity position
Owning Bay Area property in Oakland, CA when I started was NOT, NEVER about cashflow. It was always about HUGE appreciation. Neg. cashflow was great for tax deductions. I never had a positive income from any rental. Yet I PULLED out a hellva a lot of cash!!! And deducted it on taxes. There is no greater place in America for owning property than the Bay Area IMO.
Great info... seems a bit over my head. I only have my 1st rental property (low value $120K w only 10K owing on it) which is cashflowing positive (600/mos) but it is zoned to add another house so I was thinking to add a solar powered "Boxabl" home ($50K cost) house & charge extra $1000/mos rent. So much to learn. Really appreciate B P podcasts & will definitely buy the "Pillars of Wealth" book
In the first example - If he’s buying it to reposition and sell that’s not buying a property for negative cash flow. If so then every rehab would be “buying for negative cash flow “ because you lose money during the rehab or reposition . Not that it’s a silly deal but it’s a silly example to put with the headline of buy for negative cash flow .
The only way it would make sense for me is if you have other properties that are cashflowing a lot therefore picking up some of the slack. But for a first rental property it's a horrible idea. 1 missed rent payment or eviction could put you in foreclosure if you have no emergency saving which I also believe is a must.
I own 137 units. I will debate you any day. This strategy is awful and puts people at risk. So we can keep it respectable, but you have a losing argument. Math and logic are on my side. I've been vetted by BP too.
@@LumberjackLandlord A path to bankruptcy. See you in Feb in Vegas. If it works so well, dont buy one, buy 10. You will get all that success that much faster!
This is next level, really love this. Keep them coming! We need more HCOL expensive market content, equity play. Many may not understand yet but those of us who do see the huge value. Eventually more will also. please and thank you!!
If the ultimate goal of the first deal is to flip for a profit after 2 years then I consider the negative $800/month as basically "carrying costs" not "negative cash flow". It's essentially no different than when you need to pay utilities, debt service and other items while you're rehabbing a property before you can rent it out.
I totally get what James is saying, and it makes sense - only if you can afford to cover the 800 a month. It is also a speculative play. You'd need to find properties that you can force equity by value add.
Hi Rob, what happens if you 1031 exchange into a property of lower value. Can you use the gains that you made from selling the property, and use that for a bigger down payment if you are planning on 1031 exchanging into a lower value property? is there a penalty or no?
Doesn't cash flow drive your potential equity gains higher. Also what percentage of the country will have a more challenging market because of companies reducing jobs to drive profitability.
Based on this video, I am going to look at the following scenario Someone dollar cost averages $600 per month into S&P, or contributes to a retirement plan. Expecting a long term 10% return on capital before fees . Another one buys a negative cash flow property where the expected monthly offset is $600. But someone is “helping” with the cost of acquiring the real property acquisition by paying rent. I am curious about how this would turn out and will run the experiment.
I have a holding company based in Delaware. I'm opening another llc to put my property in, which is located in New Jersey were should I base that llc out of New Jersey or Delaware?
Spent 1.2 million on a duplex in hopes he can get 1.6 while losing money every month? What is this clownery? Send it all to zero. I can get apartment complexes in California that people will actual rent
These new shorter episodes SUCK…they’re way too short and they put out so damn many episodes it’s seriously diluted the podcast. They’ve clearly chosen quantity over quality. It’s honestly like they don’t give a rip anymore, it’s all about the clicks. The podcast was great 3-4 years ago, but they’ve forgotten who they are.
Real estate is the only investment where people freak out if they don’t have cash flow, do you invest in stocks and expect cash back every month? (Don’t mention dividends it’s not quiet the same😂)
If you're breaking even income:expenses (inc mortgage), then you'd effectly be at $0 cashflow, not positive but not negative, however you can use -$100 or -$200 cashflow. However, your property should average 1-3% appreciation, maybe even more. And, you're going to be paying your mortgage down, which would of course vary depending on your rate. Also, don't forget the tax benefits that come with real estate and even mortgages. But, with a $500k property, $0 cashflow, you could still be building wealth. 1-3% appreciation would be $5000-15000 annually, not including say $3-4k a year principal paydown, the very first year, and with an 8% rate. I know this comment isn't laid out too well, and might be hard to read, and I'm sorry for that.
Challenge accepted.
Here’s the caveat.
An equity play works when it’s a small portion of an investors portfolio.
It doesn’t work for a new investor who isn’t making 6 figures but still wants financial freedom in less than 10 years.
You guys nailed it at the beginning ing when you talked about out “where you are in your investing”
What are your goals, what are your reserves, and what is your strategy. Newbies should NOT do this.
This is very dangerous for a new investor or an investor with few properties and an average income. Equity/appreciation doesn't pay the monthly bills. No alligator.
I am on Dion's team.
Can't wait for the debate.
These two far-flung examples are from people who have ample cash, extensive real estate investing knowledge, and have been in real estate for years. These examples don’t seem appropriate for a typical investor. Also, an aspect of investing that is ignored is “opportunity cost.” Mr. Daninard mentioned the Seattle deal where he didn’t tell us what year he purchased the property (I’m sure it was eons ago). Where did you get the initial money to make this investment? There’s always an opportunity cost, meaning that money could be put in an asset that is returning positive cash flow and ROI as opposed to putting money into something negative. What would make this topic instructive is to actually buy a property on Zillow, perform the actual analysis on how you would make this investment with the initial down payment, then provide the details in an episode. Thank you.
Something like this was probably the first big lesson I learned in real estate. I had purchased a home at the top of the market in 2005 and sold it at the bottom of the market in 2012, mostly because I had an adjustable rate mortgage. To keep the property, I would’ve had to come out of pocket around $600 a month. But, I had a renter in and the long-term outlook in San Diego. California was great. I decided that the monthly out-of-pocket cash was too much for me to bear. But, looking back, if I would’ve kept this property, I would have had overall a $450,000 equity gain for, a very very low out-of-pocket cost. I lived and I learned, and I will never do it again.
My first adj rate was 11th district cost of funds from 1987 - 2003. Then we refied into a 6mth LIBOR starting around 1.85% with a margin of 1.5. It went as high as 6.875% and down to 1.65% when we refied in 2021 into a 30 yr loan at 2.5%. Here is the real crazy part ... I purchase our home for $64,500 n 1978. I've pulled a ton of money out over the yr's. at our last refi it was $420,000 @ 2.5% fixed/ Pulling out $215,000. That money with some we added now earns approx $930/mth in CD's. Our payment is approx $1657 PI. So we are paying approx $700/mth on our Oakland home. But wait. The CD money is growing at a rate that in 5 yr's it will have grown enough to pay off the loan as our balance is dropping like a rock. In just two yr's we are paying more to principal than interest! I'm an OG at 76. Our girls can pay it off if they want. 2.5% is like FREE money!
Love you guys, love the show, but I think one dangerous message comes across, especially from the Lady's experience: INTEREST RATES WILL GO LOW. I don't think this is something anyone should bank on in this environment, especially because if we go back in history and see why interest rates were dropped to begin with is to respond to big crisis and economic recessions. Be careful for what you wish for, because maybe before the interest rates go back to 1% you may get a margin call on your line(s) of credit because of a global crash.
so loosing 800 instead of gaining 1500 cashflow? thats an overall loss of 2300 /month right? so more like 27600/year over two years is 55K loss. waiting for the equity to go up (plus the money /cost that will be spent to build that equity, if the house needs work to build it up / renovate etc)... and you just pray that rates go down and prices go up? sort of. i see the logic but sounds a bit too risky. i think cashflow is very important piece , a dollar today is worth more than a dollar tomorrow, important rule for me. prob not a good strategy for a new investor, but for experienced ppl who def know what they are doing.
So is it me or is this guy speculating? You can’t predict the market ahead. What if the market takes down turn and the math he had in his head of gaining equity doesn’t equate to that. Now he has negative cash and the equity is not there. Also did he explain how he plans on doing force appreciation?
Exactly! He's an amateur
Yea he had to make a lot of wild assumptions to make his strategy work. 120% return in two years is crazy. That worked in 2021 but not this year
He’s the real deal and WAY more experienced than the average investor, but hell yeah, this is speculation.
Have Zuber on for a discussion.
😂😂
We bought 2 properties during covid, 20% down each and with a theoretical cash flow of $350 each so OK, we went with variable mortgage with something like 3.5%, why not, we had just paid off our own house within 7 years and interest went up and down a bit. This time it was different, we are beyond 6.5% interest now and a year ago we owed about 2/3 of each house to the bank and our payment didn't cover the interest anymore. So what do you do, throw some money in there, raise your monthly payments and now, one year later we owe about 1/2 of each house and will own both within the next 3 years. We will never renew these mortgages, (we are in Canada). New debt later, yes, for tax reasons.
i currently have a investment property with negative cash flow of 500+ per week. As im on a single income and have to pay this plus my own living costs/rental with raising interest rates and crashing house prices i have decided to let the property go.
we bought 3 condos and did 10 year fixed on 2 and a 15 on another, no cash flow, even a bit negative, however they have doubled in value. They will be paid off soon and then the cash flow will be amazing. I did tons of research and bought in a great neighborhood with high tenant occupancy. Rents have also increased a lot.Buying these allows us to retire early. The condos we bought were highly sought after so we know we can sell easily ( they rarely go on the market market, we watched for them and bought on same day as listed and even had bidding wars. Loved the point you made is it is investment. The return we will get on our initial investment which was just the down payment. You definitely need some cash on the sidelines! Still a very very great investment if you can do it. Must be great property too.
Thank you for sharing...very valuable info.
question here. Why not execute a cash out refinance or HELOC?
I'm wondering . I've done this with my portfolio with house hacking with VA and FHA a total of 4 times and done BRRRR's, seller financing. Bought 1st, 4plex September 2017
I've held on to everything and just completed cash out refinances and reinvested the proceeds back into more properties. haven't sold anything yet. have 10 apartment buildings with 45 units. Cash flow $17k per month after, all expenses and debt payments. Properties are worth approximately 10 million with 7 million debt And 3 million net worth in Phx metro Arizona.
Makes me wonder if I should set aside funds for a property where I can force the equity sell it and do a 1031 into another property to repeat the same thing to grow a larger equity position
Interested to see replies to this
Why would James not just get a HELOC on his 250k equity and keep the cash flowing build? And buy the equity play?
Because he's a fake total amateur.
Good question. I'm wondering the same thing. I've done this with my portfolio with house hacking with VA and FHA a total of 4 times and done BRRRR's, seller financing.
I've held on to everything and just completed cash out refinances and reinvested the proceeds back into more properties. haven't sold anything yet. have 10 apartment buildings with 45 units. Cash flow $17k per month after, all expenses and debt payments. Properties are worth approximately 10 million with 7 million debt And 3 million net worth in Phx metro Arizona.
Makes me wonder if I should set aside funds for a property where I can force the equity sell it and do a 1031 into another property to repeat the same thing to grow a larger equity position
Owning Bay Area property in Oakland, CA when I started was NOT, NEVER about cashflow. It was always about HUGE appreciation. Neg. cashflow was great for tax deductions. I never had a positive income from any rental. Yet I PULLED out a hellva a lot of cash!!! And deducted it on taxes. There is no greater place in America for owning property than the Bay Area IMO.
Great info... seems a bit over my head. I only have my 1st rental property (low value $120K w only 10K owing on it) which is cashflowing positive (600/mos) but it is zoned to add another house so I was thinking to add a solar powered "Boxabl" home ($50K cost) house & charge extra $1000/mos rent. So much to learn. Really appreciate B P podcasts & will definitely buy the "Pillars of Wealth" book
In the first example - If he’s buying it to reposition and sell that’s not buying a property for negative cash flow. If so then every rehab would be “buying for negative cash flow “ because you lose money during the rehab or reposition .
Not that it’s a silly deal but it’s a silly example to put with the headline of buy for negative cash flow .
The only way it would make sense for me is if you have other properties that are cashflowing a lot therefore picking up some of the slack. But for a first rental property it's a horrible idea. 1 missed rent payment or eviction could put you in foreclosure if you have no emergency saving which I also believe is a must.
Thoughts on all cash purchases? (Single family homes)
Great contrast between the two deals. Thank you to her for sharing how it can all go wrong. Everybody only wants to talk about the wins. Great video.
If anybody learned anything from this video it should be NEVER BORROW MONEY
That is a silly take for real estate investing.
I own 137 units. I will debate you any day. This strategy is awful and puts people at risk. So we can keep it respectable, but you have a losing argument. Math and logic are on my side. I've been vetted by BP too.
Make this happen
👍
Totallly agree! What horrible advise.
@brapotts1 I mean it's awful right?
@@LumberjackLandlord A path to bankruptcy. See you in Feb in Vegas.
If it works so well, dont buy one, buy 10. You will get all that success that much faster!
Should be called the (Metaphor Show!) You all are moving very fast, and speaking another language, this show is for advanced class only.
Remember though. During construction, there may not be rental income at all. Not sure $800 loss factored in any rental income
This is next level, really love this. Keep them coming! We need more HCOL expensive market content, equity play. Many may not understand yet but those of us who do see the huge value. Eventually more will also. please and thank you!!
What they are, recommending is almost a guaranteed path to bankruptcy and financial ruin
If the ultimate goal of the first deal is to flip for a profit after 2 years then I consider the negative $800/month as basically "carrying costs" not "negative cash flow".
It's essentially no different than when you need to pay utilities, debt service and other items while you're rehabbing a property before you can rent it out.
I appreciate BP pulling their audience away from cashflow. Gonna allow even more opportunities for cash flow for me! Lol
I totally get what James is saying, and it makes sense - only if you can afford to cover the 800 a month. It is also a speculative play. You'd need to find properties that you can force equity by value add.
If you float, you'll burn 🔥
@james, can u explained what "breakeven with a buffer" means?
What tool do you use to figure out what the “huge equity play” will be???
Hi Rob, what happens if you 1031 exchange into a property of lower value. Can you use the gains that you made from selling the property, and use that for a bigger down payment if you are planning on 1031 exchanging into a lower value property? is there a penalty or no?
Doesn't cash flow drive your potential equity gains higher. Also what percentage of the country will have a more challenging market because of companies reducing jobs to drive profitability.
love this! one of the best videos in a while. great guests. 🎉
Interesting strategies.
Both made very good cases for the strategy they chose
Based on this video, I am going to look at the following scenario Someone dollar cost averages $600 per month into S&P, or contributes to a retirement plan. Expecting a long term 10% return on capital before fees . Another one buys a negative cash flow property where the expected monthly offset is $600. But someone is “helping” with the cost of acquiring the real property acquisition by paying rent. I am curious about how this would turn out and will run the experiment.
If I had a dollar for every book BP wrote 😅
"i have been investing since god was a boy"😂😂 my first time hearing that one.
Such a fun show ~
Great thinking,
I have a holding company based in Delaware. I'm opening another llc to put my property in, which is located in New Jersey were should I base that llc out of New Jersey or Delaware?
They just did an asset protection episode you should checkout. If I remember correctly you should set it up for the state you live in.
New Jersey
Great format and very informative content! Thanks BP Team!
I have heard that the 4 letter word in Real estate is COMP’s. 🤣
I cant even get my kitchen remodeled for 50k they did a whole house?
why would anyone want to challenge him to a cage match - the numbers speak for themselves
Dude must be using hoe math…
Captain Seattle is an amateur, is lounge singer..
Spent 1.2 million on a duplex in hopes he can get 1.6 while losing money every month? What is this clownery? Send it all to zero. I can get apartment complexes in California that people will actual rent
These new shorter episodes SUCK…they’re way too short and they put out so damn many episodes it’s seriously diluted the podcast. They’ve clearly chosen quantity over quality. It’s honestly like they don’t give a rip anymore, it’s all about the clicks. The podcast was great 3-4 years ago, but they’ve forgotten who they are.
33 minutes is long for most people. You are an outlier
Real estate is the only investment where people freak out if they don’t have cash flow, do you invest in stocks and expect cash back every month? (Don’t mention dividends it’s not quiet the same😂)
😂😂😂😂 who buys anything with negative cash flow
Noobs
I felt stupid watching this video
It's not you, it's the video
mINDY IS A TROLL
God is God, was never a boy
She's referring to Jesus as part of the trinity.
Really gonna listen to a guy with a halfa head of hair