Why are people so obsessed with rental properties yielding positive cash flow?

[Anonymous]

Until retirement, no one‘s 401(k) is cash flow positive and yet no one says those are a bad idea. Amazon has never paid a dividend and yet, if you had bought Amazon stock at many points over the last 27 years, you would’ve become very rich. Houses in the DC area are only going to go up over time (yes, we may be due for a correction or even a crash in the short term).

But over time, buying the right house in this area can be a very good idea as an investment, even if the rental income does not cover your PITI and all other miscellaneous expenses (vacancy, repairs, etc.). Why is there this obsession that rental properties have to have a positive cash flow?

[Anonymous]

I was going to type out a response, but I decided this is really not a hard concept to figure out. Cash flow = income.

[Anonymous]

I'm not a professional landlord, but over the years I've had three rental properties (a condo in Logan, an English basement in my primary residence, and a townhouse in NOVA). I've never had a positive cash flow in any of them when IRS-required depreciation is taken into account, and that's fine with me. It means I'm not paying any income taxes on the rental income because technically I'm operating at a loss. But the value of my rental properties is increasing every year. That's what RE investing is all about. The tax laws encourage losses. How do you think Trump got so rich? As much as I hate him, I know from personal experience on a much smaller scale that most of what he's done in the RE business is perfectly legal.

[Anonymous]

Anonymous wrote:I was going to type out a response, but I decided this is really not a hard concept to figure out. Cash flow = income.

NP - that doesn't address, at all, the OP's question. So apparently, for you, it *is* difficult to figure out.

[Anonymous]

Anonymous wrote:I'm not a professional landlord, but over the years I've had three rental properties (a condo in Logan, an English basement in my primary residence, and a townhouse in NOVA). I've never had a positive cash flow in any of them when IRS-required depreciation is taken into account, and that's fine with me. It means I'm not paying any income taxes on the rental income because technically I'm operating at a loss. But the value of my rental properties is increasing every year. That's what RE investing is all about. The tax laws encourage losses. How do you think Trump got so rich? As much as I hate him, I know from personal experience on a much smaller scale that most of what he's done in the RE business is perfectly legal.

That's not what positive cash flow means.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm not a professional landlord, but over the years I've had three rental properties (a condo in Logan, an English basement in my primary residence, and a townhouse in NOVA). I've never had a positive cash flow in any of them when IRS-required depreciation is taken into account, and that's fine with me. It means I'm not paying any income taxes on the rental income because technically I'm operating at a loss. But the value of my rental properties is increasing every year. That's what RE investing is all about. The tax laws encourage losses. How do you think Trump got so rich? As much as I hate him, I know from personal experience on a much smaller scale that most of what he's done in the RE business is perfectly legal.

That's not what positive cash flow means.

Well, if OP means that the rental income isn't covering expenses not including depreciation then I stand corrected. That's just plain stupid.

[Anonymous]

As for me, had I sold the place and invested down payment plus the extra money I had to pay the next 11 years, I'd have 4 times the money I have now. Positive cash flow would have let me invest the difference.
The place didn't go up fast enough. It was just forced savings. Glad I even sold it in 2019 and put the money into market. Still made 5x the money, but had I put all of it in 8 years earlier and even the extra monthly payment, I'd be retired.
That was the good decade in the market I missed.

[Anonymous]

Anonymous wrote:As for me, had I sold the place and invested down payment plus the extra money I had to pay the next 11 years, I'd have 4 times the money I have now. Positive cash flow would have let me invest the difference.
The place didn't go up fast enough. It was just forced savings. Glad I even sold it in 2019 and put the money into market. Still made 5x the money, but had I put all of it in 8 years earlier and even the extra monthly payment, I'd be retired.
That was the good decade in the market I missed.

Good example. It’s the opportunity cost. Investment property can be good if it’s highly leveraged, revenues at least cover expenses + depreciation and is in an appreciating market. Otherwise, you’re better off in another investment (long term). If you want to diversify into real estate, Blackstone REIT has excellent returns, will be more diversified, and you don’t have to deal with tenants.

[Anonymous]

I paid 290k cash my condo in a distress sale 10 years ago. Common charges and taxes are 700 a month and insurance $50 a month. I have it rented $2,250.

It is worth $450k. But I had $18k income for 10 years. If I bought more would have done a mortgage. This was a one time thing.

Some investor guy got three run down or worse location units three for 725k cash. He making $50k a year last ten years. His units way up.

Different strokes. That guy also bought a yacht cash.

[Anonymous]

Anonymous wrote:I paid 290k cash my condo in a distress sale 10 years ago. Common charges and taxes are 700 a month and insurance $50 a month. I have it rented $2,250.

It is worth $450k. But I had $18k income for 10 years. If I bought more would have done a mortgage. This was a one time thing.

Some investor guy got three run down or worse location units three for 725k cash. He making $50k a year last ten years. His units way up.

Different strokes. That guy also bought a yacht cash.

That means you made $340k on a $290k investment, for a total of $630k. If you'd invested that $290k in a S&P 500 Index fund at the beginning of 2012, you'd have $1,235,549 now.

[Anonymous]

Because cash flow positive properties mean you never have to sell them ever. And make money. It is the holy grail. If you accumulate enough of them you will be rich.

[Anonymous]

Anonymous wrote:Because cash flow positive properties mean you never have to sell them ever. And make money. It is the holy grail. If you accumulate enough of them you will be rich.

NP and if you had a property that exactly broke even (excluding depreciation but averaging in vacancies) you still come out ahead since some of the PITI is paying down principle. Assuming that property is leveraged 100% its still a good deal, less of a good deal depending on how much is invested in it.

[Anonymous]

I think diversification is the key.
M Y portfolio is a combination of equities crypto and self managed rental RE. My properties are in Midwest.

They all cash flow from start except one that use to be our primary residence. Even cash flowing $500 a month, it is cash flow. Over time the rent increases, properties value increase. If I gain RE professional status , I can use depreciation against my salary income ( which is huge plus because we are pay about$400k to IRS yearly, more than our other expenses) .

[Anonymous]

Anonymous wrote:Until retirement, no one‘s 401(k) is cash flow positive and yet no one says those are a bad idea. Amazon has never paid a dividend and yet, if you had bought Amazon stock at many points over the last 27 years, you would’ve become very rich. Houses in the DC area are only going to go up over time (yes, we may be due for a correction or even a crash in the short term).

But over time, buying the right house in this area can be a very good idea as an investment, even if the rental income does not cover your PITI and all other miscellaneous expenses (vacancy, repairs, etc.). Why is there this obsession that rental properties have to have a positive cash flow?

As

I’m not obsessed, but I certainly wouldn’t buy one that wasn’t! That’s just dumb and I shouldn’t have it explain it.

So far I net 6k/mo in rental income after Texas and expenses. This is a big deal because we retired at 50 and at the time still had kids who were 21 and 17. I use that rental income to pay our health premiums and all out of pocket health expenses. All leftover money (which is about 24k/yr) we keep in the kitty for a potential health crisis. It’s nice knowing I don’t have to pull from general funds for health which is a major barrier for people who want to retire early.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I paid 290k cash my condo in a distress sale 10 years ago. Common charges and taxes are 700 a month and insurance $50 a month. I have it rented $2,250.

It is worth $450k. But I had $18k income for 10 years. If I bought more would have done a mortgage. This was a one time thing.

Some investor guy got three run down or worse location units three for 725k cash. He making $50k a year last ten years. His units way up.

Different strokes. That guy also bought a yacht cash.

That means you made $340k on a $290k investment, for a total of $630k. If you'd invested that $290k in a S&P 500 Index fund at the beginning of 2012, you'd have $1,235,549 now.

In this equities market I’m very glad I have the stability of my rentals. I’m the poster with 6k/mo after Tax after expenses cash flow. This does not even take yet into account my rent hikes in 2022. I’ll probably be up to 7.5k once recalculated at the end of this year. Not to mention I’m sitting on millions in equity that others have paid down (which I fully expect to dip).

Right now the interest I pay on the loans is a way better gamble than the losses I’m sustaining in the stock market and as a retiree I can tell you it’s a blooms bath and I don’t see light for quite awhile.