3 ms·

I have the understanding that no one expects residential real estate rental to be cash-flow positive with a full mortgage. It's extremely rare and basically a c

I have the understanding that no one expects residential real estate rental to be cash-flow positive with a full mortgage. It's extremely rare and basically a complete no-brainer if you can find a property that is cash-flow positive with a mortgage. Generally, one looks at equity and tries for net-worth positive. Which is simple to say, but is made more complex by older mortgages giving more equity for an equal payment. Of course, with an interest-only mortgage, yes one would need to be cash-flow positive, because there is no such thing as gaining equity. Again, my understanding is that such properties are extremely rare.

briandear 9y ago
If you're investing in real estate you always want a mortgage and you always want it cash-flow positive. If it's not cash-flow positive on the first day of renting it out, then you don't buy the property. Investing for equity is about the dumbest mistake some real estate investors make. Always invest on cash-flow. Investing for capital appreciation is a recipe for disaster. With positive cash-flow, the underlying value is irrelevant. When I say you "always want a mortgage" I mean that if you have a mortgage you have your tenants paying for the house. Your cash on cash return is far higher. If your potential property doesn't support that, then find another property. Paying $200k cash for a house that nets $500 per month is far less interesting than buying 10 houses at $20k down that each net $200 per month -- and it takes exactly the same cash.
- ftlio 9y ago
  The overhead of renting 10 houses, and the interest on 10 mortgages, is just zero or what?
- jdmichal 9y ago
  I don't disagree with you. I was speaking solely about full mortgage -- ie, minimum down payment. Turning a positive cash flow with a large mortgage is very difficult, especially after accounting for all costs. (Mortgage, taxes, insurance, maintenance, hoa, vacancy...) Turning a positive cash flow without any mortgage is very easy, but kills your ROI. So you're going to end up shooting somewhere in the middle... EDIT: Here's a fun Reddit thread on the topic: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord... Here's an example from that thread on how quickly the math takes you to roughly cash-flow neutral -- and this is with 25% down and 1% rental price: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/crf9n7n/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord...

briandear 9y ago

If you're investing in real estate you always want a mortgage and you always want it cash-flow positive. If it's not cash-flow positive on the first day of renting it out, then you don't buy the property. Investing for equity is about the dumbest mistake some real estate investors make. Always invest on cash-flow. Investing for capital appreciation is a recipe for disaster. With positive cash-flow, the underlying value is irrelevant. When I say you "always want a mortgage" I mean that if you have a mortgage you have your tenants paying for the house. Your cash on cash return is far higher. If your potential property doesn't support that, then find another property. Paying $200k cash for a house that nets $500 per month is far less interesting than buying 10 houses at $20k down that each net $200 per month -- and it takes exactly the same cash.

ftlio 9y ago
The overhead of renting 10 houses, and the interest on 10 mortgages, is just zero or what?
jdmichal 9y ago
I don't disagree with you. I was speaking solely about full mortgage -- ie, minimum down payment. Turning a positive cash flow with a large mortgage is very difficult, especially after accounting for all costs. (Mortgage, taxes, insurance, maintenance, hoa, vacancy...) Turning a positive cash flow without any mortgage is very easy, but kills your ROI. So you're going to end up shooting somewhere in the middle... EDIT: Here's a fun Reddit thread on the topic: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord... Here's an example from that thread on how quickly the math takes you to roughly cash-flow neutral -- and this is with 25% down and 1% rental price: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/crf9n7n/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord...