\n
Dave:<\/p>\n
Hey everyone, welcome to On the Market. I\u2019m your host, Dave Meyer, and today we\u2019re going to be wading into one of the most heated conversations in real estate, which is, can you even find cashflow in the first place these days? And where can you actually find cashflow? To join me for this conversation is Kathy Feki and Mr. Henry Washington. Do you guys hear this debate a lot, Kathy? Do you hear people saying that cashflow is impossible to find these days?<\/p>\n
Kathy:<\/p>\n
Sometimes, yeah, but only from people who I guess don\u2019t know how to find it or are new to the business.<\/p>\n
Dave:<\/p>\n
All right, well you just took my second question away. I was going to ask if they\u2019re correct, but it sounds like no. Henry, what about you? Do you hear this question come up a lot?<\/p>\n
Henry:<\/p>\n
All the time, especially since interest rates have gone up, that people\u2019s favorite phrase is, \u201cYou can\u2019t buy cashflow anymore,\u201d and it\u2019s just not true. I actually tell my students, I don\u2019t know if you guys are aware, but every deal cashflows, every single deal ever cashflows. It just doesn\u2019t cashflow at the price you\u2019re comfortable offering or at the price the seller is asking for. But that doesn\u2019t mean you can\u2019t analyze that deal, figure out the price it does cashflow at and make that offer.<\/p>\n
Dave:<\/p>\n
And also every deal cashflows, depending on the amount of money you put down as well. If you buy something for cash or you buy it for 50% equity, it will, probably, cashflow. So that\u2019s a very good point. So Henry, where do you think this notion comes from that cashflow is impossible to find?<\/p>\n
Henry:<\/p>\n
Yeah, I think, well, if you look at most traditional or new investors, what they want to be able to do is just call up an agent or hop on Zillow, Redfin or the MLS, find something that\u2019s listed, make an offer at what they\u2019re asking, maybe slightly below, and get this deal that cashflows. And if that\u2019s the method you\u2019re using to find deals, then yeah, nothing\u2019s really going to cashflow. You\u2019re going to have to have some special niche of being able to monetize that property in a different way, that\u2019s going to allow you to buy cashflow, paying retail.<\/p>\n
And a special niche, what I mean by it, it could be that you\u2019re going to rent by the room. So you could buy a property potentially on the market, rent it by the room, that increases the amount of rent you\u2019ll get, and then you can make it cashflow, or you can be strategic, like Kathy does, and buy houses that are listed but that are in areas where you can use them as a vacation rental. I think Kathy, you just bought one, where in Tulum? Right?<\/p>\n
Kathy:<\/p>\n
Yeah.<\/p>\n
Henry:<\/p>\n
I\u2019m sure that will cashflow, right? It\u2019s a different thing, but if you think you\u2019re just going to find something on the MLS at retail price, that\u2019s going to be a long-term rental and make you cashflow. Yeah. No, that doesn\u2019t exist. And so I think people just see that and say \u201cYou can\u2019t find cashflow.\u201d<\/p>\n
Dave:<\/p>\n
That\u2019s a great point. There are a lot of different strategies that work to generate cashflow in pretty much any market. And just for everyone listening, so you know, we\u2019re also going to share, towards the second half of this episode, four markets that we have identified that will be really easy to find, basically off the shelf cashflow, you can just find it off the MLS. So we\u2019re going to be sharing those four with you. But before we get to them, I want to talk a little bit more, Kathy and Henry, about strategies that you can use to generate cashflow in other markets. So Kathy, what are some of the ways that you approach finding cashflow in some of these higher priced markets or some of the growing markets that you invest in?<\/p>\n
Kathy:<\/p>\n
Well, for me, I\u2019ve just found over the years that you have to find some form of distress, and that distress changes with the economy. So just in the last year or so, one of the big stressors was with builders. They couldn\u2019t sell their inventory because, as interest rates went up, a lot of people couldn\u2019t afford those, and builders were sitting on a lot of inventory that they needed to move. And builders are not like individuals selling their primary residence. They are in the business of selling, and they have loans, they need to pay them down. They got to sell and move these properties. So that was just one form of distress in the past year, where it was a little bit easier to negotiate with builders. Either they have to lower the price to make it work or they have to make the interest rate lower. Something needs to give, if I\u2019m going to take this inventory off of your books, basically. So what we discovered is they were more willing to pay down the rate because then that kept the price up so it doesn\u2019t affect their comps.<\/p>\n
But when they\u2019re paying down the rate, we\u2019re actually finding these brand new homes cashflow really well. The other thing about cashflow is you got to look at all the numbers. So maybe day one, a certain property looks like it\u2019s going to cashflow, but if it\u2019s going to be breaking down all the time and you\u2019re constantly feeding it, there\u2019s no cashflow there at the end of the day or the end of the year or 10 years or whatever. With a newer home, we don\u2019t have those issues. The insurance is way lower because insurance companies like to insure newer properties. Tenants like to live in newer properties, so rents go up faster. So over time, we\u2019ve also found that these nicer properties actually cashflow better. So again, it\u2019s just we look for the distress, I don\u2019t want to say take advantage of it, but I guess that\u2019s what I am saying, and you negotiate and work the valves that are going to get you to where you want to be.<\/p>\n
Henry:<\/p>\n
And just to be clear, I don\u2019t want to say you\u2019re wrong, but you\u2019re not taking advantage, Kathy, because no one\u2019s selling you a home that they don\u2019t want to sell. Right? You\u2019re offering a solution to that distress. They\u2019re making a call of whether they want to sell it or not. And I will bet that these developers that you ended up buying these properties off of, were very relieved to now have these off of their books so that they can go deploy their capital in places that are more important to their business. It\u2019s offering a solution, and people will take advantage of your offer, then you\u2019re not taking advantage of them.<\/p>\n
Kathy:<\/p>\n
Thank you.<\/p>\n
Dave:<\/p>\n
Kathy, so that is one excellent way to generate cashflow, which is looking for distress. Henry, what are some of the other techniques or strategies that you use to find or create cashflow in your deals?<\/p>\n
Henry:<\/p>\n
Yeah, absolutely. For me it\u2019s a volume and numbers game. It\u2019s the same. You do have to identify\u2026 Distress is just one thing to look for, but what you need is this, I call it situations. I don\u2019t buy houses, I buy situations. There are situations that people get into that cause them to need to sell at a discount and not want to sell. Everybody who just wants to sell lists on the market with an agent, they can get retail value. That\u2019s amazing. I want them to do that. But there are situations where people need to sell, and can\u2019t. And if you can identify what those situations are, get yourself in front of those people, and then offering a solution to their problem, by being able to make an offer, and then they then can make a decision on, \u201cIs this offer going to provide me the solution that I need?\u201d<\/p>\n
If it does, maybe they take it. If not, then you move on. Now if you make 20 offers, there\u2019s a high chance that 20 or 19 of them get turned down because you are going to have to offer at a price point that allows you to create cashflow if you\u2019re only going to use a long-term rental strategy. And so that just means you have to make offers in volume. So I just try to find situations, analyze every deal that I can. I\u2019ll make the offer to provide a solution if that works for them. That\u2019s fantastic. And if it doesn\u2019t, that\u2019s fantastic as well.<\/p>\n
Dave:<\/p>\n
Now that we\u2019ve discussed how to identify properties in distress, or asking for buy downs on new construction to generate cashflow, we have more strategies right after this quick break. Welcome back to the show. Great. All right. So looking for distress, buying these unique situations, two great ways to identify and create cashflow. I\u2019ll add something that, Henry, you touched on earlier, but there are other ways to rent out properties that generate more revenue than long-term rental. So we talked about short-term rentals a little bit. And short-term rentals, generally speaking, get more revenue per night. So if you averaged out how much you can get from a long-term rental on, let\u2019s just say, on a two bedroom, maybe you get $50 a day. On a short-term rental might get a hundred dollars a day, just for this random example. So that is a great way to generate cashflow. Now, short-term rentals tend to have more expenses too, so you need to be careful about that, but short-term rentals can offer more cashflow as are other alternative strategies like midterm rentals.<\/p>\n
Similar to short-term rentals, they offer more revenue per night. And the third one that I would offer here is rent by the room. I\u2019ve never done this personally, but I know people who do, either in a co-living model or in just finding a property manager who does rent by the room. But if you just rent out individual bedrooms to individual tenants, you usually get more dollar per bedroom, and that\u2019s another way that you can generate cashflow. Of course that comes with more property management complexity. But these are all ways that you can consider generating more cashflow for your properties. Kathy and Henry, do you use any of these strategies yourself?<\/p>\n
Kathy:<\/p>\n
Yeah. I haven\u2019t done midterm rentals yet. That\u2019s next on my list, and I want to learn that. I know BiggerPockets has a great book on it that I wrote the forward for, so I have no excuse for not trying, but short-term rentals for sure. We did it by accident, just to try it, and we\u2019re so surprised at the success of that. Of course, that was during 2021, at the peak of that whole short-term rental thing. So you got to understand that that\u2019s a little bit more of a volatile market too, the short term, because it\u2019s just dependent on when people want to travel. There\u2019s more options now. They have hotels and so forth. But yes, we have found that the short-term rental, if the timing is right and the price was right and you\u2019re in the right area, it can be so lucrative.<\/p>\n
Henry:<\/p>\n
We do short term and we are launching our first midterm this Friday.<\/p>\n
Dave:<\/p>\n
Oh, cool. Congrats.<\/p>\n
Henry:<\/p>\n
Thanks.<\/p>\n
Dave:<\/p>\n
Eager to hear how that goes.<\/p>\n
Henry:<\/p>\n
Me too.<\/p>\n
Dave:<\/p>\n
And I do want to just caution people, with both of those strategies, short-term and midterm, you do typically have opportunity to generate more cashflow on an ongoing basis, but a lot of times the upfront costs are more significant because you have to furnish those apartments or those properties. And so again, with all things in real estate, it\u2019s just a trade-off and that if you were prioritizing cashflow, then these are some of the trade-offs you might want to make.<\/p>\n
Kathy:<\/p>\n
I just want to jump in on that too and say that with short-term rentals, you can talk to your CPA, but you can get some pretty significant tax deductions, which, in the end, that helps cashflow too. If you can write off a bunch of taxes.<\/p>\n
Dave:<\/p>\n
Yeah. Get to keep more of that revenue.<\/p>\n
Kathy:<\/p>\n
Mm-mm.<\/p>\n
Dave:<\/p>\n
All right, so we\u2019ve talked about distress buying situations, and then some of these alternative leasing options for generating cashflow. And the last one I wanted to bring up was using less debt. Henry was talking earlier about that, depending on what price you offer, every deal cashflows. Well every deal cashflows as well, depending on the down payment that you choose to put down. If you were to buy something for cash, it will cashflow because you will have much fewer expenses. Of course, not everyone has that opportunity, but I do encourage people, especially in these high interest rate environments, to consider putting down more than 20 or 25%.<\/p>\n
And I think a lot of times when debt is cheap, why wouldn\u2019t you get the maximum amount of leverage? But in today\u2019s type of environment, if you do prioritize cashflow, if you want to generate some money, consider putting 30 or 40 or 50% down on a deal, because that will quickly increase your cashflow potential and it\u2019s honestly a good low risk way to buy rental property. So I would offer that as a fourth way of generating cashflow. Do you guys ever do this or you pretty much try to put down the minimum amount on most of your deals? Kathy?<\/p>\n
Kathy:<\/p>\n
I try to put the minimum down. We\u2019ve helped a lot of Californians fix their mindset, I want to say around this. Because I\u2019ve had so many people come to our events and say, \u201cWhat do you mean you can\u2019t cashflow in California? I\u2019m cashflowing.\u201d And I say, \u201cOkay, tell me more.\u201d And it turns out they have no debt. Maybe they\u2019ve owned it for a long time or very low debt, and it\u2019s like, \u201cWell, I sure hope you can cashflow on your property. There\u2019s no debt.\u201d So really I think it\u2019s important to understand the equity at play and could you take that equity instead of putting 40% down on one property, find a place where it works, where you could buy two properties with 20% down on each. I feel like in the long run you\u2019re going to do better over time, but it just depends on what you\u2019re trying to do. If you\u2019re trying to build wealth and you\u2019re young, I would try to leverage more and acquire more, versus as you get older, then maybe your goal really is cashflow and you want more security and you want more money down.<\/p>\n
Henry:<\/p>\n
I\u2019m in a growth pattern still. And so the more capital I can keep in my pocket, the more I\u2019m able to grow my business and my portfolio. So I want to put as little down, sometimes I want to put nothing. I would much prefer someone else pay for my equity. And so I\u2019m going to have the seller pay for my equity by buying at a discount, and I\u2019m going to have my tenants pay for my equity by paying down my mortgage. That\u2019s the strategy that I want to employ so that I can acquire more now. And at some point, once I\u2019m done acquiring, at a higher scale, I might look to pay cash for properties or put more down, because then essentially you\u2019re playing the cash on cash return game. If I can put $50,000 down on this hundred thousand dollar house, I have a very low mortgage, but the return, the cash on cash return that I get in the rents is extremely high. And so I\u2019m using my money to generate income. It\u2019s more like a stock market game at that point, right?<\/p>\n
Dave:<\/p>\n
Yeah, absolutely. It makes total sense. If your goal is to maximize your equity and your long-term appreciation, then using maximum leverage or using more leverage, and it\u2019s just another word for debt, for everyone listening, using more leverage and more debt, is a faster way to grow because you can spread your equity out across multiple properties, as Kathy said. But if you do want a cashflow, if you\u2019re getting close to the end of your career, you want to slow down, you want to reduce risk, reducing that amount of debt can be very helpful to you in that effort. So those are four different ways that you can produce cashflow, buying situations, looking for distress, using alternative revenue models and lowering your total debt. But now we\u2019re going to talk about four markets where you can generate cashflow right off the shelf off the MLS. Kathy, let\u2019s start with you.<\/p>\n
Kathy:<\/p>\n
Yeah. This market is Youngstown, Ohio. Personally I do love Ohio. I think there\u2019s a lot of opportunity in Cleveland and Cincinnati, Dayton, certainly Columbus. Youngstown has had a really tough time recovering from the crash of 1977. A lot of people don\u2019t realize that places like Youngstown, where it was a really wealthy city at one time in the 20s and 30s, it was in the steel industry, just like Pittsburgh and Cleveland and Detroit. These were the New Yorks of the time. It\u2019s where the wealthy people lived. And especially in the 30s, at its peak, is when they had the most population, because we had a war and steel was needed. But then in 1977 that all changed, and those companies left and people, I think 5,000 people were laid off in one day or something like that.<\/p>\n
Dave:<\/p>\n
Oh my god.<\/p>\n
Kathy:<\/p>\n
It has not been able to recover. There\u2019s been a few attempts bringing in\u2026 I know Chevys were\u2026 GM had a plant there for a while and then that shut down just in 2019. So this town has had a hard time bouncing back like some of the other rust belt cities that have really invested in themselves. So right off the bat, I want to say this would not be a market that I would personally go to for cashflow, even though it\u2019s on our cashflow list.<\/p>\n
Dave:<\/p>\n
I appreciate you bringing this because it is one of the highest ranking markets in terms of the metrics. And we measure cashflow potential in different ways. For the purposes of the show, we\u2019re using a metric called the rent to price ratio, which basically just compares how much rent you can generate for every dollar of the purchase price that you put in. And Youngstown does pretty well. And Kathy, you did a good job explaining the reality of the situation in Youngstown. Do you see this often with cashflow cities that they are lower price or have lower economic potential?<\/p>\n
Kathy:<\/p>\n
No. No. I think you can get great cashflow in a market that is reinventing itself and that is creating job growth. I don\u2019t know why this town hasn\u2019t been able to recover. Rent to price ratio in this town is 0.65%. That\u2019s not good. That\u2019s terrible. So if I\u2019m going to get that kind of ratio, I\u2019m going to be in Florida, I\u2019m going to be in a growth market. For me to buy in a cashflow market, I want to see a much better return than that. Because you\u2019re not getting appreciation, so you\u2019re going to have to make enough cashflow to cover any repairs that happen, any vacancies. And if you have a vacancy, who are you going to bring in? This is not a population that\u2019s growing.<\/p>\n
There\u2019s not job growth, so you might have to lower your rents to get your property rented. So I know a lot of people might look at a price point and say, \u201cOh, this market has a median home price of $144,000. That\u2019s a lot lower than the national average.\u201d But the median rent is $937. So I would want to buy a house under a hundred thousand dollars, all in, for me to make this market make sense, because it\u2019s a non-growth, linear, not even linear, a downward trending market. So again, you got to be careful when you say it\u2019s cashflow. Sure there\u2019s cashflow that might be better than LA or San Francisco, but the difference is that at least in those cities, you\u2019re probably going to see rents go up over time.<\/p>\n
Dave:<\/p>\n
That\u2019s a great point. And just to be clear, when we\u2019re talking about the rent to price ratio for these markets, we\u2019re talking about the average. And so there are certainly deals that would be better than 0.65. There are deals that would be worse than 0.65, but when we look across the country, the average rent to price ratio is about 0.6% or 0.55%. So this does offer better than average cashflow potential, just for the average deal. Again, there are plenty of other caveats around that. But to Kathy\u2019s point, if this market is not going to appreciate, maybe that slightly better than national average cashflow potential is just not enough.<\/p>\n
Kathy:<\/p>\n
Yeah. And I\u2019m not saying that you can\u2019t make money in this market, but you better be buying some incredible deals, way lower than that median price, and be able to maybe improve it and provide the affordable housing. It just makes me nervous that there\u2019s not a really strong job center there.<\/p>\n
Dave:<\/p>\n
All right, great. Well appreciate your candor and honesty about this, Kathy. Thank you. For our second market. I\u2019m going to be talking about Syracuse, New York, which is very close to where I went to college, and is actually a market that I looked at, not super seriously, but did look into a bit, because there are some interesting things in Syracuse. The rent to price ratio there is almost 0.7, so it\u2019s a little bit better than Youngstown. But what I like about Syracuse is, first and foremost, there\u2019s a giant university there, it\u2019s a growing university, and that\u2019s a major economic center for the city. The second thing I really like is that Micron, which makes processors and computer chips, is moving into the area, and they said that they\u2019re going to hire something like 10,000 people over the next couple of years, and those are really high price jobs.<\/p>\n
So similar to what Kathy was saying earlier, some of these cities, Syracuse is also one of those cities that has had difficult economic times over the last few decades, but something like a huge booming industry with high price jobs moving in, can really turn the tide for an entire region. And that\u2019s something I really like about Syracuse, and the numbers are bearing that out. So even though population has been growing, their forecasting population growth due to these new jobs in the next couple of years. And Syracuse was one of the fastest growing appreciation markets last year, with more than 10% year-over-year growth. So I think Syracuse is worth considering. I have looked at it a little bit and would consider it again in the future, because I do think that it\u2019s showing signs that it\u2019s turning the tide, as Kathy was saying. Now that we\u2019ve covered our first two markets, we have two more markets right after a word from our sponsors. Welcome back to On the Market. We have two more cash flowing markets for you to consider. All right, so for our third market, Henry, what do you got?<\/p>\n
Henry:<\/p>\n
All right, we\u2019re going to talk about Pittsburgh, Pennsylvania. And on the surface, Pittsburgh has some pretty good metrics in terms of cashflow and in terms of affordability. So if you look at the median home price, you have homes that are around $201,000. And if you look at the median rent, you\u2019re at $1,300 or closer to $1,400. And so to me that says you can probably find a deal right there on the MLS that\u2019s going to cashflow, because that\u2019s a pretty decent rent for a low entry price home market. And what else I like about the numbers is the median income is 65 to $66,000. And so people can afford those homes and you can get cashflow in those homes. So those are some pretty stable market dynamics. Pittsburgh has some other strong dynamics as well. If you look at homes on the market, days on market is around 72 days, and things are selling with an average of just 1.8% below list price.<\/p>\n
And so that means people are listing homes and people are buying homes. And so that shows that people do want to live here. But if you look at population growth, it\u2019s down 0.6 or 7%. So definitely that is something you want to keep an eye on or have watch on, or have some sort of understanding of Pittsburgh as a whole. If you\u2019re just an out-of-state investor, you need to understand why is the population growth down right now? Is it just a blip on the radar or is this something been trending year over year? Because if you can get cashflow, that\u2019s great, but if people are moving out, your rents are going to start to go down and your property values are going to start to go down.<\/p>\n
Kathy:<\/p>\n
I can talk a lot about Pittsburgh because, first of all, I know this city really well. We started investing in 2009, I believe, in Pittsburgh. And when I went there, what I saw was a city, like I said, a different kind of city in the Rust Belt that was investing billions of dollars in its revitalization. There are really big universities there. They\u2019re investing in biotech and-<\/p>\n
Dave:<\/p>\n
Robotics, right? Isn\u2019t it a huge robotics city?<\/p>\n
Kathy:<\/p>\n
Yeah. There\u2019s some really good colleges in Pittsburgh. We bought very cheap back then. It was right around the downturn, so I think we bought a duplex for $60,000. Today that rents for 1300, total. So the cashflow is pretty fabulous. Believe it or not, we\u2019re selling that because there\u2019s a lot of deferred maintenance and these tend to be older homes. It\u2019s cold weather. We just didn\u2019t want to deal with the deferred maintenance, so the person who\u2019s been living there, it\u2019s a dad on one side and the son on the other side, and it\u2019s like, \u201cHey guys, this is your chance to buy this from me. You\u2019ve been living here forever, paying me. Why don\u2019t you buy it?\u201d And they can do that deferred maintenance.<\/p>\n
Turns out that that\u2019s what they do. They\u2019re contractors. So I bought cheap enough in that city that it really has worked for me, but there doesn\u2019t tend to be appreciation. However, it still is growing, and there\u2019s pockets that are growing. We bought a property, downtown Pittsburgh for around 200. After all renovation and everything, came in around 200. That just appraised for 350. So there can be appreciation if you\u2019re in the right neighborhood, you know where the growth is. So again, just like Henry said, know the market before you dive in, because you could end up in one of the suburbs that just doesn\u2019t ever show appreciation. Whereas there are parts of the city, closer to the universities, that are really taking off.<\/p>\n
Henry:<\/p>\n
Yeah. Pittsburgh\u2019s showing a 4.2% increase in home value since last year. So there\u2019s been some appreciation there. And there are some strong [inaudible 00:26:02] you\u2019re right, the university, so you\u2019ve got University of Pittsburgh right there in the middle of town. You\u2019ve also got Carnegie Mellon, a rocks throw away from that, which is a huge technology school. Some of the smartest minds in the world go to school at Carnegie Mellon. And so these things aren\u2019t going anywhere. They\u2019re going to be there. They\u2019re going to continue to draw people in there. And obviously the Steelers are a team that people\u2026 I think I read somewhere that 20 million people a year go and visit Pittsburgh, and I bet a lot of that has to do with football. So there is some draw there. And so I would just\u2026 The only caveat for me here is you got to watch that population growth.<\/p>\n
Dave:<\/p>\n
Yeah, totally agree. So some interesting stuff here, even though Kathy\u2019s selling, but that\u2019s super helpful to know, Kathy. I think that\u2019s really important for people to understand that. A lot of these markets and a lot of properties that cashflow do have deferred maintenance, or are in neighborhoods that have less appeal, and that\u2019s kept the price low, which is why the rent to price ratio is higher because the denominator is lower. So, that\u2019s another market to consider if you want some off the shelf cashflow. The last one we\u2019ll talk about quickly is Jackson, Mississippi. I\u2019ve never been to Jackson. I\u2019m going to ask you, Henry, have you been there because you live in that area?<\/p>\n
Henry:<\/p>\n
I do. Well, it\u2019s like a, I don\u2019t know, a five or nine hour drive. I can\u2019t remember, but no, never been to Jackson.<\/p>\n
Dave:<\/p>\n
Oh, not that close. Shows my geography skills.<\/p>\n
Henry:<\/p>\n
I\u2019ve driven through Jackson.<\/p>\n
Dave:<\/p>\n
Okay. I don\u2019t know much about it other than what I\u2019ve read on paper, but the rent price ratio is good at 0.7%, and the median home price is under 200,000. So definitely an affordable market. And what I really like about Jackson, just on paper, is the unemployment rate is extremely low. It\u2019s at 2.2%. And so to me that suggests that the economy is doing pretty well. The whole country has a low unemployment rate rate now at 3.7%, but 2.2 is darn near the closest, lowest I\u2019ve seen. So that is really an interesting thing. And what I\u2019ve learned about Jackson is that even though the area surrounding is mostly agriculture and farming, the economy in Jackson is based off more manufacturing processed food, fabricated metal, machinery production, and that stuff is starting to come back in the United States a bit. So there\u2019s some encouraging signs here for Jackson.<\/p>\n
Again, it seems like all four of the markets, they all have interesting potential, but just like the other three, Jackson does have modest population declines of 0.7% in the last year. And just so everyone knows, population decline is something you should be thinking about, because when you want to forecast rents, if you want to forecast appreciation, you need to be thinking about supply and demand. And if people are leaving a market, you are inherently going to have less overall demand. But there\u2019s some caveats that, if tons of young people are coming but older people are leaving, that can still increase demand because that\u2019s who buy houses. So there\u2019s a lot more to consider about this, but it is something that you should dig into if you\u2019re going to look into any of these markets. Why are people leaving? What demographics of people are leaving? Are renters leaving? Are homeowners leaving? Because that could really inform how seriously you should take population growth versus decline in a particular market.<\/p>\n
Kathy:<\/p>\n
And crime, Dave. Really understanding crime rates in the certain areas. I know that\u2019s a problem in the first city we talked about, Youngstown. There\u2019s a big drug problem there. When you don\u2019t have jobs, and that can be what people lean on, is the drugs. But what\u2019s interesting about Jackson is that it\u2019s one of the five top loneliest cities.<\/p>\n
Dave:<\/p>\n
Oh, that\u2019s so sad.<\/p>\n
Kathy:<\/p>\n
It\u2019s so sad.<\/p>\n
Dave:<\/p>\n
That\u2019s terrible.<\/p>\n
Henry:<\/p>\n
The song is even sad. It\u2019s just so\u2026<\/p>\n
Dave:<\/p>\n
Oh man, I hope that turns around for Jackson.<\/p>\n
Henry:<\/p>\n
Poor Jackson.<\/p>\n
Dave:<\/p>\n
Poor Jackson. Wow.<\/p>\n
Kathy:<\/p>\n
I think because there\u2019s so many people living alone, potentially. Yeah. I used to give Jackson a really hard time. I went there years ago to check it out because I knew somebody who was fully, almost completely invested in Jackson and doing really well. So if you know the city well, anywhere, you can make money anywhere, I want to just say that. If you know your city and you\u2019ve got the connections, you can make it work. And I know people who did. I went there and I was like, \u201cWow, I don\u2019t see really much chance of appreciation here. I don\u2019t see a lot of growth. Nothing too exciting.\u201d And I\u2019m just not a flat cashflow person. I need to see growth. I just need to see growth. Otherwise\u2026 I\u2019ve done it too many times where you have one renovation and it wipes out the cashflow for two or three years.<\/p>\n
Dave:<\/p>\n
Yeah. Absolutely. Well, that\u2019s a great way to segue to the end here, Kathy, because next week we\u2019re going to be doing a show on some of the best appreciation markets and ways to generate equity growth in your market. And so before we move on to that next week, I wanted to ask you both about where you fall on the spectrum, because really it is a spectrum. You can find great cashflow, but that\u2019s usually in a market that\u2019s not going to appreciate that much. Oftentimes the markets that have the best appreciation potential have lower cashflow, at least off the shelf. You\u2019re not going to find it just off the MLS. And so Kathy, it sounds like you fall more on the appreciation side of the spectrum. Is that right?<\/p>\n
Kathy:<\/p>\n
Well, for years our business plan, when you could do this, was to put as little money down, even nothing, like Henry was saying. If you can get your money back out and still cashflow, my goal was like $300 per property per month with as little money in it as possible. That\u2019s what I looked for. It is hard to do that today, but it can be done.<\/p>\n
Dave:<\/p>\n
And Henry, what about you?<\/p>\n
Henry:<\/p>\n
My goal is to buy value. From day one I want to walk into equity. I would love both. I want to walk into equity no matter what, and I would love the cashflow to go with that. But I may still buy a property where I walk into equity that doesn\u2019t cashflow, because cashflow is only one of the ways real estate pays you. And in my opinion, it\u2019s the least important way that real estate pays you.<\/p>\n
Kathy:<\/p>\n
Yeah, that\u2019s what I was going to say. So when I started, that was my goal. And then I realized I need a lot of properties for $300 a month to really make a difference in my life. And then I started to see other properties that didn\u2019t cashflow so well, but I was making 50 to a 100,000 a year, just on the appreciation. So that changed my mind. And then when I ran a real estate rental fund with that mixed, super high cashflow with super high growth, hands down, the growth properties ended up being about 28% return per year, and the cashflow ones were like six.<\/p>\n
Dave:<\/p>\n
For me, I like to look at it at a portfolio level and just make sure that my portfolio is at least breaking even in terms of cashflow. Because then I can look at individual deals and say, \u201cOkay, if we\u2019re going to do a renovation that takes one or two years, that\u2019s fine.\u201d Because on a holistic level, I\u2019m still breaking even. I\u2019m not having to come out of pocket regularly to support my portfolio, but I\u2019m not carrying that much that every individual deal is earning some great cash on cash return, as long as my portfolio is relatively self-sustaining.<\/p>\n
To learn more about this debate and the trade-off between cashflow and appreciation, make sure to check out our episode next week where we\u2019re going to be digging more into the appreciation side of things. Thank you all so much for listening to this episode about cashflow. If you liked it, please make sure to give us a review on either Apple, Spotify, or YouTube. Thanks again. We\u2019ll see you next time for On the Market. On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.<\/p>\n
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