I don’t know how many landlords have bought Property with an upfront negative return. My mentor 50 years ago taught me to look at the big picture down the road. If I bought a house and it had a negative of $100 a month and I have other property that were positive that would offset the negative. If I bought a property that had a negative and no offsetting other property his recommendation was due it. When the tenant is paying 90% of the payment or more where can you buy a house for $100 a month. Food for thought.

Sometimes it works and sometimes it doesn't. Risk is like that.

I've seen markets tank, rents go negative, months with a vacancy, and then the ARM resets at a higher rate. All of a sudden that $100 a month negative cashflow turns into several hundred a month and the rest of the portfolio is in the same boat. In fact, having a wad of cash in that market got me my start about 45 years ago buying properties at a fire sale as investors were going bankrupt. It's happened a few times since.

That strategy does work when things are appreciating, the economy is not contracting, and interest rates don't skyrocket. My crystal ball is a little fuzzy on what's going to happen in the future so I'll stick to solid financial analysis so I will be ok no matter what happens in the market.

Just before I turned 18 years old, I was working in the Jewelry trade making money have over fist, all taxable. At 17, back in 1977, who wants to pay between $20,000 and $50,000 in annual federal income tax? I didn't choose this but every quarter I was paying estimated income tax.

So I purchased books on income real estate and discussed my findings with my family, who owned a few income properties and several other well known Jewelers. They all purchased raw land near airports, Las Vegas hotels and other hot spots. But they still were paying 1/3 of their income in taxes.

So I learned that you could depreciate structures, improved property, JUST NOT THE LAND. That's around 80% of the purchase price you could write off over a 15 year period.

The average house in the San Fernando Valley was when I started around $70,000. I needed a 20% down payment plus closing costs of around 2%. A total of 22% of the purchase price.

My firsts home cost $72,000, with an approximate $16,000 DOWN PAYMENT. But I got to Depreciate 1/15th of 80% OF THE TOTAL COST OF $72,000, or $57,600 in total, OR $3,840 per dear in depreciation. Divide that by 12 months, that's a $320 a month write off.

But when I subtract from the monthly rent Property Taxes, Mortgage costs, Insurance, gardener and pool service, I was LOOSING AROUND $100 PER MONTH ON PAPER. But I was saving $320 a in taxes. So I was really netting $220 a month on any good day.

By 20 I owned 5 homes. Loosing $500 a month in negative ash flow, but with the write off, etc, I was making over $2,000 in real income.

So last week I saw my friend Paul, he and his wife once owned 3 rentals and his primary home. He had to sell them because I didn't think things thru. He then asked me what did I do with those 5 homes.

The first, a pool house I had to sell years later. From 1 in 5 families wanted to rent a house with a pool, It went to less then 1 in 22 families wanted a pool. So I sold the first house and netted $125,000 into a 1031 accomdator exchange account. Then I purchased a larger house and after closing putting all of the cash into the up tick, I took a $80,000 loan out on a re-fi, paying no taxes.

Later i sold that house for $700,000, netting $520,000 after taxes. And for 20 years I was making $2,000 income profit rental each month.

With the other 4 homes, 1 I kept. 3 I exchanged for apartment buildings, making around $15,000 a month income. And If I sell those properties, I'd net around 3 million.

And these were the 5 crappy homes I was loosing $100 a month each.

That plan can and does work in marketplaces that have a strong cyclical pattern, if you can catch them during the end of a downturn.

I found real estate easy to buy in the mid 80s in SoCal, because no one wanted them.

Now what would have happened if I bought in 2006 instead?

In a mid-west market, I would think hard if I elected to buy an Alligator property because that appreciation and deep real estate swings typically don't occur. The objective is cash flow.

If you have a basic Buy & Hold (& Rent) biz plan, "Appreciation" means very little. Less than zero, in fact, because appreciation causes taxes and insurance to go up, reducing actual cash flow income.

As we said in the Net Worth discussion, what something is "WORTH" on paper is meaningless if you are not selling or leveraging it with a mortgage. It's all about the cash flow, it's all about keeping it rented.

WMH

I think you have to work within the constraints of your personality, your wallet, and your market. I want my rentals close. Too many unknowns with owning in another state (for me anyway). My small town isn't known for appreciating but then again it isn't known for depreciating. Even so, what was $150K in 2018 is $250K in 2025 which certainly makes one's net worth look better on paper.

Everyone's road is a little different but I am more in line with WMH's Buy, Hold, Rent, and focus on cash flow. It's worked very well for me for the last 7 years. I wish I had done this 10 years earlier.

If the market tanks, my cash flow will stay strong. I think being open to new ideas though (as Ray N PA advocates) is a key to success.

I ventured into mid term rentals and the ones I have are doing better than I ever thought for this little old NC town.

I am pondering my next move and Ray has me thinking about owner financing a sale of a house. Still trying to wrap my head around that since I don't want to part with things but I am thinking that it would be beneficial to me to do so.

I appreciate your point for a seasoned investor but I see it dangerous for a beginner. My early buying criteria (1977) was $150/mo cash flow before income taxes

and every property had to carry its own weight.

This paid off when the RE market crashed - We lost money (my IRS 1040 was -$30,000 one year, lost about $60,000 from savings over a 3 year down cycle) but we did not lose the houses because we had stored up same cash.

We actually PAID for our renter to live in the homes.

This was our pivot point to the things I teach now to increase cash flow.

RE goes UP and it goes DOWN. It's the nature of the beast.

We barely survived the DOWNS and are enjoying the current UP.

My earliest purchase was negative if I based it on the accounting records provided by the bank. It was an REO and the bank had the property for three years. I didn’t ask why but they were probably fixing it up. Based on my calculations it was slightly positive. The first year I lost money cleaning it up and fixing defects. After that it was profitable. Rents are 5X what they were so it is a really great property for me at this point.

CA is like any other urban community. Certain areas are very expensive and others more reasonable. It’s CA so even reasonable is expensive.

My first few purchases were the school of hard-knocks in the hood. They broke even when occupied. Then the tide turned 1990-1995. Properties lost 30-40% AND rents tanked as new buyers undercut market rents. the S&L crisis had bi-weekly auctions when you could buy for 5-10k per unit. So I bought 13 doors at auction to help off set the negative mess I was carrying.

I had an investor friend who did exactly that and lost over 100 homes to foreclosure within a few years. I bought one from him, 15 years later it's paid off, tripled in value and the same tenant is still here!

I always made sure I had over $300 positive cashflow after expenses, factoring in 10% vacancy rate. Now everything is paid off, I only need minimal rent to balance my books, I am not stressing out if I can't find a good tenant quickly, and I have lots of room to drop my rent if needed in a slow market.