# Rental Cashflow vs ROI?



## DrMatt (Dec 11, 2011)

This is my first post. Just found this today. Interesting stuff!

I am hoping you'll be able to help me clarify something. I have wondered for a while now why so many people encourage others to buy rental properties that don't provide them with a positive Cashflow? Wouldn't it be better to put more money down (if you have it) to reduce your mortgage costs? Even if the money you earn on the rent gets taxed as income... isn't that the point? It seems that there is a culture of "breaking even" in order to maximize tax deductions (I.e. writing off mortgage interest)... But doesn't that defeat the purpose? (and make your banker rich?)

I feel like focussing on ROI is kind of like thinking of wealth in terms of Net Worth (which can be meaningless), whereas focussing on Cashflow is like thinking of wealth in terms of how much of your lifestyle your investments cover (Shouldn't our goal be to replace our household income with Cashflow from investments???)

I'm considering buying my first rental property sometime in the near future and I feel like focussing on Cashflow is the way to go, No?


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## Berubeland (Sep 6, 2009)

Read grasshopper read  ... http://www.milliondollarjourney.com/the-myth-of-positive-cash-flow.htm


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## marina628 (Dec 14, 2010)

Which town/City and How much would you have to pay for a rental ?There are many factors to consider on getting into RE.


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## peterk (May 16, 2010)

make sure when figuring in repair, upgrade, admin (collecting rent, advertising, phone calls, banking etc) time that you use your working rate, and the full rate of professional tradesmen.

You are a high earner, no?

It's easy to leave personal time put into a house out of the cash flow equation for a $15/hour employee who can't get any overtime anyways. If you're a $100/hour professional that can be doing more work to advance your career or bring in more cash, then ALL the time you put into thinking about and working on the rental house has to be charged at $100/hour against the rent profits.


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## DrMatt (Dec 11, 2011)

See now, that's what I'm talking about! Great point, that I hadn't really considered doing! Had a vague notion that my time is better spent elsewhere, but I never would have considered factoring it into the equation! Now I will! Thanks!


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## DrMatt (Dec 11, 2011)

And thanks also to Berubeland! Good stuff there too!


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## Berubeland (Sep 6, 2009)

For high income earners such as Dr's the cash flow is incidental. 

In any case while you are earning you want to protect yourself from taxation so there are many investment strategies you can use that others do not. 

I have several clients in this position and while it is difficult to temper my very cash flow oriented position due to my early training, there are long term estate and retirement strategies that have nothing to do with cash flow. 

For example I have one gentleman I work for that never cares about it. He is looking very long term as an inflation and retirement hedge for himself. He has 5 of these cash flow negative properties and he doesn't mind paying in now. Quite frankly the cash negative position is peanuts to him in his financial position. Later when he retires and his mortgages are all organized to pay off when he wants to retire, he'll have several millions in real estate and the rental income free and clear for future value cash flow. 

In such cases it's a diversification strategy, he's already got very sizable assets in the stock market as well. 

Where I take real exception to non performing assets is when the buyers are putting all their eggs in one basket. They are overleveraged to the hilt and some cannot afford even one month's rental loss. They have no money to fix things. It's awful.


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## kcowan (Jul 1, 2010)

Also beware of any investment that only works with leverage. Would you be OK with a broker who wanted you to be at maximum margin? And don't trust bankers. They no longer have your best interests foremost in their minds.


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