The decision rule is simple: if you can’t see a path to reposition a property inside 36 months, don’t buy it. That’s how Bill Faeth underwrites, and it’s why he’d tell most investors to reposition rental property instead of buy and hold — because holding is a strategy for people who are already financially free, and everyone else ends up equity rich and cash flow poor.
Faeth has been investing for 31 years, started with $126,000 eleven years ago, and has built a $24 million short-term rental portfolio without adding another dollar of outside capital. He also opened a hotel in New Orleans and has never owned a short-term rental in Nashville, where he lives.
Below: the 36-month filter and how it changes underwriting, the quarterly return-on-equity audit he runs on every holding, why the buy box comes before the market, the creative financing structures making deals pencil right now, and why he bought more property at high rates in 2023-24 than in any prior stretch of his career.
Key takeaways
- Apply the reposition test before purchase, not at exit — if you don’t believe you can reposition within 36 months, pass on the deal.
- Run a return-on-equity audit on every property every quarter to find capital that has stopped working and can be redeployed.
- Build the buy box first, then find the market that fits it. $50K, $200K and $500K of investable capital point to completely different property types and completely different geographies.
- Short-term rental cash flow typically runs three to five times long-term rent — Faeth’s Nashville comparison was $7,700 from Airbnb against the $2,200/month he was collecting on a lease.
- Target listings past 90 days on market. The seller is under pressure and the agent knows the listing is stale with a six-month expiration approaching.
From the Real Estate Pros Show
This article draws on an interview with Bill Faeth of billfaeth.com on the Real Estate Pros Show, hosted by Quentin Edmonds.
Why ‘Equity Rich, Cash Flow Poor’ Is a Real Failure Mode
Most investors hold because that’s what their parents and grandparents did, and because the legacy investing world has taught it as gospel. Faeth’s objection is not that buy-and-hold fails — it’s that it only works after you’re already financially free.
“A lot of people are buy and hold because that’s what their parents taught them,” he said. “But unfortunately, then you become equity rich and cash flow poor. And you can really only do that when you’re financially free.”
The mismatch shows up in the household earning $150,000 to $250,000. That investor is being handed a strategy built for someone with a fully funded life, and they cannot afford to run it. Their equity sits in a property producing a few hundred dollars a month while their actual constraint — usable cash — never loosens. Ten years later they have a net worth statement they can’t spend.
Faeth’s framing is the four pillars: cash flow, appreciation, debt paydown, and tax benefits. Max out all four on a given asset, then reposition and level up. The pillars are the reason to own the property; the reposition is the reason to stop owning it in its current form.
His own portfolio path illustrates the compounding. He started with $126,000 eleven years ago and has never put another penny in. The $24 million short-term rental portfolio that came out of that — plus syndications and hotel deals on top — is the product of recycling the same capital repeatedly, not of accumulating properties and sitting on them.
The practical read: if your equity is growing faster than your usable income, you don’t have a strong portfolio. You have a savings account with a roof on it.
The 36-Month Reposition Test as an Underwriting Filter
The rule is stated plainly. “I want to reposition every single property I own in less than 36 months. If I don’t believe that I can reposition in 36 months, I won’t make that investment. It’s too long for me. It’s too comfortable.”
The critical detail is when the test gets applied. This is not a hold-period review you run in year three when the property has underperformed. It is a purchase filter. Before the offer goes in, you have to be able to describe the reposition — what changes about the asset, what value gets created, and how the capital comes back out.
That constraint does real work on underwriting. A deal that only pencils if you own it for eight years fails immediately, no matter how good the eight-year IRR looks. A deal where the value-add is speculative — you’re hoping the market moves — fails, because appreciation you didn’t force isn’t a reposition plan.
Faeth borrows the discipline from commercial and syndication work, where the clock is imposed on you by outside capital. “I take the way that people raise money to buy a hotel or a commercial piece of property or whatever it is, a syndication, and my number one responsibility is to get my investors paid back as quickly as I can. That means I need to reposition.”
Applied to residential and short-term rental assets, the effect is that you become your own limited partner. You owe yourself a capital return on a schedule. The full sequence he runs: buy, create value, force appreciation, extract cash flow, reinvest that cash flow, then reposition the property.
Comfort is the tell he watches for. A hold period that feels relaxed usually means capital that has stopped working.
I want to reposition every single property I own in less than 36 months. If I don’t believe that I can reposition in 36 months, I won’t make that investment. It’s too long for me. It’s too comfortable.
— Bill Faeth, billfaeth.com
Running a Quarterly Return-on-Equity Audit
Faeth’s recommendation is unambiguous: “I believe that all of us should be doing a return on equity audit of every one of our real estate holdings every quarter to see where we can redeploy or reposition to create more opportunity for ourselves.”
Return on equity is a different question from return on investment, and that’s the entire point. ROI measures what the deal returned against what you originally put in — a number that gets more flattering and less useful every year the property appreciates. Return on equity measures annual return against the equity currently trapped in the asset. As equity builds, the same net income produces a steadily worse ROE. Nothing about the property got worse; the capital just got lazy.
The audit answers one question per property: is this equity earning its keep, or would the same dollars produce more somewhere else? Run quarterly, it surfaces the properties that have quietly become storage.
What follows a failed audit is not automatically a sale. Redeploy and reposition are two different responses. Redeploying means moving the capital out — sale, exchange, or refinance — into a better use. Repositioning means changing what the asset does: converting use, forcing appreciation through improvement, restructuring debt, or pulling equity out and putting it to work while keeping the property.
Run against the 36-month filter, the quarterly cadence gives you roughly twelve checkpoints per asset before your self-imposed deadline. That’s enough to see the reposition coming and to execute deliberately rather than under pressure.
Build the Buy Box First, Then Pick the Market
Most investors do this in the wrong order. They buy near home because it feels comfortable, then reverse-engineer a strategy to fit whatever that market offers.
Faeth’s credibility on this is that he lives just outside Nashville and has never owned a short-term rental, a hotel, or anything similar there. “Don’t invest someplace because it’s close and you feel comfortable. Find the best place.”
The buy box comes first because capital size dictates asset type, and asset type dictates geography. “If you have $50,000 to invest, that’s going to be a completely different market, completely different property type than if you have $200,000 or if you have $500,000. So we have to build out these buy boxes first, then we plug those into a market that it’s going to work best for that buy box.”
The 2015 moment that moved him off long-term rentals is a clean illustration of the underwriting gap. He and a golf buddy each owned a two-bedroom condo in downtown Nashville — the same unit type. His friend produced $7,700 in a period on Airbnb. Faeth was collecting $2,200 a month in long-term rent on his. He sold that unit and started investing in short-term rentals in Gulf Shores, Alabama.
His general read on the spread holds up as a screening assumption: short-term rental cash flow typically runs three to five times long-term rent. That multiple is what makes a 36-month reposition arithmetically possible on a residential-sized asset. It also explains why the same building can be a failed hold and a successful reposition depending only on what you do with it.
Financing a Reposition Strategy When Cash Is the Bottleneck
Cash is the constraint. “I think the bottleneck for the average investor is cash. It’s always cash. So I think people need to learn and understand how to get more creative in their financing.”
A recent deal shows the structure. The seller carried roughly 45% of total loan value at 5%, while the institutional 55% priced around 6.85%. Blended, that materially lowers the cost of capital without requiring more cash at close — and on a reposition timeline, debt cost is the variable that decides whether the exit math works. Faeth closed three deals for clients in a 48-hour stretch, and every one used some form of creative structure: seller carry, seller credits, or concessions.
The reason these terms are available now is days on market. Markets that ran 14 to 20 days in the spring are sitting at 45 to 60. That extension is driven by buyer emotion, not by fundamentals, and it hands negotiating position to whoever is still transacting.
Past 90 days, the pressure compounds on both sides of the listing:
- The seller has likely absorbed one or two price reductions and is carrying the property longer than planned.
- The agent knows the listing is stale and is facing a six-month expiration. With 70 to 90 days left, they’re motivated to work the seller toward any deal that closes.
That second point is the underused one. Creative financing is often framed as a seller conversation, but on a stale listing the agent becomes an ally in getting terms approved, because the alternative is losing the commission entirely.
Filter for good properties past 90 days first, then negotiate the structure. The pain is what makes the terms available.
When the Market Is Emotional, Underwrite Anyway
Faeth bought more real estate in 2023 and 2024, at high rates, than at any point in his career. The logic is straightforward: “If I can find a deal at that time that will underwrite, it’s only going to get better when I refinance or reposition.”
A deal that clears at 7% has nowhere to go but up. Rates fall and the refinance improves it. The reposition executes and the exit improves it. You’ve underwritten the worst version of the capital stack and it still worked. The inverse — a deal that only pencils at low rates — is a bet, not an investment.
What creates the opening is the emotional response of high earners. When someone with $500,000 to $5 million in the market watches a 1% swing erase six figures in a day, the instinct is to retract, hold, and wait. “That’s usually the worst thing that we can do from a financial perspective, but it ties to emotion.”
Faeth is explicit that he’s trading against that reaction, not against price: “That’s when I make my most rational decisions based on their emotion, not my emotion, their emotion.” Hesitation, not valuation, is the current inefficiency — it’s what’s stretching days on market and putting seller carry on the table.
Worth noting honestly: he spends about half his time coaching, and much of that is talking nervous investors back from the ledge. That’s the real difficulty. The analysis is not hard. Executing it while everyone around you is frozen is.
Frequently asked questions
What does ‘repositioning’ a property actually mean if you’re not simply selling it?
Repositioning means changing what the asset does or how it’s capitalized so the equity inside it starts working harder. Selling is one option. Others include converting a long-term rental to short-term use, forcing appreciation through improvement and then refinancing to extract capital, restructuring the debt, or exchanging into a larger asset.
Faeth’s full sequence is buy, create value, force appreciation, extract cash flow, reinvest the cash flow, then reposition. The reposition is the step that frees the capital for the next deal — whether or not the deed changes hands.
How do you decide whether a property fails the 36-month reposition test before you buy it?
You have to be able to describe the reposition concretely at the time of offer: what changes about the asset, what value that creates, and how capital comes back out within three years. If the answer depends on the market appreciating on its own, the deal fails — that’s not forced appreciation, it’s hope.
Faeth’s phrasing for the failure case is telling. A hold period that feels comfortable is the signal, because comfort usually means the capital has no scheduled job.
What does a return-on-equity audit look for, and how often should you run one?
Every quarter, on every holding. The audit measures annual return against the equity currently sitting in each property, not against your original investment. As equity accumulates, the same net income produces a declining return on equity — that decline is the signal that capital has gone lazy.
The output is a decision per property: leave it, reposition it, or redeploy the capital somewhere it earns more. Run quarterly against a 36-month deadline, you get about twelve checkpoints before your own clock runs out.
Does a seller carry at a below-market rate actually change the deal, or just the closing?
It changes the deal. In the example Faeth described, the seller carried roughly 45% of total loan value at 5% while the institutional 55% priced near 6.85%. That lowers blended debt cost across the entire hold period, which directly improves cash flow and the reposition math — not just the amount of cash required at the table.
Terms vary by deal and structure, and financing arrangements should be reviewed with your lender and counsel before you rely on them.
Why target listings that have been on the market more than 90 days?
Because past 90 days, both the seller and the agent are under pressure, and that’s when creative terms become negotiable. The seller has usually taken one or two price reductions already. The agent knows the listing is stale and is facing a six-month expiration, which means limited time to produce a deal before losing the commission.
With days on market stretching from 14-20 days in the spring to 45-60 now, the pool of qualifying properties is expanding. Screen for good assets that have aged, then negotiate structure.
The bottom line
Pull your portfolio into a spreadsheet this week and calculate return on equity — current annual return divided by current equity, property by property. The ones that come back weak are your reposition candidates, and until you’ve run that number you’re guessing about which of your capital is actually working.
