Minimum cash flow on rentals

[bdub]

i am loving this thread...  been reading it every day that it's been here...  it's helping me to stay motivated as i look for a MFH this year...  thanks to all of you "seasoned" investors, i know what REALLY need to do, and that is WORK to find/make a REAL investment.

[NoMoneyDown]

My belief is they dont have a plan.

Bravo.  People have written volumes on being successful - you summarized it all in 8 words.  IMHO, that's why 95%+ people are never going to be rich/wealthy.

[propertymanager]

Rick,

I agree with everything that dwj said.  Those things are all part of it, especially the part about not having a plan.  However, my opinion is that most people are looking to get rich but are too lazy to put in the WORK that is required.  Is that too blunt?  Sorry, there's not even one politically correct bone in my body.  

If you have been reading the recent threads on this website regarding expenses, you've seen a lot of people say "but it's hard to find a property using these expense numbers in my market".  What they are really saying is that they want it to be easy.  The truth is that there is NOTHING easy about running ANY business.  I have owned and do own several businesses and I can tell you that being in business is a constant hassle.  Once you get past the hobby phase, there is a hassle almost every day.  

Because it is not easy to find a property that will actually cash flow, most new landlords simply buy a property at retail and delude themselves into thinking that they are making money.  That is easy to do until your portfolio starts to grow.  As you get more rentals, it becomes increasingly impossible to ignore the real expenses.  For example, when you have one rental, most landlords do not include postage as an expense.  Just yesterday, I put about $40 worth of stamps on bills that I sent out!  When you have one rental, most people pretend that they don't have any office expenses.  It seems like I'm at Office Max every other day spending $50 or $60 on ink cartridges.  When you have one rental, it may be years between evictions.  I posted a three day notice and took the paperwork and a check to my lawyer just this morning.  

In short, since the truth is unpleasant, most newbies simply ignore it and pretend that everything will be ok.  When reality strikes, they're out of business!

Perpetuating this entire myth are the gurus.  I'm a big Robert Kyosaki fan.  I enjoy his books and think that they are good from a philosophical standpoint.  I've seen him on TV and in videos saying that getting rich is when you have enough passive income coming in that you never have to work again.  I work hard, but I doubt if I work as hard as he does.  For someone that proclaims that he doesn't ever have to work again, he seems to be continuously working.  He seems to always be speaking and promoting his products.

I attended a big REIA convention recently.  I was riding in the elevator with a guru that proclaimed in his presentation that he was rich.  In the elevator, someone asked him how he was doing.  His reply was that he was worn out from being on the road all the time!  Evidently, he is still working like a dog too.

In conclusion, my opinion is that most people are looking for a get-rich-quick scheme that does not exist.  The truth is that they are not willing to do what it takes to succeed.

Mike    

[slambert007]

Good informative post Propertymanager...

You might want to use online bill pay to trim that $40 postage habit.

[cRod]

Will the equity that is being built by renting the property not offset the negative cashflow in the long run?

[DannyTheGreat]

Will the equity that is being built by renting the property not offset the negative cashflow in the long run?

That would be a waste of time. If you can carry a properties negative cash flow until it accumulates considerable equity, why not just use that money as a down payment in the beginning? Your building equity with your own money, therefore profiting very little with just appreciation.

If you've got money to burn, there are more productive ways to handle it then slowing building equity in a property with negative cash flow. Just spend the money upfront and have a property that can support itself. Not only that, but you will have to eventually sell it at a price the average investor can cash flow, so you might not be building as much equity as you think.

Your better off taking a little more time and find a property with a lot of equity and that cash flows. Negative cash flow properties are for aggressive investors who don't own a calculator and own properties for the sake of owning properties.

[dwj469]

crod. With rental properties cash flow is king. If you arent getting it when you buy it then whats the sense? Right?

[Sexxxy_Beast]

Perpetuating this entire myth are the gurus.  I'm a big Robert Kyosaki fan.  I enjoy his books and think that they are good from a philosophical standpoint.  I've seen him on TV and in videos saying that getting rich is when you have enough passive income coming in that you never have to work again.  I work hard, but I doubt if I work as hard as he does.  For someone that proclaims that he doesn't ever have to work again, he seems to be continuously working.  He seems to always be speaking and promoting his products.

I attended a big REIA convention recently.  I was riding in the elevator with a guru that proclaimed in his presentation that he was rich.  In the elevator, someone asked him how he was doing.  His reply was that he was worn out from being on the road all the time!  Evidently, he is still working like a dog too.

In conclusion, my opinion is that most people are looking for a get-rich-quick scheme that does not exist.  The truth is that they are not willing to do what it takes to succeed.

Mike    

>

I still consider that guy is rich enough to quit working.  It all depends on what level of life the guru wants to have.  Is he content with just having 1 Ferrari or 50 Ferraris?  When someone is so successful at Real Estate the next step i guess is doing infomercials and selling your books to millions for mass market profits.  Bill Gates was the richest guy on earth and he still works, why?  I guess most people can never stop working and be content with what they have.   I was just thinking about what my future would be like if i was successful at flipping houses.  Would i make a small fortune and go off to live on a nice beach house in south America with my supermodel wife and not work again(what would i do with my free time...)?  I think that if I reached that level of success id still want to have a bigger house then my neighbor and still work at making more money to have a better life then the people around me.  

life sucks sometimes < lol

[dwj469]

I agree to some point. Inregards to the flipping. You can become rich by flipping but you wont become wealthy if all you do is flip. What will you do if you flip and retire? Where is themoney going to come from once you stop flipping?

[d_sbrown]

I think that the reason that guys like Gates and others that are wealthy beyond anything we can dream still work is not that they are still chasing bigger and better.  It is that there is an inherent urge or drive in them to continually improve and do better.  It is not about the dollars, it is about winning.  If you played sports well and then moved on in life, you probably felt the loss of having that challenge to win until you learned to channeled that into something else.  Sitting on your butt in a big house and not doing anything may sound great, but in reality it will usually cause most doer kind of people to just get depressed.

My two cents,

DB

[dwj469]

Hey dsbrown those 2 cents you just gave were right on the money. I think the same thing. Good points.

[morningnewsman]

Any of these formulas change with mobil homes?  I do wholesaling...have not done a rental yet.  Are mobil homes decent rental options?

[propertymanager]

Mobile homes do make good rentals.  They often generate excellent cash flow.  However, there are a few things that you should know about mobile homes.  They are often more difficult to repair than standard houses.  Many of the parts are specifically mobile home parts.  In addition, water lines and electrical lines are located under the floor and above the insulation.  

Insurance is also an issue.  For example, insurance on a double wide is double that of a house.  

Finally, it can be difficult to sell mobile homes, especially if they have to be moved.  Moving expenses can be high (especially for double wides), and where they can be placed is often restricted by zoning.  Additionally, obtaining a loan for mobile homes can be difficult and the credit rating of the people looking at them is often poor.  Seller financing is often needed to sell mobile home.

Good Luck,

Mike



 

[morningnewsman]

Thanks Mike.  Sounds like, all things being equal, a single family or townhouse that cashflows is a better investment than a mobil home.  The tough part here in NY, as mentioned by some other folks, is that most decent single-family homes are at least in the upper $100's, so getting them to cash flow is tough.

[dwj469]

Hi morningnewsman. Mike is exactly right. I happen to work on mobile homes and know the ins and outs of them although I do not invest in them because they generally do not appreciate. They are more like cars even though the newer ones are very nice and actually built better than some houses. (what house can you drive down the road at 50mph? Anyway I live in an area in new york. (dutchess county) that is just as you say impossible to create a cash flow without putting down at least 60k and thats on a fix up. The area is one that went up fast and is going to go back down to where it should be. I am seeing signs of it now. A lot of houses on the market (still overpriced) and not being sold. This years forecast in the area for properties is in the neg. for appreciation. For instance A while ago I called up a realtor that owned a property. The company bought it as a foreclosure fixed it up and put it on the market for 220000. It was a very small house. (maybe 700-800 square feet.) I offered 140000 for it the realtor laughed at me and the house sat on the market for 2 years after that until someone overpaid for it. Probably from new york city. To make a long story even longer. I decided to invest in central and upstate new york where prices are low appreciation is steadily on the rise and rents to price ratios are great. Good luck with your investing...