The only place that I have been able to find cash flow deals is in the slums. I shouldnt say slums but more in less then desirable city areas. I know I am only going to get a certain tennat that way but are they worth it for the cash flow? Just trying to find out where people are finding these deals where the .02 calculation works. I havent seen anything in good areas like that, more like .01.
Hugh,
I have a bunch of rentals in low income areas. Cash flow is king for rentals. An nice house in a desirable area that loses money every month is a terrible investment. I’ll take the cash every day.
Mike
It can be risky due to the type of tenants you’ll be marketing to, but as mentioned cash flow is king. Many people are willing to dump these properties off for dirt cheap because of their location, types of tenants and etc. Remember, if you don’t want to put up with the hassle of lowly tenants, you could always have a reputable property management firm do so. Also, not all tenants in these areas are bad. If your numbers are right and you use some intuition you should be fine.
very nice, thank you both for the feedback. I know these areas, used to be very good, hard working people who fled to the suburbs. Some of these units I find to be real gems and I know I can rent out or even take section 8 (section 8 for these properties give me higher rent) I will continue to look into them, GREAT idea about the rental company. I know of a great one right in that area, they used to handle a unit I lived in long ago.
No problem! Remember, keep it simple! You’re n investor and can make much more money with that time rather than dealing with pesky tenants. Also, landlords are amongst the highest ranked professions that get sued every year. In almost all cases, when you have a property management company dealing with tenants for you, they’re sued, not you!
Beware of property management firms. Nobody cares more about your rental property than yourself.
Not to mention the 10% (of GROSS) they take off the top, that will kill a good deal of your cashflow right off the bat.
I think finding a reputable firm is definitely key. As for the 10%, if you get a place cheap enough because of an area that it’s located in, it may not be a big deal. While it is still 10% in your pocket that you may be saving, I would still rather allocate my time elsewhere if you have some very poor tenants. Now would I suggest the same for a sfh in a decent neighborhood? Probably not. It would all depend on location and the kind of tenants you may be attracting as well. It’s just an alternative that one would have to decide for themselves the pros and cons and whether it is worth it or not.
Here’s the rule of thumb: Never buy a rental in any area where you will not walk after dark.
If you are timid, you stay out of even moderately rough ares. If you are full of courage and have a concealed carry permit and don’t care if you are shot at, then you are OK to invest in the war zones.
I’d be surprised if you could find a really good management company that will take a rental in a bad area. If they are any good, they get to pick and choose their clients and they are unlikely to take a dangerous situation.
If you have a a mangement compnay, and you get sued, the suit is going to be against both the management compnay and you. You won’t get left out of the lawsuit. In addition to that, you can be sued for something the management company did, because they are your official representative.
Some of the areas I wont go near but some arent that bad. Both my brothers started out in these areas with 3 family homes. They lived on the third floor and rented out the other two. This way they learned how to make improvements and landlord safely. Dont think I would buy a 3 family in that area but def a single that i can rent.
The very LAST thing in this world that I would want to do is live with my tenants!!!
Mike
Come on mike, you know you love 'em all. We won’t laugh if you live with your tenants…really… :cool
rentals come in a spectrum of styles from rentals in the slums that are all cash flow and no appreciation to huge negative cash flow and all appreciation.
For example, near where I live(SoCal) you can buy a $3M, 6 plex with $10k gross monthly rent (Mike the Prop mrm will have heart attack). However, some idiot will buy this. However, on the same street (ocean view) duplexes in the mid 90’s were 200k; now they are (or were) $1.5M. (BTW, you will never make a $1m in cash flow on one property in the 'hood)
Understand your time line, risk tolerance and investment style. The is no “right” way. There are many wrong ways
MB
Most people can’t ride out the negative cashflow however. Of course if you are socking money away into an investment account you could certainly redirect your cash to a negative cashflow situation in an area like that. But as you say, risk tolerance is key. If you can afford to gamble it might pay off huge. If you can’t afford to put it all on the line its not gonna work. There’s something to be said about guaranteed cashflow.
The area you are investing in has a large influence on what type of investing you do. There are some areas in fly-over country where there is no appreciation.
If there is no appreciation, all you are ever going to get is whatever cash flow you have arranged to have.
In some areas with a history of really good appreciation, it is almost impossible to buy cash flow, so the real estate investor must use a different stategy for investing.
Old RE investor once told me never to buy any properties in an area that you can’t take your family to collect the rent at midnight…
we have had a lot of lower end rental properties.
The good thing is they always seem to stay full. If you screen carefully you can get some decent tennants.
You just have to accept that it is what it is - I’ve seen a lot of people try to over improve these properties