What is the best approach to attaining maximum cash flow? I used to think multifamily was but now I’ve heard its easy to experiance negative cash flow with multifamily property as well. Is commercial or industrial property the way to go? A large porfolio of sfh? What about sfh or mfh in low income areas? It seems like these properties may be of less value and slow if any appreciation but they still have positive cash flow. And it seems like mfh and apartment buildings have even greater cash flow in these low income areas. I don’t want to sound like I’m fixated on becoming a slumlord but my first goal in rei is to have enough cash flow to quit my full time job and invest full-time. Thanks! Any feedback is greatly appreciated.
Some of the higher yielding real estate investing niches (on average) are mobile home parks, rehabs, raw land/ subdividing and wholesaling.
The people who told you multi-fam properties easily experience negative cash flows are people who didn’t know every dollar that would be going in and out of the property BEFORE purchasing it. RE moves very slow, everything is done with contracts full of contingencies, there is no reason to not know everything about a property before you sign on the line.
If you’d like to explore rentals and dive straight into multi-units (not always the best place to start for most), consider office buildings, small retail strip centers, etc. The only downfall with these properties is filling vacancies is not as easy as residential. Management in every other aspect is 100 times easier.
Small residential buildings with 4 or less units may be the best place to start if you don’t have a lot of experience. A large portfolio of SFH’s as rentals is not the most cost effective way to generate cash flow. The smaller a building gets, the more per square foot it costs and will cost to maintain. In low income areas, your new full time job will be fixing your houses the tenants destroyed. Even though it will cost YOU more to buy and maintain, a SFH may only rent for $50-100 more than a similar sized multi- family unit would, which is a lot to the tenants but may only end up being $10 more a month that you keep.
There’s a lot to consider when talking about the “best approach.” I’d suggest forgetting about what initially appears to have the most cash flow and figure out what best fits your personality/ experience/ background. As long as everything in real estate remains negotiable, you can make a lot of money taking any route.
I agree with almost everything Danny said. However, if you are going to start in the residential rental business, I would suggest starting with a few SFHs before moving to multi-family. The reason that I recommend this is that is gives you a little time to acclimate to dealing with tenants. Dealing with tenants in SFHs is enough of a shock to start with and should be accomplished before moving to the really challenging (bad) tenants in low income multi-family housing. In addition, selling a SFH is much easier than selling an apartment building, so getting out is a lot easier if you decide that being a landord is not for you.
Regardless of which path you choose, you need to REALLY understand the numbers. Failure to have adequate cash flow is the number one reason that the vast majority of new businesses fail. Number two for new landlords is the shock of dealing with tenants.
Good Luck,
Mike
Danny, in your post you mention that mobile home parks offer a higher yield. Could you elaborate as to why.
DC
It’s similar in principle to rehabs in that you add value (income) to land that is undesirable for a number of reasons. The land is usually far enough outside of major towns that builders aren’t interested. The land might be too small to make it worth anything for a farmer. It may have no other uses other than a mobile home park.
If you buy a mobile home park that is already developed and producing income you’ll yield the same as any other rental/ land leased property. If you buy land that is essentially worthless, add the basic utilities, roads, etc., you can create a decent cash flow and have a huge equity position with less of the normal operating expenses.
I am certainly no expert on mobile home parks. I don’t own any and will never own any, unless someone gives me one for free. Here’s a couple good articles you may be interested in http://www.reiclub.com/art/find.php?cat=Mobile%20Homes