How do you experienced landlords feel about picking up rental properties without having any cash reserves in the bank?
Basically I would like to pick up some rentals, but I am a little uncertain to do this without having some money in the bank. I guess I’m just worried that if I buy them and rehab them, that I might not get them rented right away and I’ll be stuck trying to come up with the mortgage payments (albeit small). Obviously I would make sure they are great deals and they will cash flow, but I just don’t want to put a bullet to my REI career so quickly.
How do you experienced landlords feel about picking up rental properties without having any cash reserves in the bank?
I’d feel fine about YOU doing it, but that’s only because it’s YOUR money. The unfortunate truth is that it takes money or credit to run a business (both is better). To try to start a business without either money or credit is financial SUICIDE.
As far as my credit goes, that is excellent. I can get the loans to buy and rehab, and then I’m sure I could even refinance into a permanent loan. It’s just that I don’t have much in the bank that is liquid to draw on to make payments if the property is vacant.
if you have a couple of units then a credit card with a healthy limit of $5000 would be well advised; however, you still need a way to pay it off (takes a long time from cash flow)
You know that real estate is one of the few businesses that can be started with no cash and no credit because of the equity in the properties themselves. But the business is really a cash and credit business. It is sold to broke people because they are much easier to sell to. I always say that the worse time to go into a business (any business) is when you need the cash from that business. The ideal person would have a regular W-2 type job and good credit. A person established enough to have options as to how he is going to invest. Just like a person chooses to invest in stocks or mutual funds, that same person may decide to invest in real estate. If you are investing in real estate because you have no other choice you need to think about what you are about to do.
I always say that you do real estate not for the money but for the lifestyle. What real estate allows you to do is replace your expenses with real estate cash flow and your job is instantly a hobby. If you don’t like that hobby then you can retire. I say don’t look at your income to replace but your expenses. If your income equals your expenses you are living paycheck to paycheck. That is the reason your cash is low. What you need is a bigger paycheck or lower bills.
Your situation is the major reason most guy’s start off by flipping a few houses first.
I know this is getting harder and harder to do in this cycle, but you may want to SELL one of your deals as a way to generate some cash. Starter homes are best. No matter what the economy is doing, there’s ALWAYS a market for entry level homes. If you can buy one for 30 to 50 cents on the dollar, just fix it and sell it.
I just sold a house I purchased from a private owner. I paid $110K and put $8000 into it. It sold for $179,000 or $61,000 profit.
Theres not a lot of other LEGAL ways to put that amount of money in the bank in 90 days.
I agree man. I’m working on that right now. I’ve got a few potential wholesale deals that will put a little in my pocket, as well as a potential rehab property.
I had just found a few properties that would definitely cash flow as rentals and was pondering picking them up.
With the economy in the shape it’s in, do you think you’ll be able to find cashing flowing rental property in the next year??
You already KNOW the answer is YES, probably MORE than at this time. So why not concentrate on those rehab flips. Keep them limited to “lipstick specials” (cosmetic rehabs) you can still make a ton of money doing those. Pile that dough into a nice rental property account and your all set.
I would figure on having $10,000 per rental in the bank, in cash. I’m sure there’s people here who would disagree with that but I HATE being TIGHT for money. At $10,000 each you can sleep like a baby at night. The other GREAT thing about the $10,000 theory is you can fund those acounts with a FRACTION of your profits on the flips you do. Say you make $30K to $40K on a rehab?? Go out and BUY one of those cash flowing homes and put that dough into and account for it. Eventually 2 things are going to happen…
First…you end up buying a few rentals but aren’t stessed for money, or Second… you buy a few rentals and realize that you only need $10,000 for 5 of them. If you folowed the plan you now have $40K to do what ever you want with.
pick the best deal that fit your criteria and objectives and leave the rest behind. IMHO, focus and high deal quality are important. Two excellent deals are better 4 marginal ones. Marginal deals just take away time and $$$ for more successful projects.