I have a relestate background and have been studying very hard the last 6 months about everyting to do with rei. My goal was to buy and hold multi unit apartments 2-6 units, in good neighborhoods. The properties would be in good condition and nice enough to attract the best possible tenannts. (blue collar) working class people. Who would stay long term and treat the property like it was there own… To say the least i am very discouraged. It seems as if i would never find properties that meet this criteria that i can realistically purchase and have a positive cash flow.Some properties that fit this criteria i would have to offer 50-70,000 below there asking price. No one in there right mind is going to discount a property that much. I know you can work with people in forclosure but that is not exactly what i want to do in this business. Should i change my plan and start looking into lower income housing where i can have a positive cash flow but more tennant drama. is it worth all the risk for people that dont give a shit about anything let alone youre property? Or is it better to just buy these properties ,never do any improvements and just keep colecting rent. this is not what i want to do but it seems like it is really the only way. Are these the only people that make money in rei? just frustrated. thanks for the input
<<Some properties that fit this criteria i would have to offer 50-70,000 below there asking price. No one in there right mind is going to discount a property that much.>>
What makes you think landlords are “in their right mind”? If you find someone that is totally fed-up with tenants and landlording, you never know what they might do…
Keith
I forget who it is but someone keep quoting “If you aren’t embarrassed by your offer then it isn’t low enough.” I firmly believe in this even though it hasn’t happened yet I know my deal will be profitable.
Benjie
You will never profit from being a slumlord. You will only attract scum which will make life horrible for you and never pay rent. I would never invest in rentals if slumlording is the only way to make money.
I only buy nice, clean places and make sure all repairs are done promtly, and only let good people in my units. This makes being a landlord much more enjoyable.
I understand your thinking, I used to wonder what the right way to go is. But I can say with 100% certainty that having nice properties you are proud off is the way to landlord. Never be a slumlord, you will hate life and hate Real Estate.
Chances are, the owners of these properties were made to be the “greater fool” when they bought the property by the former owner. Now that they realize the pro forma aren’t the real numbers so they have to either neglect expenses (slum lord) or sell to an even greater fool (you).
This greater fool theory is what fuels the stock market and real estate investment market. This is what’s called “market value”, and explains why it flucuates so much. You might have to sift through a couple thousand properties before you find one where the owner isn’t playing the greater fool game. You can guarantee your investment property will make money by making sure the numbers click or you can turn your investment into a “risk” by hoping to find a slightly dumber person. The greater fool can work for a short time and you can make a killing but eventually they will ALL fail.
Everyone wants to be rich. They are told that RE has made more millionaires than any other industry so they all want a piece of the action. This competition fuels the idiots to bid a few thousand dollars above market value, then eventually the market values in the entire area go up since all the comps have sold so high. Now with the newly established market value, more idiots come out and bid a few thousand over so they can get a piece of the action to. Same thing, market value goes up since the sales comps reflect it. Now the people who first bid a couple thousand above market value sell their property to a new batch of idiots, make $20-50k, sell books and courses about it, fueling the cycle and influx of idiots.
This is called “The Cycle of Life”.
Maybe “Cycle of Idiots” is more appropriate?
“Life” and “Idiots” are synonomous.
Johnny,
You are starting to see the real world of rental properties. Yes, you must buy the properties dirt cheap if you want them to cash flow. To do this, you must find someone who is desperate. Fortunately, the vast majority of new landlords fail and there is no shortage of landlords who will do ANYTHING to end their pain. It seems that a lot of people are not suited to dealing with drug dealers, thieves, liars, scumbags, and other beautiful people. Personally, I love them!
The question I have for you is “what have you done to find these desperate sellers”?
Mike
mike
You are right . i could be doing more to find these motivated sellers. i have just been using the mls and newspaper to find properties. i guess i could put an add in the paper saying. private investor looking to buy multi unit properties. and also i could be going through the forclosure listings.
Johnny,
You answered your own question. You have only found retail deals because you are only looking where retail deals are found. You won’t find the good deals sitting at home. Get out there and meet people. Join your REIA. Let people know that you’re in business. Target desperate sellers. Don’t make low offers on retail properties. Find desperate sellers who will do ANYTHING to get rid of their property. I’m currently working on buying 4 small apartment buildings. The owner will do anything to get rid of them. I can take them sub-2, on lease option, with conventional financing, etc. The seller just wants to stop the pain.
That’s the kind of deals I usually buy. These deals are not on the MLS or in the paper.
Good Luck,
Mike
It all depends on the area where you live and invest.
In the major metroplitan areas, such as NYC, Miami, Boston, San Francisco, properties in good areas do not cash flow with 20% or below down payment. They will cash flow at around 50% down.
Just spoke to a customer this week, and he was investing in Guangzhou, China, and he mentioned that the “return on invested capital”, or CAP rate is only 3% here in NYC versus 8% in China, and property management fees here run 10% for small properties here, whereas it runs only 1% in China.
Based on my observations, on properties I own, I agreed with him. If buyers paid market price, and lets say with “no down” where I am, they’ll earn 3% return on the property, while paying out close to 6% on borrowing. You can easily see where you negative cash flow comes in. Putting 10% to 20% down will not change the cash flow equation much.
Conversely, rather than putting 50% down, if you paid 50% market, you’ll start to cash flow too. The question is how??
The reason for crazy prices around here is many professionals, doctors, lawyers etc, are leery of thes stock market, and dumping 100K, 200K into properties. My brother in law who’s a doctor did a 1031 exchange from a 400K “free and clear” 3 family in San Francisco, into TWO SFH, about 400K each, putting 200K on each one, 50% down.
The reason?? He was tired of the tenants in a so so area, and paying taxes on his cash flow. He went to a better area, got better tenants, and will get paid eventually on capital gains.
The fact that the 400K houses are now about “one million” in FMV validates the wisdom of this approach.
However, there are still areas in this country that one can purchase SFH at 25K to 50K, and get decent cash flow, if you live in a pricey area. Where I am, in NYC, many parts of PA is within 2 to 4 hours drive if I really want cash flow.
When I started investing in NYC back in 1981, I bought a 3 family for 150K, with 2BR apartments renting at 600/month each. My wifes’s girlfriend bought a 2 famliy about a year or so before in Philadelphia for 25K,t and she was collecting almost $500/month for a 2BR. While prices have gone up quite a bit in Philly, many areas in PA can cash flow well.