The Difficulty in Finding Properties that Cash Flow

   I have found using the stringent criteria on this forum such as the 2% rule eliminates basically all properties for sale in my area.  Seeing as how I live in the Philadelphia region and the housing market isn’t as inflated as other areas, I wonder how anyone, anywhere is buying properties.  I understand the necessity of buying properties under FMV and more specifically in the region of 70% of FMV but even with such a discount I still don’t meet the criteria for proper cash flow of $100 per month per unit.   In order to do this I would have to buy properties in more the 50% range of FMV which is bordering impossible.  Seeing as how I constantly read on this forum of deals that don’t even come remotely close to meeting this criteria, I know other’s are either having the same problem as me or are overpaying and setting themselves up for disaster.  So to the selective few that are finding deals, how are you doing it?  As a motivated young 22 year old who can afford to enter the market I sit here anxiously awaiting an opportunity to enter it.  Hopefully the time will come...

Josh,
I remember asking/saying the same exact things about a year and half ago…The answer I got was I’m not looking in the right places or I need to expand my area…Where I live I would have the same exact issue as you…In my area people pay 10-15x annual rent roll and make no money/lose money/go belly up…The last property I just put into contract I did so for 2.7x annual rent roll…

When I bought my primary residence (Queens NY) I became friendly with the closing attorney…He told me he bought a co-op in NYC for an investment (obviously he was confused not realizing he is a speculator and not an investor)…He was upfront and said he adds $500-700 a month to the mortgage/expenses over the paid rent from tenant…When I questioned as to why he did this and it was a losing proposition he said but it will be worth x amount in the years to come…Point being expand the search area and you will find stuff…I have seen online properties in Philly that on the surface I assumed would cashflow but I was unsure of the area…Last time I was in Philly I was surprised how much Camden NJ stayed the same…

How are you looking for the properties?

You better have a gun and be a big fella for camden, NJ!!! I’m a wee bit familiar with philly’s market. My job sends me there a bunch. I thought down around essington looked like a decent blue collar neighborhood to invest in.

Don’t forget mobile homes, start here for repos …http://www.vmfrepos.com/searchHomes.cfm

Your gonna need all cash to buy these old homes, ain’t no financing for these.

Good luck

I too feel ya.

I have lived in the suburbs of Philly for years, and I own multiple rental and investment properties, but I only own one currently in PA - my primary home. So you may need to look in other area such as I have.

Keep in mind you can make Any property cash flow if you put enough money down or do a MTA loan or get the right terms. So cash flow is really subjective.

What is your goal and monthly cash needs at this point?

How much do you have to put down on these properties and what price range are you looking?

$100 to $200K - $200 to $300K - $300K to $400K or more?

This info will help us to help you.

Keep in mind you can make Any property cash flow if you put enough money down

Wallace,

I’m puzzled by this comment?..How does that justify cashflowing a property?..What about the amount he puts down…Where is the ROI on the down money…So multi’s in my area are selling at 10-15x rent roll…Example 6 family annual rent roll of 50k selling for 700k…So I should put down 500k and not worry about making zero return on that 500k?//.I’m sorry ,I’m sure I don’t have 1/10 the RE experience you have but that is a absurd comment to make…

Well congrats it looks like you found quite the deal there. I live in a suburb of Philadelphia and I am open to the idea of investing in the surrounding area, I have just read it is best to keep it local so I am trying to do that.

Unfortunately I am mostly looking through the MLS system in order to get a general feel for the markets. I feel as if I tell a realtor my criteria he/she would generally laugh at me. If I could buy properties at such a discount I would probably turn around and sell them right on the spot.

I have entertained the idea of going down this route but haven’t put that much thought into it. I have a lot more reading to do on this subject but I assume the same rules of cash flowing apply here too?

I have no specific goal in terms of real estate at this point. I make a very good living and I want to parlay this over into the area of real estate. First I want to acquire a primary residence and then go from there. I was thinking that my best bet for this would be a 3-4 unit multifamily house where I would live in one of the units. I have been preapproved for 400k with the intention of putting 20% down but the objective is to have them cash flow on 100% financing.

No your right on the money - my point was that if you finance 100% of most any property the rents will Not cover all expenses (in 95% of all markets) some you can put down 10% - 20% and break even - others take 30%…

Your Goals (Long Term appreciation - Depreciation - maybe re-zone later to a multi use - Income now_ 1031 exchange - etc etc) and overall ROI is the most important thing to look at. So many people get wrapped around the Axle with “Cash Flow” and do not fully understand how to manipulate it.

This is all I was pointing out.

As for experience? ummm me only been doing this about 4 yrs on a full time basis, used to be in the Amy 19 years until my accident in early 2003. I continue to attend Real Estate Investing Classes myself each quarter or so and learn the more I learn the less I know.

Unfortunately I am mostly looking through the MLS system in order to get a general feel for the markets. I feel as if I tell a realtor my criteria he/she would generally laugh at me. If I could buy properties at such a discount I would probably turn around and sell them right on the spot.

Josh,

That’s the problem. You really haven’t done anything to find properties that are a great deal. By the time the year is over, I will have bought 22 rentals this year and not a single one of them was on the MLS - NOT ONE! You’ve got to get out of the house and meet people if you want to find great deals. I would start by joining your local REIA and make friends with the SUCCESSFUL investors in your local area. Also, tell everyone you know that you are buying properties!

No your right on the money - my point was that if you finance 100% of most any property the rents will Not cover all expenses (in 95% of all markets) some you can put down 10% - 20% and break even - others take 30%..

Wallace,

You’ve got this all wrong. The percentage of the purchase price that you finance isn’t the key factor in whether a property will cash flow. The key to having a property cash flow is to buy at a BIG discount. Then, even with 100% financing, the property will cash flow. What have YOU done to find great deals?

Mike

Try calling all the for rent ads in the paper. Try driving for dollars and scoping out for rent signs. Try searching for homes that are in a state of disarray. Heck, I even read a book where one guy was calling retirement homes and asking the director if they had any residents who needed to sell their homes. Search expired MLS listings. Follow through with ‘deals’ that are supposedly on the table with other buyers. Many times will a buyer not come through on a loan or be able to buy a house. Ask, search, and market extensively. Treat this as if it were a business; a business that will put food on the table for your family. Understand that this is a serious job and that there are many others out there competing with and against you in this business that ARE putting food on their tables; are paying up front for their kids college education; are going to retire early, etc. If you don’t , you will not be as lucrative as you had hoped for. Good luck with your endeavors!

What investors do is buy investor grade properties. If you find a house for sale withen 80% of what every other house just like it has sold for in the last 6 months that house is being sold at retail prices. Houses don’t cash flow when you buy them for retail prices. You have to buy them at a discount. If you buy the house at enough of a discount you can buy the house finance the whole purchase plus costs and fees as well as all the fix up expenses. That is what I do. I have financed 100% of the acquision costs and rehab on the last 6 houses I bought.

You’re suggesting calling places that aren’t for sale but for rent? I’m guessing this is with the hope of the owners having difficulty renting their units and the possibility of him or her being open to the idea of selling? I’m not really sure what you are suggesting here and I am just trying to be clear.

Yes. You may be able to find distressed landlords that are willing to sell cheap to just get out of the business. Also, these places typically will not have for sale ads. What does that mean? You’re the first in line!!! Many people have success with calling for rent ads. You have to expand your horizons in the way you ‘search’ for potential profits. There are what seems like an infinite amount of ways to go after and acquire real estate without ever looking through an mls book or the internet. How else did people make it 15 years ago without the internet? I just talked to a guy the other day who had 90 rental properties and suggested I threw my computer out! Different strokes for different folks!

I just talked to a guy the other day who had 90 rental properties and suggested I threw my computer out! Different strokes for different folks!

He’s absolutely right! The only thing I do with the computer is type things up: contracts, rent roll, leases, etc. While I’m glad that the computer stores all this information, I could do it with a typewriter! In fact, I would go one step farther and say forget all the guru fad marketing nonsense. Instead of sending out thousands of letters on fluorescent pink paper; using bandit signs; or tracking down new foreclosure listings; why not get out of the house and meet people? That is exactly how I found ALL of my new rentals in 2007. Simply meeting people and letting them know that I’m in the business of buying property.

Mike

omg propertymanager, that is Gold advice…simply meet people. omg…omg…
can you expand on that area?

I find that to be incredibly shocking. :shocked
I mean, this business it’s all about controlled marketing right? so how do you know how many leads you are going to get by meeting people? or do you have a system for that?

I mean, this business it's all about controlled marketing right? so how do you know how many leads you are going to get by meeting people? or do you have a system for that?

No, this business is not about controlled marketing. This business is all about making money, like every other business. The gurus would have you believe that everything needs to be a “system”, which I find to be totally ridiculous. I’m not saying that you can’t find deals by mass marketing or hanging up bandit signs, but the percentage of deals closed per contact is very low with these strategies. By simply meeting people, I have a very high percentage of contacts that are deals that I close. Everyone at my local REIA knows that I am a serious investor and will buy properties at the right price. When someone calls, there is a good chance that I will buy the property. Hundreds of others also know that I buy properties and when anyone they know is desperate to sell, they call me.

It’s a huge difference - with the silly guru methods, the investors spends a lot of time and money doing marketing in hopes of finding a needle in a haystack. By simply meeting people and telling everyone you know that you buy properties, you eliminate all the expensive busy work and when someone calls you with a property they want to sell, there is a good chance it will be a real deal.

Mike

Real estate is a people business. Networking and the grape vine are very important to success.

I hear about a lot of deals because I know a guy who knows a guy. If I decide I am interested, I have an in, because I am a friend of the brother of their neighbor, and thus I have references. I am not so much of a stranger who is there only to take advanatge.

The rental business is all about controlling tenants so they will behave, and knowing how to keep your tenants happy, so they don’t move, and how to appeal to new tenants so they will move in.

When you sell a house, you have to understand that buyers always buy their home through pure emotion, so you need to know how to trigger that emotion.

When you buy, you have to understand how to make the seller trust you enough to sell you their house.

There ae very few points in real estate that are not loaded to the gills with emotion, and that means you must be able to deal with people.

No deal I’ve ever done has been exactly the same as any other deal. I suppose other investors might have a formula and do all their deals as cookie cutter deals and exactly the same, but that sure hasn’t been my experience.

Please read my reply to this subject under “New to the forum”…I posted there accidentally.

Thanks