Real Estate Investors: How to Find Great Cash Flow Deals

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The most important thing for beginner real estate investors is to find great deals. Not good ones, but great ones. Here are some steps that will help investors find those great cash flow deals.

8 Steps to Finding Great Cash Flow Deals

Note: Finding great deals takes time and patience. Often times, new investors get impatient and jump into the first property that gets them excited. Keeping emotion out of the equation and being methodical is key when buying rental properties.

  1. Define your criteria – Rents should be approximately twice PITI (Payment+Tax+Insurance) or 1.5-3% of Purchase + Repairs.
  2. Define high cash flow areas to target – Nice suburbs and areas in most cities can result in housing prices that are four or more times some of the cheaper areas, but the rents are not four times as high. The areas to find the best cash flow properties are usually in the decent areas. Some of the most successful cash flow investors make their money with class C or class B properties.

    Definitely stay out of war-zones, but you can cash flow well in the areas that have potential, low housing prices, and rents that are really high compared to purchase. Remember, this is a business purchase, so you don’t have to be comfortable living there yourself. You just have to like the numbers and do your due diligence to confirm success.

  3. Get as many properties into your pipeline as possible – The more properties you get into your pipeline that fit your criteria, the more and better deals you will have to cherry pick from. It is called playing the numbers game.
  4. Create efficient systems to filter out the duds – Avoid time consuming due diligence on properties that are duds or not yet under contract. Due diligence can wait for properties that you’ve got under contract; you must get good at quickly determining market value, estimating ballpark rehab costs, and deciding whether to proceed with an offer.
  5. Write lots of offers – Play the numbers, write a lot of offers; the worst case scenario is you’ll get a No. It doesn’t matter what the asking price is, investors should only care about what the property is worth to them.

    That said, if you develop a relationship with a source that is feeding you great deals over and over, value the relationship and do not insult them with low ball offers. Just make offers on deals that make sense and maybe, verbally communicate your lowball offers.

  6. Complete thorough due diligence on contracted properties – Once a property is under contract, you need to have an inspection, get rehab bids, confirm market value, confirm you have multiple exit strategies and make sure you have plenty of equity and cash flow in order to make mistakes and run into surprises, and still profit. For rentals, make the property rentable. Avoid unneeded upgrades that will not add to the positive cash flow.
  7. Cherry pick only the best deals – With a lot of deals that fit your criteria coming into your pipeline, you have the advantage of picking only the best.
  8. Find Great Property Managers and Tenants – Tenant and Property Management issues can result in substantial headaches, even losses. There is no excuse for poor management; find a good manager and pay them well. Many do-it-yourselfers try to manage themselves and quickly run the property into the ground. This step is crucial to success and will allow you to generate passive income for years to come.

About Author

As the founder of Real Return | Real Estate™, Ryan Moeller is a seasoned veteran of the real estate market — both locally in San Diego, California where Real Return | Real Estate™ is headquartered as well as across real estate markets throughout the US.

1 Comment

  1. Ryan –

    In the real estate market that we’re in today, I disagree with the approach that you have laid out. Were someone to follow it in my area, which is Southeastern Michigan, they would ultimately end up buying and renting properties in the city of Detroit, pretty much every time.

    But now is not the time to be buying those properties. Now is the time to buy the very best properties that you can find that will cash flow as rentals. In the area that I now target, which is the best school district in the state, the first time in history that homes there could be purchased at prices where they would cash flow was about 14 months ago. I’m buying these houses, which usually need nothing more than smoke detectors to be rentable, and renting them before I even close on them. And they stay rented.

    The list of advantages to buying and renting these types of homes is endless – they’re occupied when I buy them so they are rent-ready at close. They typically have bulletproof mechanicals because they have been very well maintained. My renters want to be in the area and school district so they stay a long time. The top school district attracts some unbelievably great renters with great jobs and rental histories. They pay on time, etc etc etc.

    And while the monthly cash flow may not match what’s available in the other areas like the city of Detroit, I’ll bet that my net profit is higher for three reasons.

    #1 – my properties stay rented so I don’t have periods of vacancy as often as in the other areas.
    #2 – when they do turn over they’re not trashed so I’m not spending a lot of money. And the biggest reason is
    #3 – since these types of properties are basically “set and forget”, I don’t have to pay a property manager 10% or some other outrageous percentage of the collected rent every month.

    So my advice is to buy the best available right now. You’ll get the biggest appreciation kick when the market turns around, plus you’ll have spectacular no headache rental properties that will be generating good cash flow for years and years and years.

    Plus, properties in crappy areas like Detroit, Hazel Park, and Pontiac will always be available.

    So buy the good stuff now while you can and go back to the crapy areas when the market rebounds.

    Dennis Fassett

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