Advice on searching for/acquiring a cash flowing rental property
So a little bit about my background before I dive in: I previously have owned rental properties before (back in 2018 - 2019). Those properties we all bought in cash (no leverage) they were lower end properties that cash flowed and already had tenants. My business partner bought me out near the end of 2019 or so and we parted ways amicably. Then Covid happened, and I wasn't involved in the space for a few years. My main job is working in tech as a project manager. I have capital, but most of it is already fully invested at this point. The area we had been buying in has since appreciated and the properties no longer cash flow, he has since exited real estate altogether (and moved out of state as well).
I'm getting "re"-started now again. I have my LLC set up, bank account, liability insurance, etc. and I've been doing research and analyzing properties. I want cash flow, preferably through SFH. But it seems impossible to find anything at the moment. Which means I'm probably either A. Not searching the right way, or B. Not searching in the right markets. So I'm open to advice on what to change. Below, is what I have been doing so far over the past few weeks:
I live in Raleigh, and I know it's extremely unlikely I'm going to find any kind of cash flowing LTR properties here (I'm not open whatsoever to STR or MTR that is a non-starter for me). For me, appreciation would be a nice inadvertent bonus, but I care far more about cash flow and am prioritizing that. So I've only been looking outside of the Raleigh area, trying to stay in state for now, and looking in Greensboro, Fayetteville, Rocky Mount, Winston-Salem, and Greenville. I've been primarily looking through Zillow, REIA, and realtors so far.
I've been debating about "driving for dollars" on the weekends an hour or two outside of Raleigh, but wouldn't be able to do it during the week because of work. Price wise I want to aim for properties that are below 290K and that could still net me $200 /mo with no more than 10% down. But so far, those criteria seem to be unrealistic. I have the money to put more down, but I'm trying hard not to in order to preserve the money for expenses or more down payments for other properties.
I'm open to changing my searching strategy or property type (going to condos or multifamily instead of SFH, etc.) or partnering if I need to after vetting the potential partner(s). Not sure what else I should be considering changing at this point. Open to suggestions though if anyone has advice.
In terms of what the "numbers" are: I typically assume:
5% for maintenance and repairs
5% for vacancy (sometimes more in certain markets)
5% for capital expenses
8% for property management
Then additional amounts for whatever rates are for property taxes, insurance, HOAs, etc.
Rental income I typically pull from either bigger pockets, Zillow, or from a local property management company's estimates, and from what similar properties are renting out for.
Quote from @Account Closed:
Quote from @Simon Ashbaugh:
Quote from @Drew Sygit:
@Account Closed
Beginning investors need to STOP believing all the fluff about rental investing, especially with the overheated real estate market trending to historic norms.
Historically:
Class A takes 3-5 year to positive cashflow, but you get highest relative rent & value appreciation
Class B gives decent amount of relative rent & value appreciation
Class C is mostly cashflow and at the lower end of relative rent & value appreciation
Class D is all cashflow with zero or negative relative rent & value appreciationSo, make sure you understand the Class of properties you are looking at and the corresponding results to expect.
This is good. I have so many people come to me asking for $1000+ cashflow in an A-B location and their max budget is 100k. You will almost always trade some cashflow for appreciation and vice versa. Lots of podcast syndrome out there lol
Agreed, I'm well aware of this dynamic, since I've been doing this for a couple of years. Cashflow is what I'm focused on. I appreciate everyone's advice. I'm getting ready to close on a property in Akron that met my requirements. I'm steering clear of the Raleigh market for the reasons I outlined in the original post. Although my personal home is in Raleigh and it would work as a rental if I move out someday, but only because I financed it at ridiculous once in a lifetime type rates and put 20% down and I've since paid down the mortgage a little bit. But those criteria are very much the exception. Straight LTRs don't really work in Raleigh unless you have some kind of unusual circumstances.
Thats awesome about the akron deal! have you looked into Cleveland? It cashflows really well. I think Raleigh would be good for str and if we see a crash maybe pick up some stuff then. With the current rates and inflation, most markets don't make a ton of sense, but there are still good ones.