How to find Cash flowing properties - What am I missing?
Member since 2022 · 11 posts · 7 votes
How to find Cash flowing properties - What am I missing?
Most Popular Reply
Real Estate Agent · Los Angeles, CA · Member since 2022 · 137 posts · 106 votes
3yHey Damian! I have a couple suggestions here
1. “Marry the property, date the interest rate.” Rates will drop eventually but the house you’re analyzing may not. If a property is in the red a few hundred bucks, analyze it with a 5% internet and see where you might be in the future. You can refi and pull cash out in the future to invest in your next deal.
2. Diversify your strategy or your market. I’ve built a career helping people buy Traditional Rentals in growing markets, but in todays world I’m focusing on Short Term Rentals for clients hyper focused on cash flow. The higher average monthly incomes help properties cash flow much more regularly. You might also consider other markets. Between advisors like myself and local managers it’s easy to invest further than arms distance away now.
Happy to chat more about any of these ideas.
79 Replies
- 3yChristopher WatsonPro MemberMember since 2022 · 8 posts · 3 votes
Yep...higher interest rates absolutely kill what little cash flow you may be able to earn. Adjust down your 7% to a 4% (old rates) and you see what I mean. Surely someone else will add other variables to keep in mind.
- Member since 2022 · 21 posts · 7 votes3y
So what you are saying is investors are taking short term hit on cash flow before a refi when rates adjust??? To this end of you have 4 properties at 6% and rates go down to 4% are you allowed and does it make sense to re Fi then all at same time assuming there is the collateral
Quote from @Christopher Watson:
Yep...higher interest rates absolutely kill what little cash flow you may be able to earn. Adjust down your 7% to a 4% (old rates) and you see what I mean. Surely someone else will add other variables to keep in mind.
- Real Estate Agent · Los Angeles, CA · Member since 2022 · 137 posts · 106 votes3y
Hey Damian! I have a couple suggestions here
1. “Marry the property, date the interest rate.” Rates will drop eventually but the house you’re analyzing may not. If a property is in the red a few hundred bucks, analyze it with a 5% internet and see where you might be in the future. You can refi and pull cash out in the future to invest in your next deal.
2. Diversify your strategy or your market. I’ve built a career helping people buy Traditional Rentals in growing markets, but in todays world I’m focusing on Short Term Rentals for clients hyper focused on cash flow. The higher average monthly incomes help properties cash flow much more regularly. You might also consider other markets. Between advisors like myself and local managers it’s easy to invest further than arms distance away now.
Happy to chat more about any of these ideas.
Quote from @Christopher Watson:
Yep...higher interest rates absolutely kill what little cash flow you may be able to earn. Adjust down your 7% to a 4% (old rates) and you see what I mean. Surely someone else will add other variables to keep in mind.
Find a market where you can buy all in for 110k Duplex with about 20k a year rent , 800/800 taxes under 2k. OR SF for about 100k with 1200 -1300 in rent, taxes under 2k,,,,,, I recently picked up a 3/2 all in 60k, rent will be 1400, value 125k,,. I will close on a 2 br for all in 55k, rent will be 850, taxes 1500,,,high ROI,
Its ALL about knowledge, and your team.
All the best- 3yChristopher WatsonPro MemberMember since 2022 · 8 posts · 3 votes
Quote from @Bob S.:
Quote from @Christopher Watson:
Yep...higher interest rates absolutely kill what little cash flow you may be able to earn. Adjust down your 7% to a 4% (old rates) and you see what I mean. Surely someone else will add other variables to keep in mind.
Find a market where you can buy all in for 110k Duplex with about 20k a year rent , 800/800 taxes under 2k. OR SF for about 100k with 1200 -1300 in rent, taxes under 2k,,,,,, I recently picked up a 3/2 all in 60k, rent will be 1400, value 125k,,. I will close on a 2 br for all in 55k, rent will be 850, taxes 1500,,,high ROI,
Its ALL about knowledge, and your team.
All the bestAgreed. Thanks for sharing that info.
- Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes3y
@Damian Callaghan The first step in any investment is to identify exactly what it is you are looking to achieve. What is your investment objective? Are you investing for cash flow to fund other things, or are you investing for capital growth? It is important to understand this first.
If you are seeking cash flow then you would be wise to look at non-geared investments if you think interest rates will rise, or if your chosen investment is not performing as well as it needs to.
One of the greatest mistakes novice investors make is not assessing risk. Whenever there is debt or gearing, involved, the risk of all investments rises due to the interest risk associated with the borrowing.
What can you earn on the deposit amount of $62,500.00 if there is no debt? This becomes the relative debt-free risk amount you need to compare all other debt-burdened investments against.
There are companies that you can invest in that pay annual dividends in excess of 5% per annum. So, your property investment, with debt attached, needs to earn you more than that to be viable. Bearing in mind that investment into a large corporation places no emphasis on you to work on the investment compared to property investing. They also have capital gains potential as companies grow in value over time.
One final point, it is also possible to borrow to invest in shares in public companies. Might be worth considering.
Hope this helps. - Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
They don't, you are going to have to get creative to make deals work. Lock it your own interest rate with owner finance or subto. This is the greatest opportunity to subto a deal.
- Member since 2023 · 57 posts · 27 votes3y
The market that you're looking at is also pretty important. After purchasing our 4plex in Oakland, CA I looked around for quite some time for other investment properties in our area, but alas, the math never worked in our favor. Right now we're advising a lot of clients to look at OH and other midwest markets - low barrier to entry in terms of cost, good cash flow overall. Main takeaway is that not all markets are created equal.
- Member since 2023 · 9 posts · 4 votes3y
@Damian Callaghan - I am in the same exact boat that you are. I have spent the last few days analyzing properties and have come to the same conclusion as you. I found the perfect 2 properties but based on my analysis, they will not cash flow. My numbers look pretty much identical to yours. Let me know if you gain additional insight on this as you continue to explore, I'll do the same :)
Thanks in advance!
- 3yTim DelaneyPro MemberBuffalo, NY · Member since 2018 · 790 posts · 530 votes
@Damian Callaghan it is tough right now, but not impossible. One option is that you can submit lower offers or ask for seller credits to buy down the rate. Just because the asking price is $250 doesn’t mean that is what you have to pay.
Also have you looked into short term or mid term rentals to see what the cash flow would be?
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 834 votes
From what I can see, you are just looking in the wrong places. OOS investing may be better for you. That is why so many people look in OH and the midwest as a whole
Sam McCormack Realtor - Member since 2022 · 11 posts · 7 votes3y
@David Nolan - thanks for the response. I have been doing plenty of research over the last 6 months and I have to be honest - this is the first time I have heard the term 'geared investments'. I will investigate this as I do need/want to mitigate my risks. I couldnt help notice you were in Brisbane - not sure how it works there but here in the USA (unlike the UK where I am originally from) when you sign a mortgage for a fixed rate you have that rate for the loan life time. The only time you would ever refi is if the mortgage interest rates came down. Thats my limited understanding of the USA mortgage process. Not sure if this changes your response? I am always welcoming of experienced feedback - thanks!
-
Quote from @David Nolan:
@Damian Callaghan The first step in any investment is to identify exactly what it is you are looking to achieve. What is your investment objective? Are you investing for cash flow to fund other things, or are you investing for capital growth? It is important to understand this first.
If you are seeking cash flow then you would be wise to look at non-geared investments if you think interest rates will rise, or if your chosen investment is not performing as well as it needs to.
One of the greatest mistakes novice investors make is not assessing risk. Whenever there is debt or gearing, involved, the risk of all investments rises due to the interest risk associated with the borrowing.
What can you earn on the deposit amount of $62,500.00 if there is no debt? This becomes the relative debt-free risk amount you need to compare all other debt-burdened investments against.
There are companies that you can invest in that pay annual dividends in excess of 5% per annum. So, your property investment, with debt attached, needs to earn you more than that to be viable. Bearing in mind that investment into a large corporation places no emphasis on you to work on the investment compared to property investing. They also have capital gains potential as companies grow in value over time.
One final point, it is also possible to borrow to invest in shares in public companies. Might be worth considering.
Hope this helps. - Member since 2022 · 11 posts · 7 votes3y
@Andres Murillo - completely agree on #1. Someone introduced me to this saying in the last 6 months and it has changed my perspective on debt and interest rates - whilst I am still considering short term impacts and not over-leveraging myself
on #2 - I fear STR is too much mgmt - or at least too heavy cost of 3rd party mgmt. So I am focusing on MTR with a LTR backup. The primary strategy is cashflow and long term paydown of debt but this we all secretly want appreciation/growth - this aspect is long term for me (thinking 20yr retirement). I am bullish on the Tampa/St pete area given all market research I have done but I am finding it tough to get in there - Lack of inventory and I am trailing the investment wave a little - So I am open to long distance real estate. I have found a few investor real estate folks in areas like Jacksonville, Charlotte etc. But again, investor down payment, investor interest rates and loan/capex to rent ratio's arent making sense... So I may have to look further afield - like mid west.
Quote from @Andres Murillo:
Hey Damian! I have a couple suggestions here
1. “Marry the property, date the interest rate.” Rates will drop eventually but the house you’re analyzing may not. If a property is in the red a few hundred bucks, analyze it with a 5% internet and see where you might be in the future. You can refi and pull cash out in the future to invest in your next deal.
2. Diversify your strategy or your market. I’ve built a career helping people buy Traditional Rentals in growing markets, but in todays world I’m focusing on Short Term Rentals for clients hyper focused on cash flow. The higher average monthly incomes help properties cash flow much more regularly. You might also consider other markets. Between advisors like myself and local managers it’s easy to invest further than arms distance away now.
Happy to chat more about any of these ideas.
- Realtor · Charlotte, NC · Member since 2017 · 359 posts · 293 votes3y
Interest rates have a huge impact on investors, and a bigger impact for long term investors.
I would not recommend buying a property as an investor that is negative cash flow and then assume you'll be able to refinance down the road. SO many factors could happen that prevent that, and then you're stuck with an asset that is sucking money out of your pocket instead of putting money in it. Even if it's a break even situation, at least you're getting debt pay down and tax breaks. Appreciation is always a gamble and/or a long term play, nobody knows if the house will FOR SURE appreciate in the short term. This way of thinking to me dips into the speculation side of investing.
For investing, the market tells you what type of investing will work. And each market is hyper local. So long term investing may not work in NC with 25% DP, but perhaps it would work in Cincinatti or Cleveland or Detroit. In a market where you're fairly certain on appreciation, the cash flow is naturally less or non existent.
If you're already investing outside your local market (sounds like you are), I'd keep looking for a different market where your goals make sense and work. The US is huge, your market is out there! Otherwise, find out what strategy WILL work in those areas. Good luck!
- Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes3y
@Damian Callaghan, if you're interested in rent-by-the-room investments in Atlanta, please let me know. Many of my clients have pursued this unorthodox investment strategy this past year due to economic conditions and a lack of cash flow from traditional rentals as you've alluded to. The asset class presents more risk but if managed correctly with the right systems in place, the cash flow potential is huge. Many Atlanta properties are within your budget of 225k-250k. If interested, feel free to reach me via email or cell (contact info listed in my bio).
- Investor · Member since 2020 · 291 posts · 592 votes3y
I was in a similar situation to you. I wanted to get started, but the numbers in my market were not looking promising. I decided to get started OOS where the numbers better fit my criteria. I have learned a lot from making this investment and even if I wanted to make my next investment closer to home, the experience I have gained from making this investment is invaluable. My post below describes my first investment. Happy to discuss more!
Best Wishes!
- 3yTyson CoxPro MemberRental Property Investor · Soldotna, AK · Member since 2014 · 73 posts · 28 votes
Damian,
Do you have the availability to spend a bit more and purchase a 2-4 unit building? Are there small multifamily buildings for sale in your area? Do they possibly cashflow better?
I ask these questions because this has been the case for my area of the Kenai Peninsula in Alaska for more than 15 years. I have many times been able to purchase a 4plex for a bit more (fractionally more downpayment) than a SFH. I have found that these small multi-units cashflow better and are less risky as it is unlikely the property will ever be without at least a couple of renters.
Try not to get too discouraged. When my wife and I finally decided to pull the trigger, it took over 18 months to find an investment that we felt would work. Also remember that all it takes for most okay deals to become great deals is time. I have heard many folks over the years say that they felt they paid too much for a property, but within 5 years it was the best deal they had ever made due to either rising sale prices or increased rents, or often both :) - 3yAndy RouschPro MemberInvestor · Mt. Arlington NJ · Member since 2018 · 251 posts · 143 votes
You have the right idea looking into other markets just in case! I've went both local and long-distance. It depends on your goals moving forward. Don't get discouraged deals are tough to find now, however, with the right creative strategies you can possibly find cash-flow
- 3yScott AllenBusiness MemberReal Estate Agent · Columbus, OH · Member since 2020 · 449 posts · 471 votes
You're doing the right things but you need to look into different markets. Consider investing OOS if you want to do a long term rental that will cashflow. Take a peak into Columbus, OH for appreciation, growth, and cashflow. Look into Cleveland, OH if your main goal is just cash flow. Best of luck!
- 3yJay ThomasPro MemberReal Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
Real Estate deals don't always come easy and you need to get creative to make them work. Owner financing and subto (subject-to) deals offer great opportunities if you're willing to put in the work. If you're looking to lock in your own interest rate, these are a great way to go! Take advantage of these unique opportunities today.
- Member since 2022 · 11 posts · 7 votes3y
Love this @Tyson Cox - There isn't any 4 -Plexes in my patch unfortunately. The occasional duplex and Tri but mostly in 'warzones' - some with potential but still carrying risk as nowhere near gentrification.
Quote from @Tyson Cox:
Damian,
Do you have the availability to spend a bit more and purchase a 2-4 unit building? Are there small multifamily buildings for sale in your area? Do they possibly cashflow better?
I ask these questions because this has been the case for my area of the Kenai Peninsula in Alaska for more than 15 years. I have many times been able to purchase a 4plex for a bit more (fractionally more downpayment) than a SFH. I have found that these small multi-units cashflow better and are less risky as it is unlikely the property will ever be without at least a couple of renters.
Try not to get too discouraged. When my wife and I finally decided to pull the trigger, it took over 18 months to find an investment that we felt would work. Also remember that all it takes for most okay deals to become great deals is time. I have heard many folks over the years say that they felt they paid too much for a property, but within 5 years it was the best deal they had ever made due to either rising sale prices or increased rents, or often both :) - Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes3y
Quote from @Damian Callaghan:
I'm new to investment but spending a lot of time on market and deal analysis. I am ready to buy but so far - even in markets where you can still pick a home up in an appreciating market for $250K - I am struggling to see how they cashflow with 25% investor down payment and interest rates up there near 7%. It frustrating - Im ready to go but certain I am missing something. I use a 0.86% (rather than 1) for quick deal analysis but do detailed analysis as well. On a $250k house you are looking at $62,500K down (which isn't cheap) - then somewhere around $1500 a month for repayment and taxes (doesn't take in to account mgmt, vacancy, capital) - and these markets I am looking at only getting $14-1600 a month in rent..
What am I missing? Help from this network welcomed!!
Note - I wanted to invest locally but even worse on Gulf Coast so been looking at NC, Jacksonville amongst other placesYou may wanna peep Cleveland. Could work well for what you are trying to do.
- Rental Property Investor · Columbia SC · Member since 2022 · 13 posts · 13 votes3y
I've been in a similar situation with my market (Columbia SC), so I know exactly what you mean! It's the nature of the beast right now. I did recently find something that works (hoping everything goes thru), so I know it's still possible! I'd say be patient and keep your eyes open. You don't want to do a deal just to do a deal. Make sure it makes since, and maybe adjust your expectations on what type of COC return you are looking for. As others have said, you can refi later and improve the cashflow - but don't get into any property that won't at least cover itself (including some profit (10%) for maintenance).
- Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes3y
@Damian Callaghan - this is the time that things get interesting. You're right, these high interest rates kill deals.... at least in the way they are currently being presented. Sellers have the choice of:
1) Keeping the price where it is
2) Lowering the price so that the monthly mortgage payment is closer to where it was 6 months ago.
3) Offering owner financing, seller 2nd, subject to, lease option
Many sellers are not aware of option 3 so it's up to you to present it to them!
I have a commercial deal I'm working on that was $8M+ just 6 months ago and now we're close to a deal where we would just wipe out the existing mortgage of $5.25M. If I can make that happen it will have been worth the wait. Sometimes patience is key!
- Real Estate Agent · Member since 2019 · 569 posts · 257 votes3y
Quote from @Damian Callaghan:
I'm new to investment but spending a lot of time on market and deal analysis. I am ready to buy but so far - even in markets where you can still pick a home up in an appreciating market for $250K - I am struggling to see how they cashflow with 25% investor down payment and interest rates up there near 7%. It frustrating - Im ready to go but certain I am missing something. I use a 0.86% (rather than 1) for quick deal analysis but do detailed analysis as well. On a $250k house you are looking at $62,500K down (which isn't cheap) - then somewhere around $1500 a month for repayment and taxes (doesn't take in to account mgmt, vacancy, capital) - and these markets I am looking at only getting $14-1600 a month in rent..
What am I missing? Help from this network welcomed!!
Note - I wanted to invest locally but even worse on Gulf Coast so been looking at NC, Jacksonville amongst other placesHave you asked for owner financing or interest only loans until rates go down to increase cashflow?
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