First Rental Property - Wait to build cash reserves for positive cash flow?

Question

I am just starting out in my hunt for my first property. I live in the suburbs of Portland, OR.

On most properties I'm seeing, if I put 20% down, most, if not all, of these properties are negative cashflow in the amount of usually $200-300.

Should I wait to put down more like 30-40% to ensure positive cashflow or am I being too cautious?

Angela Venger · Answer

Hi Mike, I'm a local here. I understand what you're saying; it's very challenging to find cash-flow investments now, especially in the Beaverton and Hillsboro areas. Are you interested in other cities in Oregon, perhaps within a two-hour drive? I currently have two investment properties in the Oregon Coast and Central Oregon regions, and I'd be happy to chat and answer all your questions if you're interested.

Matthew Kwan · Answer

HI Mike,

It really comes down to what your long term goal on investing real estate. You want to invest just to have a place to live and potentially offsetting your mortgage payment by renting out the vacated rooms or having x amount of cashflow in the future? Looking into single family houses or multifamily, as there is an actual land that you own and potentially build ADU/DADU in the foreseeable future. However, if you build the ADU and not condomise it, they appraisal will only view it as a SFR and give you the rent as SFR at 75% if lease agreements is being used. If you want to maximize your max rents then if might be a good idea to condomise it so that you can get rents as two separate units. Since last year of November, Fannie and Freddie has allowed borrowers to put min 5% down for conventional loans and being able to invest multifamily up to 4units.

@Carlos Valencia @Albert Bui

Grant Schroeder · Answer

@Mike Jaquith, thank you for posting on the forums! Taking action right now, there are still deals to be had here locally. I am a local investor in Newberg, OR and we have been buying consistently since 2017 in the Portland metro. I would be glad to connect with you on a call next week if that would be helpful? Just let me know what works best for you!

Alan Asriants · Answer

Hey Mike, ever market is different. Some markets you will lose putting 20% down, and others you will make a few hundred bucks.

I think the general consensus with todays rates and prices is that cash flow is not that amazing in any market.

Especially because we have been spoiled with low rates fairly recently ago

If you haven't yet, go for a house hack, put low money down and kill two birds with one stone (a house you live in and a rental). This purchase also has to make sense, but since you are living there it doesn't have to be crazy on returns. real estate is a long term play. Typically the longer you own, the better the retunrs will be. 1. you can refi to lower rate in future 2. rent will continue to grow

Once you are settled there, you can start looking at investment only properties. If you're not living there, I would typically want at least my expenses covered. Market like NYC and CA are pretty much impossible to find cash flow even with 50%+ down.

So if you can cover your expenses, try to purchase at least break even if you want to be in your market.

G. Brian Davis · Answer

Hi @Mike Jaquith, glad to hear you're exploring real estate investments!

What you're seeing is a lesson I didn't learn until after I'd lost a lot of money: It's really, really hard to find properties that cash flow well. It takes a ton of work to score good deals on properties. Professional investors do this by sending thousands of mailers to distressed property owners, or building local "We Buy Houses for Cash" websites that rank well locally in search results.

It's one of the many reasons I no longer buy rental properties. Instead I invest passively in group investments (real estate syndications) or notes. Passive real estate investing comes with its own challenges of course, most notably finding quality syndicators and the high minimum investment (typically $50-100K if you invest by yourself). Today I simply go in on these with other investors as part of a passive real estate investment club, where each person invests $5K at a time and we vet new deals together each month. I earn much higher returns than I ever did as a rental investor, and don't have to lift a finger after the initial vetting discussion.

That said, some investors really do enjoy building a side hustle business around real estate. If you choose to buy rentals, just go in knowing that it'll be a side business, and not particularly passive.

First Rental Property - Wait to build cash reserves for positive cash flow?

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