Is it just me or are there no good cash flowing deals out there? I've been looking in state, out of state and all I find are $100/m at best. Am I analyzing myself out of potential deals? Here is how I run my numbers:
List price minus...
Mortgage, taxes, insurance
1 month of rent for lease fee
$1,000/yr for repairs
$150/m for CapEx
They are definitely out there. We just closed on a duplex we found on the MLS. Listing said sellers were highly motivated. We looked at it and calculated repairs (pretty minor overall). Less than a week after listed, we made an aggressive offer of $24k below listing price and much to our surprise, they accepted it. Property appraised for the listing price so we have significant instant equity. Plus, it's going to cash flow very nicely. So....keep looking - the deals are out there!!
It is all relative to the activity level of the markets you're interested in, but if it is a decent sized market I guarantee you there is opportunity. The secret is being able to identify it!
I would try to think outside the box in strange markets. If numbers are so bad is there potential to flip something from the low end into the high end if the spread is huge?
Not every market is great for a buy and hold investors that are looking to build cash flow quickly.
Where are you looking? From what I hear Wisconsin is a great cashflow market with plenty of deals. Look outside the city centers to places that are less treaded by other investors. Don't be afraid to look in the suburbs for "boring deals" in stable communities. Find areas that are in the direction of growth that still provide great rent/purchase price ratios.
Am I being too conservative with my numbers?
I don't think you are being too conservative. I'm very new and we use similar numbers. I have found maybe 7 MLS properties that have the potential to cash flow over $100 per door with 7-11% cash on cash. Nothing amazing but fits my requirements (Milwaukee area)
If you are in Milwaukee and you aren't able to find any cash flowing deals, I'd say you aren't looking very hard.
Keep looking. You'll find a deal! Get out there and walk the streets
What area of Milwaukee are you looking at? The really good deals on the MLS have an accepted offer in a few days to cash buyers but there are still good deals out there. The northwest side has many good cash flowing deals. Also don't forget about the water bill if you are looking at duplexes and multifamilies.
Outside of the war zones the inventory in Milwaukee metro is incredibly low. Just keep looking and when you see a good deal, better snap it before someone else does!
You say "list price" so I assume you are looking at properties on the MLS?
I gave up on MLS properties long ago...in my area there are tons of buyers willing to (in my opinion) overpay. This is for both buy and hold and flip properties. Every "good" listing ends up in multiple offers that push the purchase price up so high it's no longer a good deal.
If you are willing to settle for an ok deal - then keep looking on the MLS. You will eventually find something. If you are more interested in finding a smoking hot deal then try your hand at direct marketing.
I guess what do you define as a great deal vs okay deal? Is $100/m okay? Maybe my expectations are too high?
Most my properties are about $150-$200/mo on paper. In actuality, they are bringing in $300-400/mo since we have little vacancy and the cap ex repair costs aren't used yet as we have just rehabbed them. I factor in 1 month vacancy, 7% management, $200/lease fee's each year. Cap Ex ranges between $90 and $150/mo based on property, and maintenance I factor in about $500 per year. The properties I buy are usually between $15K & $30K in which I am able to put a mortgage on that covers 100% of the purchase price and rehab costs. With all my capital out of the property, I very happy getting $150/mo per property as I know my numbers are fairly conservative as it sounds like yours is as well. Now if you are putting $20K+ of your own money into these, then I would really think twice on if that is a solid enough return.
That's a tough question and dependent on what you are trying to accomplish. My rentals are all long-term plays. I have a well paying W2 job that I am not interested in leaving. All of my rentals are in B+ areas that cash flow a little but not a ton. However, finding properties that cash flow enough to replace my W2 income was never the goal.
My partner and I are now moving into flips. We just finished our first flip earlier this month. The property went under contract in 1 day (multiple offers above ask) and will net $49k in profit. I see others in my area that settle for $15-20k in profit on a flip in the same price range.
I am very conservative when running numbers - for buy and holds and flips. Our first flip was tough to comp. I assumed an ARV of $125k (low end of range) and $65k in reno costs. Leaving $20k in profit. We pulled the trigger so that we could get a flip under our belt, but I didn't love the margins. We came in right on budget and sold for $155k making nearly $30k more than expected (more than doubled our expectation). If I would have continued to compete on the MLS I would have had no choice but to tighten up my numbers (less conservative, more risk and ultimately lower returns). Otherwise, I am wasting everyone's time making offers, including my own.
That is a good price for a lease fee. Usually I've heard anywhere from 1 months rent to 1/2 months rent at best. That really eats into the returns. How are you accomplishing this?
I see your repair budget at $500/yr is lower than mine ($1,000 yr)
I'm not sure if I'm understanding your purchasing method. Are you putting 0% down?
At $15k-$30k what type of areas are these in and how much is your typical rehab?
The properties I am looking at are rehabed averaging around $80k with 25%. So I am roughly $20-$25k into the deal with down payment, inspection, closing. For $25k and $100/m (which I assume will be more because I am conservative) I am not sure if it is worth it. Mine as well buy some dividend stocks.
I pay 6% for management fee's and they charge me $150 for lease signings because . . . . that's what my management company offered.
I actually borrow the capital and then pay all cash for the property (allows me to offer less and close quicker) and also pay cash for the rehab. After the rehab, I rent the place to a qualified tenant, then go to a bank, get the house appraised and put a mortgage on the property for the dollar amount I have fully vested into the project. I then pay back the borrowed money from the refi amount and now have no money into a cash flowing asset. (ie I just bought 3 houses for $55K last week, I'm putting about $20K into all of them, they should appraise at $100K combined and I will then put a $75K-$80K mortgage on them hopefully in January) These will rent out for $2300/mo of which the cashflow should be around $650/mo after paying the higher mortgage and expenses.
I buy in C class neighborhoods in Rock County, I can usually be all-in on a 3 bedroom house for about $35,000 and I will rent them out for $850-$900/mo. Duplex's are about $40K after rehab and rent out for about $600 per side.
Milwaukee has some major war zones and D class areas which I will completely stay away from, since I don't know those exact areas I haven't purchased anything in that city at this time. Everything I buy is not listed on the MLS, those prices have just gotten too high over the last year or 2. Out of the 26 properties I bought this year, only 4 were from the MLS.
What you see are "ASKING" prices,.....doesn't mean they wont accept a lower offer. A lot is based on days on market, is the seller motivated, and type of property as well.
Generally duplex triplex or quad will have better cashflow than an SFR or a Condo so be open to that as well
Look at numbers on 100 Properties
Make offers (below asking price) on 10
Somewhere between 1-3 will be accepted
In this market it's to be expected that deals are more scarce. It's a good time to pool cash, tap equity, and generally be prepared for new buying opportunities. Personally I am diversifying away from real estate in this market while I pool cash for multi family opportunities in the future.
@Chris Heeren when you say borrow the capital does that mean tapping into private money resources? Is this how you've done all your deals or did you get established first in order to provide this opportunity?
I have a couple small $10K lines of credits with a bank, a $20K HELOC, a family member I borrow $20K from, another investor I've borrowed $50K from and a credit card that gets free cash advances for $15K. That's basically what I've used to buy every property I own.
@Chris Heeren , when you say you go back and get a refi for the full amount vested, does this mean you are refinancing and pulling out 100% of the property? I am new to this, but if I'm reading that right I'm surprised the bank is giving you a mortgage on every penny the house is worth. Thanks!
@Chris Heeren correct me if I'm wrong but to answer your question @Sam Gastro I sould imagne that the properties post work and leasing appraise out for an amount high enough that he can pull out is orginal investment and still have 20%-25% equity in the deal.
I work with a number of invetors who use this same strategy, if you have the cash up front its a great way to get into deals.
Market more and learn your market. There are tons of good cash flow deals.
Originally posted by @Sam Gastro :
@Chris Heeren, when you say you go back and get a refi for the full amount vested, does this mean you are refinancing and pulling out 100% of the property? I am new to this, but if I'm reading that right I'm surprised the bank is giving you a mortgage on every penny the house is worth. Thanks!
The second Sam is correct . . . I'm pulling out 100% of my capital invested, this doesn't mean I'm pulling out 100% of what the property is worth. This is the entire key to buying into equity rather than paying for it out of your hard earned money. I buy into 20%-30% equity, so when it appraises 30% higher than what I have into it, I'm able to do an 80% LTV cash out refinance which just happens to be everything I have into the property.
In Milwaukee, in bad and not-so-great areas, you can find low-priced properties all day long. You can't walk a mile without tripping over a lot of them. In the better areas, the pickings are slim.
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