Are there really this many bad deals?

Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes

So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?

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Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

Analyze 100, offer on 10, buy 1...or something similar. REI is all about deal flow...lots of it.

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Adan Ibarra:
Antonio
Hi. A couple questions so I can understand how you evaluate transactions. What is your hurdle rate for you to make an investment? Are you a CoC investor or IRR driven investor? Using amount of leverage are you using in your assumptions to achieve a 10% CoC return?
And I'm my opinion, any project that can give you north a leverage 8% CoC return is a very strong project. That said, it is all about your assumptions that you're using in your model. My friend with 20 year of real estate experience was modeling all his properties wrong before I helped him. If you can answer these questions for me, I'm happy to help you as well.
AH, so that might also be my problem, I was looking at it this way. 8% return is ok, 10% is good, 12% is great! I am purely looking for cash flow. So if the cash flow of the property was 8 percent to me I can buy S&P 500 and get similar returns (minus the extra benefits of real estate but without the extra work that real estate has.) I am planning on putting 10% down on a property in the under the 200K range. Do those numbers help? 20 years and still learning I love that!

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Joseph High
Specialist · Nashville, TN · Member since 2019 · 75 posts · 50 votes
7y
@Antonio Cucciniello
You're right - I've heard lots of investors say that the best deals are all off market. Which is tough to hear when the deals that are on the market aren't that great. However, as others as have said before, it's a numbers game for the stuff that is listed.
The ones that I've found have come from just driving around areas that I would like to invest in. My boss and I found a group of town homes on our way to a showing that we had scheduled. They've flown under the radar and have had minimal activity.
The off market deals that I've found have 2 big things in common - they're in great locations, and the owner(s) have held the property for a decently long time.
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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Bob Prisco:
@Antonio Cucciniello find another market, North east you are not going to find double digit net caps. 10 -15% net caps are to be had if you know where to look
Good Luck

Where are you suggesting I look?
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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Ralph Galdorisi:
@Antonio Cucciniello NY NJ unless upstate NY around college areas, are difficult markets to stary in with low down payments and cash flow. Often cash flow requires larger down and a lower than expected ROI% Also although I commend your 20 property analysis you need to do 5x that and if in fact you found 2 or 3 that cash flow your % find is actually pretty good. Keep in mind a criteria list some absolutes that shall never be broken.
Such as demographic of area, crime, pool of tenants. I would prefer to have a property in a good area with a lower return and a value add play to over time to raise the return. Rather than a higher cap rate at onset only to battle tenants, non payment, eviction...
Alternative plan in starting is to, study analyse, go to meet ups, meet up with BP members & Facebook real estate group members close to you. Through that comes education, friendships, mentorship and ultimately a partnership, maybe local maybe better returns and criteria out of state.
Good luck

I need to do more in person. I have found that people don’t believe you until you put the work in. I am looking to do my first deal myself and then network once I have some experience/credibility under my belt, some people I have met in person are actually mean shutting down a new investor asking for help, but hey, that wont stop me!

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Jill F.:
@Antonio Cucciniello How much are you calculating for downpayment? Here I can find cashflowing deals in C areas with 20-25% down figuring in required renovation costs (and the properties available that are good deals almost always need some love).

10% down payment, but also properties that are looking at 40K plus renovations!
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Herndon Davis
Lender · Ft. Lauderdale, FL · Member since 2019 · 156 posts · 98 votes
7y
Originally posted by @Antonio Cucciniello:
Originally posted by @Herndon Davis:
Originally posted by @Antonio Cucciniello:
A lot of it is a function of where you live and currently looking. However, if you are looking in the Midwest or Southeastern fly over states, you can find deals there a lot cheaper and that will cash flow to your delight. But when you're paying market value or close to it AND at a much higher dollar value for property then it makes it a lot harder to cash flow especially if you need to make repairs. Try new locations.

How do you feel about Austin, TX? It’s the only other area I know of than the areas in New Jersey/NYC. Would you consider it great place for cash flow?

Austin is growing quickly. It's the high tech mecca for Texas. It is NOT new undiscovered territory. But there's still room for growth given the expansion of major Tech companies there. You won't be adhead of the curve on that one but you can still find deals there but hurry up!

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Angelo Mart:
NEW JERSEY has the highest property taxes in the nation which is the 1st problem you have
TELL ME ABOUT IT. My mortgage is costing as much as my property taxes which is insane

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @John Hickey:
@Antonio Cucciniello
What are you using to compare? I use a spreadsheet that has some calcs built in. I made it myself and over the years it’s helped me make money. Nothing too crazy but when you break things down on the numbers side them compare condition it helps.
One thing I would do tho. Run numbers on so many deals you can do basic stuff like NOI in your head.
I Don’t rely upon my #s in my head for offers but i do go through with the seller on site Colombo style. I ask what the rents are. Expenses. Taxes. Then I go through the whole thing. That’s usually pretty good at rooting out bs.
I like to make offers on site.
Little trick for you. Used it yesterday.
Once you’ve run the numbers on so many deals you know a deal when you see it go out to the property walk it with the owner. Then find the biggest problem area in the house and make your offer there.
Make sure you’ve run the numbers at home first tho.
Yesterday I was about to make an offer on the street but noticed the owner had nice shoes on. So I asked him to go back to the basemt with me where he had a sewage leak. I spent s few mintutes poking around and my offer which was less than what I was willing to pay was countered with his offer being much lower.
Example. The property is worth 600k. Needs work, but it’s rented and cash flowing.
I was willing to pay 420. I asked how much he wants. 375. I said I’m not sure that it’s for me.....could he go lower? Yes 300k. That’s when we left the basement.

I am a fan for math, so I created a spreadsheet as well, but it definitely needs work, basically I created three graphs using linear regression on the price vs sq ft, price vs rooms, price vs bathrooms. I think the proper way of doing it was price vs sq ft, price vs rooms and price vs bathrooms, but I could not figure out the spreadsheet multivariate regression. So I used 25 properties for it. Do you have any advice on how I can improve my calculations? Calculating the income is SUPER important and I am trying to get better at it.
Now, that’s an amazing story, but how in the world does he not know his property is worth DOUBLE what you were asking for it? Is this a regular occurrence for you?
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Christopher Brian
Investor · Blacksburg, VA · Member since 2015 · 28 posts · 26 votes
7y
@Antonio Cucciniello I'd start with several BP podcasts to answer you on this one. First, try out BP321 then 260:
https://www.biggerpockets.com/blog/biggerpockets-podcast-321
https://www.biggerpockets.com/blog/biggerpockets-podcast-260-ultimate-guide-negotiating-with-fbi-hostage-negotiator-chris-voss

Then I'd go to this for a direct answer to your question:
https://www.biggerpockets.com/blog/why-choose-seller-financing
Here's my story: I had a seller financing deal accepted partially because the owner didn't want to be the one to collect the rent from the tenants every month and also have to deal with maintenance. They wanted steady, easy, repeatable cash flow. They originally wanted 85k. I got them down to 63k, seller financing, 30 year term. How: I used a spreadsheet to show them that over time they'd receive more because of interest payments than they would have received if they accepted the next best offer at 75k. They didn't want to receive a big chunk of money for the house because they were going to immediately get hit with a capital gains tax. Ultimately, in the inspection I discovered some major mechanical issues that killed it for me. But, there's an example of how you can go in and, using seller financing as a tool, present a deal that is a better fit for you and the seller. Focus on what they want more than you focus on what you want and you'll generally come out on top.
Oh-the other thing - never lead off with your number. Never offer up your number too soon. Try and get the seller to give you their best price first. Then negotiate. You got this.

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Bob Prisco
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
7y
@Antonio Cucciniello Cleveland , ADMIN THIS IS NOT A SOLICITATION.....
Good luck
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Julian H.
Real Estate Investor · Union, NJ · Member since 2016 · 30 posts · 6 votes
7y
By 2.4, you mean 2.4 months of inventory?
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Anthony Iemmello
Rental Property Investor · NY · Member since 2019 · 13 posts · 0 votes
7y
@Antonio Cucciniello
NJ and NYC is tough but deals are out there
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Jeff C.
Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
7y
Originally posted by @Antonio Cucciniello:

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Justin M.
San Antonio, TX · Member since 2019 · 19 posts · 10 votes
7y
@Antonio Cucciniello I agree with what a lot of other folks on here are saying. Not every market is a good market to jump in to. A strategy I've heard you can try is check out all of the cities within 50 miles and analyze properties there.
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Roshan K.Pro Member
Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
7y
Originally posted by @Caleb Brown:
Like the others say you have to run ALOT of deals to find the good ones. For example Kansas City's market supply is 2.4(anything below 6 is a sellers market) and prices since 2016 have risen 180K-225K. You also have to look at your numbers and adjust to the market. There is a mix of things to look at but don't wait to invest. Always a great time to invest :)

Whats is 2.4 number called? How do I look it up?
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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes
7y
@Roshan K.
2.4 is the market supply. What it means is if no inventory popped up then it’d take 2.4 months for everything to sell. If that number is under 6 it’s a sellers market. The regional board of realtors for Kansas City does those stats every quarter. You can only access that if you are a realtor here in Kansas City
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Kim Tucker
Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
7y
Actually all those stats are posted on KCRAR's website for anyone to take a look at.
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Kim Tucker
Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
7y
Local Kansas City stats are posted here

http://kcrar.com/statistics

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John Hickey
Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
7y
@Erik Baumer one way to create deals as mentioned above.....
Drive around looking for poorly maintained property. Not high grass....that could juts be an oversight.
I’m talking blue tarp on the roof.
Big pieces of wood hanging. Note all those houses. Then cross reference that with the out of town owner list
Some building Dept’s will give a list of problem buildings. That’s a good list too.
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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @David Dachtera:
Originally posted by @Antonio Cucciniello:
So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?
Is meeting a seller a common thing when finding properties on the MLS?

"Good" deals are often made and not "found", depending how you define "good".
Running the numbers is often a first step to approaching the seller. The seller says they want $X, but what do they really need? That's where your communicating and negotiating skills come in. Until you've actually met the seller and discovered their REAL needs, "$X" is just a number, and an asking price, at that.
My $0.02 ...

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Don Spafford:
@Antonio Cucciniello Most markets right now are way overpriced for investment property. 4 plexes selling for double what they should to be profitable. Don't just join the bandwagon and buy whatever is available. Keep doing what you are doing. Run the numbers, when you find one that is good for you, then make an offer. Maybe if you have the opportunity in your area look into doing a house hack which should help get a better return. I have analyzed over 500 properties, in different markets, made offers on about a dozen or so and have only purchased 3. I like to be picky and will only invest for the returns I want. My numbers are not your numbers, we all have a return we are willing to take. In the meantime, keep analyzing, even if they are bad deals, the practice will help you be more confident when you find the right one.

I do not want to sacrifice returns, I was just trying to get an understanding of how these things work. Being a newbie its difficult to know if what you are doing is right when it seems much easier when seeing what other people can do
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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Michael Ealy:
Originally posted by @Antonio Cucciniello:
So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?

Antonio,
Yes - there are more bad deals than good deals.
Having said that, you also need to look beneath the surface to see if you can find the good in "seemingly bad deals".
For example...
1. Maybe the rents can be increased substantially when you do a value-add. For example, one 30-unit complex I bought, only 4 units were rented at $300/month. I put in stainless steel appliances, granite countertops, faux hardwood, backsplash and basically re-did the units. Before I acquired them, I estimated I could increase the rents to $850/month. But I was mistaken: the rents increased so much so I was able to rent them for $1,250/month.
2. Can you add a bedroom by simply putting a wall/partition and thus increase the value and the rent you can charge?
3. Can you increase the square footage?
4. Can you change the use of the building/land to a higher and better use? For example, here in Cincy, I've seen abandoned buildings which used to be factories converted to self storage. The developers who did this made a lot of money on buildings they bought at pennies on the dollar.
5. Can you change it from straight rental to rent to own? By doing rent to own, you might be able to increase the rent and since you pass on minor repairs and maintenance to the tenant, your cashflow will also increase. Morever, you have a buyer lined up and you don't have to pay real estate agent commission so you might actually make more money doing rent to own vs. fix n flips. I know of a real estate investor who would make $50K profit on rent to own while flippers only made $20K profit on the same house.
A lot of deals out there are bad - but a few of them can be converted to marginal deals to great deals if you just use a little bit of creativity, and if you're willing to put in the work.

All of those are amazing suggestions actually! Thank you very much. Up to now, I have been thinking, can I add another bedroom? Or can I add something to this to make it more valuable? That has helped me find a few diamonds in the rough so far. Great insight and thank you for taking the time to right that all out!

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Eduardo Medina:
@Antonio Cucciniello
It’s not difficult at all. It’s an obsession!!! Something that consumes your time. Energy. And sleep. And still you enjoy every minute of it. To succeed you must obsess happily ever after. Hope this helps. 😉

No doubt about it, I have been seeing different properties in my dreams
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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Daniel Kent:
@Antonio Cucciniello I have been searching in South Jersey and also feel that more properties are not deals than are deals. It is tough to resist the itch and buy and bad deal, but definitely be patient! The BP experts say, “every no gets you closer to a yes” so maybe every bad deal gets you one more closer to a good deal. Good luck in your search!

Hello Fellow New Jersey Investor! Yes, seems that way, but this may just be a patience thing, how many offers have you made so far?

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Antonio CuccinielloPro Member
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Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
7y
Originally posted by @Jordan Moorhead:
@Antonio Cucciniello almost no deals are good deals as they’re listed. You have to offer below or find a way to add value.

Thats what I have aimed to do, it seems when I make an offer using those numbers I get beat to it! It’s ok though I will keep offering
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