When all the MLS deals have no cashflow...

Question

Hello BP!

I have spent the last few months analyzing many deals that I'm getting from MLS.  In the Northern NJ area, it seems that many deals after accounting for taxes, capex, mortgage, etc all have almost no cashflow based on the expected rentals and the costs of the house.

I think I had a realization the other day that I may just need to start putting in offers at a price that makes sense, but here where prices are significantly higher than other parts of the country, looking to cut off 100-300k off the asking price to make something cashflow doesn't seem like it would fly.

Anyone have any advice that can help me to change my approach to finding the deals?

Andrew

Ali Boone · Answer

Well, yeah, an approach change... Residential property prices aren't based on potential cash flow. Commercial properties, yes, the prices are based on the cap rates based on the income. Residential, for good or for bad (bad in your case), you don't have that luxury. So you could certainly put in low-ball offers but you're probably going to get laughed at, if you get a response at all. You can't force a cap rate or cash flow against market rates. The market determines the prices on residential, not returns. So the approach change would be to realize you can't really force cash flow in cases like this.

The reality is, there's just not cash flow in the area you are looking in. I'm in Southern California and it's the same problem here. So I've always bought out-of-state where there is cash flow.

So unfortunately it's going to have to be you and your strategy that adjust if you want cash flow, not the prices.

The reality is, there's just not cash flow in the area you are looking in. I'm in Southern California and it's the same problem here. So I've always bought out-of-state where there is cash flow.

So unfortunately it's going to have to be you and your strategy that adjust if you want cash flow, not the prices.

David Fernandez · Answer

Definitively, always offer a number that works for you, regardless of the asking price. Sometimes, your offer will be below, some time at asking, sometimes over asking price.

In today’s market, it’s tough to find deals that work on the MLS, but you can look for deals that you can create. Look for distressed properties that you can add value by renovating them AND by adding a room and/or a bathroom. A 3/2 property should bring more rent than a 2/1.

Adding a bedroom is cheap (usually you only have to build a wall and a closet) and the ROI can be $100-$200/month in rent or more. Adding a bathroom is more expensive, so make sure you run your number to see if it is worth it.

Good luck!

Vaughn Smith · Answer

@Andrew Kuiken Run your numbers and put in offers that make sense based on your objectives, you may also want to expand your search criteria a bit as a tweak here may offer more purchase options. Lastly pack your patience and creativity, look for the deal that isn't the obvious one maybe something thats overpriced and has sat on the MLS a bit or partner with a Realtor that knows the area and can discuss value add opportunities and the type of renovations you can make to a property that may not be obvious but if done correctly can increase cashflow. You may also want to analyze your cashflow criteria and note that many properties in NJ don't cashflow with some of the same returns you often hear quoted on BP. Off market properties may work for you too, but know that you'd need cash to secure one. Feel free to reach out if you have more questions, I'd be glad to assist.

Ibrahim Hughes · Answer

I would get off the MLS. Learn how to find off-market deals. Learn how to connect with wholesalers and realtors for properties that have not yet hit the MLS.

Stu Basham · Answer

@Andrew Kuiken these are all great suggestions here. I would also mention what they say on the BP Podcast a lot which is see what's working in your area. There are some deals that are working for cash flow but I see a lot more people making money wholesaling and flipping to owner occupants in NJ so that could be a direction you want to go in. Good luck!

Andrew Kuiken · Answer

Thanks everyone for responses. Definetly has helped me adjust my approach.

Max T. · Answer

off market deals

low offers to motivated sellers

distressed properties needing a lot of work

good luck

When all the MLS deals have no cashflow...

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