How do you make cash flow in a hot market?

2 Replies

Used a 1031 to buy a rental. Used all the money plus brought in 20 k to make the rent low enough to make sense and be safe. My loan is 70 k. In my small unimaginintive  mind, I can only see 70-80k loans to make cash flows. How do you do it when low end homes start at 230k? Small Condos and town homes go for 180 - 230. Hoa’s kill that cash flow. Are trailers / mobile home good? Still have a space cost. Rents are only a little lower. depreciation seems to me would be a problem here. I can see falling down homes as a maybe. But I am loud wiener and potty mouth trying to hand a picture. I would have to hire the fix up to a contractor who is probably competing for the same property. Listen to me wine. No pictures were injured in writing of this post. Surfice it to say, please help me understand how to get out of my 70 k loan max thinking.

@Tom Lybyer I used to think the same way. I always was looking for the cheapest properties I could find instead of looking for higher quality assets. Rules like the "2% rule" often force you into 20k rentals. Often times, these "30,000 pigs" as many on BP call them, are terrible investments. 

The reality is, many areas of the country are much more expensive, but the rents are also higher. In addition, in A and B class areas in major metros, the renters are also extremely qualified as the houses are worth much, much more than the apartments. I am currently purchasing a building in the Chicago area at $57,000 per unit, and the average home price is well over 225k. This means there are many, many qualified rents who just can't/don't want to afford a home. 

Still trying to finish the rehab. sometimes it seems the big projects are easier jobs for me to complete  than the little jobs. The  little ones  take more small motor skills. And attention to detail.

"20k rents and 30k pigs", I assume you are saying I paid too much for this house. That is how I see it. We had some cash and 1031 equity to work with but we used it on this market priced, high  maintenance house. I am safe though. if rents drop like they did a few years ago we have room the go down and still have a cash flow. But no equity for a long time.

 Now my liquid cash is mostly used up.  i have a lot of equity in homes we bought 15 years ago. I am excited to find another deal that makes more sense. Still figuring out how to get the money ready from one   of our other properties. Reading the books and listening to the podcast it should be easy. I have insulted a couple of people. Looking for love in the wrong places I guess.

Thanks for your response.