Analyzing Property Problem

6 Replies

I am a new Real Estate Investor in the South Central Wisconsin region. I am looking to purchase my first rental home but I am having a problem with finding properties.

The properties that I am looking at either do not met the 1% rule, or if they do when I run additional numbers on them they are cash flow negative. The few that I have found that might be cash flow positive, when I tour the place they need over $30k worth of work to get them to a stable place. I know the Real Estate market is very hot in the area that I am in. I also figure there is a lot of competition when looking for a rental.

So is this even a good time to invest? or since the market is hot, should I not worry as much about cash flow positive and if it is a cash flow neutral peruse that instead? Would I be better off continuing to save my money until the market slows down? (not sure if it will in the next 5 years) Am I evaluating the properties wrong?

it's most likely you are not aggressive enough on prices, run your numbers and make offers based on your numbers. You will be surprised sometimes what a seller will sell for once an actual offer is submitted. if that fails you need to expand your sources of finding properties

It depends on what your strategy is. If you're looking to BRRRR and the $30k of repair will increase the property value significantly then cashflow might not be necessary.

When you are running your numbers are you using current rents or market rents? Most of the time properties that are for sale have apartment rents under market value. If you can easily increase the rents in the first couple of years that's something that could help tip the numbers in your favor.

All that being said I think of those things as BONUS's to the deal. My strategy is to buy and hold for cashflow, if the property does not cashflow in Year 1 I will not buy it. That being said if I need to get the property 20% below list price for it to work then that is what I offer. Most of the time they say no and my response is okay but my offer is nothing personal just business. I'd love to add your property to my portfolio but that's the price I need to get it at. Hang onto my offer give me a call if you change your mind. I'll close on time and it'll be the easiest transaction you'll ever have.

NEVER buy cash flow neutral or negative, thats a great way to go broke! tere are deals, you just are not looking in the right places. I have been a Broker since 2006, and I buy about 5 deals a year, I havent purchased a MLS listed property in over 3 years now, way too much competition for those pushing prices really high. Much depends how you will fund your deal, if you need to get a loan to buy you will have a hard time, as condition is a factor in financing. If you want a deal, you need to find value add, as well as cash flow to be successful. I focus on what most others are afraid of, so if you see a way to acquire properties but is seems risky to you, learn about it, and do what is needed to mitigate the risk, I bet the buyer pool is shallower. BUT have your money in order and be able to pull the trigger, I generally buy with cash (line of credit) ready to close fast, if its a regular deal, I put up a crazy big ernest amount in the offer, and fast close, like a week. I also buy at Sheriff sales and online auctions, they are not for the faint of heart, but if you understand them risk is mitigated. good luck!

@Jonathan Bombaci I am not experienced or confident enough to BRRRR quiet yet. But I am interested in it as I get more experience. As for my numbers I am running current rents, but I have not run the numbers with increasing the rents every year. So I will take a look at that.

I will start to run my numbers with more of a significant percentage off the asking price, because like you said it is just business if I offer low to fit my numbers, the worst they can say is no. 

Thank you for the insights! 

@Scott Schultz The main way I have been looking is at MLS listings. So looks like I will need to branch out how I am trying to find deals. Also I currently need a loan to buy my first rental (I have the $$ for the down payment, but not able to buy in full). Maybe I need to branch out more to find the right first deal for me.

I am not very familiar with Sheriff sales or the legalities of online auctions but that is something I should research and learn more about because the risk mitigation would be nice. 

Thank you for the  knowledge :) 

Based on your situation you are probably looking at a market value purchase, maybe just slightly under. Personally I find that to be risky, especially where the current market is, yes we may still be going up, but I wouldn’t bank on that.  It would be very important to get long term fixed financing on a deal that is tight, I often do commercial financing but have plenty of room and don’t take as much equity out as I can to insulate from market swings if my not is due to renew. Good luck and be careful
Originally posted by @Ace McCarty :

@Scott Schultz The main way I have been looking is at MLS listings. So looks like I will need to branch out how I am trying to find deals. Also I currently need a loan to buy my first rental (I have the $$ for the down payment, but not able to buy in full). Maybe I need to branch out more to find the right first deal for me.

I am not very familiar with Sheriff sales or the legalities of online auctions but that is something I should research and learn more about because the risk mitigation would be nice. 

Thank you for the  knowledge :)