Every deal that I analyse never produces CASH FLOW!?!

Multi-Family and Apartment Investing
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Every deal that I analyse never produces CASH FLOW!?!

Olivier Pare
Investor · Mercier, Québec · Member since 2015 · 8 posts · 1 vote

Hi everyone, 

I am actively looking to buy a multi family building here in Quebec, Canada (preferably a 6 unit). I analyse deals every day and there is one thing that bothers me.. I never seem to get a cash flowing property! 

I do think that my numbers are correct and I take into consideration expenses correctly (I read a lot on blog posts and forums about how to analyse deals). 

I know that everywhere, everybody is talking about how cash flow is king and realize the importance of it. But is there more to a property than cash flow, or it should be the most important factor in my buying decision? 

I know that my question is pretty vague, but does anyone seems to have a similar problem, or any explications or tips of any kind? 

If you need any more specifications such as numbers or anything else, let me know!

THANKS!

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y

I'm sure if you were to plug in some basic numbers from my properties into your spreadsheets they likely wouldn't cash flow either, but I had $70k in free cash flow last year.

I'll keep buying the properties I do and growing rich while the novices say they would never buy the properties I buy.

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  • Ken Teng
    Sunnyvale, CA · Member since 2016 · 77 posts · 26 votes
    9y

    First of all, the global estate market is in a big bubble. In hot areas, nothing cash flows. It is the same in the bay area, Los Angeles or San Diego area. You can still find cash flowing properties in underrated areas, such as Ohio or Indiana.

    Second, cash flow is not the only option. You can speculate and focus on appreciation. However, you must get either cash-flow or appreciation or both. If you want immediate money, choose cash flow. However, true wealth always comes from appreciation with leverage. But this may not be a good time to bet on appreciation. I am not familiar with Quebec, but in USA we may have a correction in the real estate market soon.

    4Reply
  • Eddie Werner
    Property Manager · Pittsburgh, PA · Member since 2012 · 267 posts · 136 votes
    9y
    Your market doesn't sound like an area where home price/rent works out for cash flowing rentals. Are there other investors at local meet ups successful at what you are trying to do in your market? If not it may be Time to seek out a new market if cash flow is what you are looking for.
    2Reply
  • James WilcoxBusiness Member
    Real Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes
    9y
    Olivier Pare Eddie Werner has the right idea. From what I have heard it is harder to cash flow in Canada. I have never looked into any deals in Canada but your market might not be right for that type of REI. You might want to look at a different city to meet your REI financial goals. I don't currently invest in the city that I live but invest just 30 mins away for better cash flow.
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  • Kristopher HanksPro Member
    Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
    9y

    Yes that problem exists in the area I live in. Nothern Virginia near DC is very expensive and hard to find deals to cash flow. I finally had to accept this and look at other markets. I invest out of state in a high cash flowing market. You may have to do the same if you are having trouble finding the right deal. Try stepping outside your comfort zone and look elsewhere maybe even in the U.S. somewhere. I stepped out of my comfort zone and it worked out for me. 

    2Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    @Olivier Pare,

    The key in any such deal is the acquisition price - that means you want to buy from sellers who NEED to sell, not just WANT to sell. The property must need value added to it such that your "all-in" number leaves room for profit on a flip and/or your debt service doesn't eat up your NOI.

    Your best source might be properties which aren't on the market yet. That may reduce your commission expenses, depending - not sure if Canada works much different from the States.

    Don't know if that helps ...

    3Reply
  • Thomas Lorini
    Real Estate Agent · Irvine, CA · Member since 2016 · 224 posts · 142 votes
    9y

    @Olivier Pare yes it's not easy to find cashflow deals in Canada but they are there. Need to look in markets like Hamilton, Barrie, Kitchener, Edmonton, Calgary, Ottawa, Victoria...i personally invest mostly in Hamilton. My latest purchase a few weeks ago was a 2 bedroom freehold townhouse listed at 129k I was able to get for 106k. After modest Reno will rent for $1000-$1100/mth. Cashflows

    But it took me time to find this type of deal and negotiate with a motivated seller. 

    Let me know if I can help in any way. 

    1Reply
  • Haseeb Awan
    Investor · Ottawa, Ontario · Member since 2016 · 225 posts · 46 votes
    9y

    There are deals in Ottawa which cash flow. It's easy to find 2-3% cash flow, but 5% is not uncommon and with work, you are even able to achieve 10% Cash flow. 

    0Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    I think it means your underwriting it right😀  Its when they pencil out that makes me suspicious these days.

    1Reply
  • John Kesner
    Investor · Reno, NV · Member since 2015 · 167 posts · 90 votes
    9y

    @Olivier Pare

    You could make offers at a price that does cashflow. They will likely be lowballs but you always have the banks required DSCR as your justification for the lowball. Most banks require you to cashflow 1.25% of the mortgage payment. Just tell sellers its the best offer you can make and still be able to get a loan, maybe you'll find someone in a hurry to sell

    2Reply
  • Account Closed
    Developer · Austin, TX · Member since 2016 · 108 posts · 23 votes
    9y

    @Kristopher Hanks 

    Hey Kristopher, when you decided to go out of state, how did you analyze and choose a good market to invest in?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    As David mentioned above, many of the professional (and part-time) investors on BP are purchasing at 20% (or more) below market value and/or are buying under-performing properties and fixing them up or managing them better. This creates instant equity, forced appreciation and better cash flow and is one of the non-passive parts of REI.

    Cyclical and linear markets can provide different benefits of appreciation and cash flow.  Many investors in cyclical markets, who want or need cash flow, tend to look within a few hours (or more) outside of their market for it during housing market upswings.  Or, they follow the first paragraph above.

    Keep up the hustle...you're asking the right questions and doing the hard work on analysis.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    9y

    I'm sure if you were to plug in some basic numbers from my properties into your spreadsheets they likely wouldn't cash flow either, but I had $70k in free cash flow last year.

    I'll keep buying the properties I do and growing rich while the novices say they would never buy the properties I buy.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    11Reply
  • Olivier Pare
    OP
    Investor · Mercier, Québec · Member since 2015 · 8 posts · 1 vote
    9y

    Thank you everyone for your answers. It's really helpful! I will look for better deals in my market and also give a look at other markets close to mine. Thanks!

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Take the GSI x an assumed GRM of 10. That's a rough estimate of the FMV sales price.

    Much above that, the seller is seeking a bloated sale to increase his profits.

    How do I know?  See my profile and the property was in SoCal, a very expensive and competitive area.  Did I set the right price?  You bet, as within 10 days of listing, I was engaged in a  bidding war and got full market price.

    • if { GSI x GRM } fails, then the market is too hot (assuming other properties are comparable).
    • If { GSI x GRM } works out right, THEN test the expenses used to derive the NOI. Now you're ready to fight with the DSCR lender's number.
    2Reply
  • Laurence K.
    Investor · Padstow New South Wales, Australia · Member since 2015 · 38 posts · 27 votes
    9y

    Why limit yourself to markets close to yours ?

    Isn't the goal of investing to find the best investments ?

    Mine are on the other side of the world from where I live and they cashflow like crazy.

    0Reply
  • Kristopher HanksPro Member
    Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
    9y

    @Account Closed I used BiggerPockets to answer that question for me. I searched the community for old threads about the best cash flowing rental markets. I even found one that talked about ranking them from good to best. I looked at the top three that were talked about by experienced investors. I chose the one that was closest to me. I started doing my research on the area to find out why it would be a good rental market and then I started to practice analyzing deals that I found on the MLS. I compared those deals to the rent ranges that applied to the same area the houses were located in. I made sure the numbers would work for me and then I went after it. I wanted high cash flow even if it meant more risk because I was going to be paying cash for the properties and wanted my money back from the deal as quickly as possible. That's how I got started.

    4Reply
  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @David Dachtera:

    @Olivier Pare,

    The key in any such deal is the acquisition price - that means you want to buy from sellers who NEED to sell, not just WANT to sell. The property must need value added to it such that your "all-in" number leaves room for profit on a flip and/or your debt service doesn't eat up your NOI.

    Your best source might be properties which aren't on the market yet. That may reduce your commission expenses, depending - not sure if Canada works much different from the States.

    Don't know if that helps ...

     ^^ THIS. You can find cashflow deals by looking off market, in any market. I'm in Northern Virginia by DC, it's one of those quote markets that don't cashflow, but yet we buy multiple deals every month that cashflow big time. If you want it, you're going to have to go looking for it!

    3Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    9y

    @Russell Brazil I enjoy your posts.  Help me understand your thoughts above.

    1Reply
  • Zachary C.
    Property Manager · Huntsville, AL · Member since 2015 · 251 posts · 129 votes
    9y

    Maybe you should simplify your math? gross - expense = net, how long will it take net to pay you back your invested money?

    0Reply
  • Bill Pate
    Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
    9y

    Look in Cleveland, OH. I just bought a duplex in Lorain County which is just west of Cleveland for $24,000. The property is already occupied and cash flows about $575 a month in NOI. The property will need some repairs, but nothing extensive or immediate. I plan to squeeze a little more rent from each unit next year when the leases expire. At that point it should cash flow about $600-625 a month. That NOI takes into account taxes, insurance, and maintenance/vacancy(8%). This is the best performing property I have, but I am certain I can find others like it.

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Zachary C.:

    Maybe you should simplify your math? gross - expense = net, how long will it take net to pay you back your invested money?

     problem is expenses are usually hard to get.

    0Reply
  • Sael D. Nemorin
    Banker · Ottawa, Ontario · Member since 2016 · 1 post · 3 votes
    9y
    Hi Olivier. It looks like you're underwriting turn key rental properties that are for sale on MLS. In most cities in Canada, you'll find buying a rental property at market value is not going to give you the cash flow you might require for your circumstance or desire. Have you looked at multi family properties that are privately for sale? Estate sale? Bank owned? Properties that can be assigned to you who are under contract? Have you looked at reaching out to a real estate friendly investor? Depending on your resources, skills, contact and knowledge you can find properties where you can buy under market value, renovate, refinance and get the desired return you require. Financing will also be a big component to this strategy. We have 3 levels of financing in Canada. You have the schedule A market, alternative market and private market. Depending on your credit, income, documentation, access to funds and experience, you can find lenders at any of these 3 levels to finance a potential deal that requires work and take out financing when you're done. Make sure to conduct a construction proforma, a buy and hold proforma to understand your numbers and to make sure you can pull out when you're done the work. If you're a pro member on BiggerPockets, they have these tools. Understanding also how all 3 levels of our lending industry works in terms of adjudication will help you structure your deals properly. Feel free to reach out to me privately if you have any specific questions. To your success, Sael.
    3Reply
  • Zachary C.
    Property Manager · Huntsville, AL · Member since 2015 · 251 posts · 129 votes
    9y

    @Jeff B.,

    Do you just get better at estimating that overtime?

    0Reply
  • John Barr
    Investor Agent · San Antonio, TX · Member since 2013 · 79 posts · 210 votes
    9y

    @Jeff B.

    You have a ton of good opinions in response to your question.

    As far as my opinion goes for what I see in my market is appreciation is always nice but it can be very volatile in the wrong market (Arizona, Florida in 2008). It is also unrealized until you either refinance the property or sell it so the property can be a real drain on capital if not purchased or managed properly. 

    One of my biggest markets for properties is burned out landlords that did not purchase or manage their rental properties correctly and what appreciation the did get was quickly lost dues to deferred maintenance.

    I always look at a rental property as I want it to be a self-sustaining investment. Meaning from what cash flow the property produces will cover all expenses of the property. That way if you have a life changing event the property can maintain itself. I also see that rents do not drop nearly as much as what values of homes do.

    If you can not find the returns you are looking for I would say start doing your research in other markets and companies that can offer you more of a turnkey or an asset management service.

    There are several markets here in the US that provide great returns and with both cash flow and appreciation. Some of the good ones would be Tampa Florida, Atlanta Georgia, and pretty much any city in Texas

    2Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Russell Brazil  Novice here, out of your 70k cashflow how much was purchased in 2016.  I am not seeing this market anywhere like it was a couple years ago, and I am not the only one.  Even dudes who aren’t big dorks with lame *** spreadsheets are discouraged at least where I am at.  I think realistically if you wanted 70k a year and put (25% down to get it) in my market you would need to put close to 700k down.  That is much different then it was only a few years ago.  Answering the initial question less cynically because I would like to here how a guy like Russell goes through numbers (assuming he must) and if he sees something I am missing.  I do find places that I know are being rented for less then market and they seem to be unaware of how much market rent is.  Many times you do inherent a lease but that is no big deal.  Wait until it is up and bring rents to market then your back to 10% cash on cash.  I do almost strictly muti-families and I know how much places should rent for and really every place in my area personally.  People who have owned these things for 20 years or recently inherited one may not pay as close attention.  So when you are running your numbers use what the market is not the current rents (current rents is what you use for negotiating, not knowing the current value).  That being said I wanted to do a couple of partnership type agreements in the next year where I found a great property and brought in a buddy or two as passive investors.  I have put that on hold because at this time I am not seeing the opportunity that I was not to long ago.

    0Reply
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