Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
I'm looking to invest $100,000 in cash toward rental property for a revenue of $3,000 to $4,000 per month. I'm not interested in appreciation or quality neighborhoods. My primary interest is cash flow. With that being said, I understand that with these figures, chance are it will be in the ghetto. I've searched Las Vegas and missed the boat about 4 years too late. I'm currently jumping on a flight to St. Louis Missouri where I'm seeing multifamily units within that price range, however, I saw sweeter deals just a year ago. I'm getting the feeling that a lot of cream of the crop has been bought up. If I don't make a purchase in STL, my next stop is Atlanta, Georgia or Ohio. I'm looking for some insight if any of you have or are currently investing in one or more of these locations and what recommendations you may have. Do you know of another state or major city that's producing these figures? This will be my first rodeo in rental property investment. I appreciate the insight.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
If your $100k is going to buy a $400k property you should be able to get ~$6k/month of rent (more if trash area, less if not. 100x monthly rent is my MAX price I'll pay and that's if I like the area)
With that you are NOT going to cash flow 3-4k/month. That's 36-48k/year or a 36-48% return on cash.
I've had deals like that but they're outside of the scope of this reply and not going to happen unless you're super plugged into a submarket and find the right op that wouldn't be jumped on by the masses.
(Best deal I ever did was a vacant commercial property. Paid $500k. Appriaser for $750k. Got the seller to raise price to $700k and give a credit at close. I closed with less than $0 down (got money back). Found a NNN renter to take it for $12k/month while my only bill was a $5k mortgage note. So $7k/month cash flow and cash at close. Wish they were all like that)
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
If your $100k is going to buy a $400k property you should be able to get ~$6k/month of rent (more if trash area, less if not. 100x monthly rent is my MAX price I'll pay and that's if I like the area)
With that you are NOT going to cash flow 3-4k/month. That's 36-48k/year or a 36-48% return on cash.
I've had deals like that but they're outside of the scope of this reply and not going to happen unless you're super plugged into a submarket and find the right op that wouldn't be jumped on by the masses.
(Best deal I ever did was a vacant commercial property. Paid $500k. Appriaser for $750k. Got the seller to raise price to $700k and give a credit at close. I closed with less than $0 down (got money back). Found a NNN renter to take it for $12k/month while my only bill was a $5k mortgage note. So $7k/month cash flow and cash at close. Wish they were all like that)
Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
9y
@Cody L. A friend of mine, which is now more of a mentor, bought an 8-plex at $82,000 + $20,000 in rehab in the hood in STL, MO. The 8 units are renting for $450 - all are studio units. He's pulling in $3,600 per month in revenue. He bought at the beginning of last year. Though they're less common than the past This is what I'm looking for.
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
So you're talking $3-4k in revenue and not cash flow, right? In that case, for the type of area you're looking, you'll likely have high expenses so cash flow would be around $1300-1500 a month for about a 16-17% return. That should be doable.
Personally I would never invest in the hood and definitely not in another state but good luck to you. I think you can find returns like that in better area, better property, and more safely.
Wholesaler · Saint Ann, MO · Member since 2014 · 50 posts · 27 votes
9y
@Luis Fernandez I am from St. Louis, born and raised, a licensed Real Estate agent, and work with a client who invests in north city St. Louis, the most dangerous part of St. Louis. My client personally manages his properties, and he has to personally pick up rent, there is high turnover, and high crime. We just wrote an offer on a property, and he called our preferred plumber to camera the sewer line. They are no longer going to the zip code, due to having a bullet whiz by them on the job.
With that being said, there are some great streets and pockets. Our latest transaction is a duplex he's picking up at 30k, rents are $600 each section 8 / $1,200 a month, 100% turn key as in no work needed to be done. I think this is one his best pick ups yet.
With that said, not only will you be managing from afar / out of state, but you mentioned this is your first one. While you could be successful, you may not want your first to be C or D class. You're going to need a phenomenal PM, to which I am not aware of any managing where my client is buying.
You don't have to go as you put "in the ghetto" to get the cash flow you're speaking of. There is less inventory, and appreciation has occurred, so you are correct in that there are not as many deals and price points we were seeing a few years ago, but I believe that is nationwide due to recovery, appreciation, and not enough sellers for how many buyers are out there.
Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
9y
@Steve Christensen a deal similar to your client's is something I'd be interested in. I want to be able pay off the property within 5 years. My simple equation is this which I'll use your client's purchase as an example: $1,200 rent per month potential divided by 2 (50% of the monthly income goes to taxes, insurance, non-vacancies, bills, damages, etc..) which leaves us with $600 per month in cash flow. Now I divide $600 into $30,000 and that give me 50. Which is 50 payments of $600 to pay off $30,000 which is 4.16 years. So it's less than 5 years to pay off the property. Do you have any more deals of this nature? If possible, triplex and above.
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
@Luis Fernandez, the expenses are higher because you will have higher physical vacancy (longer time to fill), higher economic vacancy (bad debt, eviction), higher repairs (that demographic just doesn't take care of the property well and the properties in that area are usually older), higher management (property managers will charge more due to more work dealing with that demographic), and higher contracting costs (if they even will go there, plumbers and electricians will charge more due to safety concerns).
Redding, CA · Member since 2016 · 224 posts · 143 votes
9y
Luis
I just posted the below today to a different investor with similar questions.
From my 40+ years in cash flow investing, I have never been a fan of jumping on a plane and buying in other parts of the country. Many parts of country have no appreciation.
Try this. Get a map of your area. Online or with a pen and a compass, draw circles until you are in an old area, not war zone, that might have some of below items. Way easier to drive 60-90 minutes than fly somewhere.
You have control this way.
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Previous post:
Some food for thought. Here is my way of investing for meaningful cash flow.
For 40+ years in Northern Calif. I did all kinds of real estate investing. I love it all.
But I quickly found that buying one single family house at a time with no "real" cash flow and hoping for appreciation was not a recipe for financial success in my lifetime. Way too slow and boring.
Fast forward. Here is the plan I used to get 250+house rentals at my high mark (they are houses but not like the one mentioned above).
Plan:
-Buy GROUPS of older houses on a single parcel.
-These could be a combination of small houses, cottages, duplexes, conversions, legal non-comforming, small apartment on a SINGLE PARCEL.
-Older parts of town, not dangerous parts.
-Ideally they need fix up, probably because of weak management.
-5 or more units. This makes it ideal for seller financing. Banks will not loan on rundown properties with 5 or more units. The seller knows this and will almost always be open to carry the financing. 85% + of mine had seller financing.
-Seller financing can be terms that are beneficial to you: Term, no payments for awhile, graduated payments. What ever you need to get cash flow.
-I usually put about 10% down.
-Because the units are run down, the rents at time of purchase are almost always below market.
-Because they are run down the GRM (gross rent received from property for a year) is lower than it would be if units were fixed up.
-My goal over a 2 year period was to fix up the units, get better tenants over that period and raise rents by 50%. Remember they were already below market and fix up raises rents. Because I fixed the units up I will raise the GRM that an investor will pay( IF I were to sell) by 2 points.
-Raising rents by 50% and the GRM by 2 just about DOUBLES the value of the property. Very doable.
-I manage them, usually using my Managing By Mail techniques. I developed this to keep my sanity in the property management part of the business. Way less personal contacts with tenants.
-Years later when it came time to sell, I INSISTED ON CARRYING BACK THE FINANCING. I call this PAJAMA MONEY. Remember I forced up appreciation at the beginning by fix up and have many many years of general market appreciation (if no market appreciation, I still do very well). At the beginning of each month I can go to my mailbox, pick up the checks for the buyers of my properties..........I can do this in my PAJAMAS.
-Buying groups of houses is way safer than just buying one. A vacancy with 1 house is 100% vacancy. If I have vacancy with 5 houses, it is only 20% vacancy. 80% of other rent keeps rolling in each month.
Residential Real Estate Broker · Grandville, MI · Member since 2016 · 109 posts · 78 votes
9y
Pretty sure I can get you that kind of cash flow in Muskegon, MI. I have TWO 4-units right now over there around $100,000 that are kicking out around $2,000 a month each. 50K down on each would leave you a balance of 100K for the pair and a payment around $1,000 for PITI should net you the $3,000. Message me if you want more details.
Wholesaler · Saint Ann, MO · Member since 2014 · 50 posts · 27 votes
9y
@Luis Fernandez I don't know any lender who is going to loan you on a 10-20k property. Most lenders don't want to do under 50.
I've never personally purchased or assisted in a transaction as a Realtor for anything commercial (greater than 4 family). I can tell you this, to the average unit, whether SFR, duplex, or quad, is roughly 10k a unit, turnkey / fixed up is roughly 15k a unit.
So, are there 5+ complexes that equate to a 10-15 p/unit, where you might be able to buy an 8-plex, as in the case of your friend? Maybe, but I haven't been in that market. I could set you up on a search though so we can see. Please message me if that is the case. I'm not trying to circumvent BP, and don't know if that is in violation of their postings.
I feel very adamant in reiterating though, with every other sentiment, that not only is investing outside of your market tough, but combing it with D class is a recipe for disaster. I have managed over 1,000 properties, and I have never managed D class and would not.
Investor · Gray, GA · Member since 2016 · 38 posts · 10 votes
9y
@Luis Fernandez I like it. You know what you have, and what you want. I think if you're willing to fly around the US & check out different areas, then you'll probably find a property that works for you. I'm not saying it wont be a challenge, it defiantly will be, for the reasons listed above, but I do think you can find property that meets your criteria. The only question I was wondering is about the "cash" payment. Are you not interested in using that $100K as a down payment? It would go a LOT further...Just a thought. Good luck and keep us posted on your search.
@Cody L. A friend of mine, which is now more of a mentor, bought an 8-plex at $82,000 + $20,000 in rehab in the hood in STL, MO. The 8 units are renting for $450 - all are studio units. He's pulling in $3,600 per month in revenue. He bought at the beginning of last year. Though they're less common than the past This is what I'm looking for.
Okay, read what I said again. He's getting $3600/month in REVENUE. I already said you could do that with $100k leveraged. What you're NOT going to do is "Cash flow" -- i.e., profit.
@Steve Christensen a deal similar to your client's is something I'd be interested in. I want to be able pay off the property within 5 years. My simple equation is this which I'll use your client's purchase as an example: $1,200 rent per month potential divided by 2 (50% of the monthly income goes to taxes, insurance, non-vacancies, bills, damages, etc..) which leaves us with $600 per month in cash flow. Now I divide $600 into $30,000 and that give me 50. Which is 50 payments of $600 to pay off $30,000 which is 4.16 years. So it's less than 5 years to pay off the property. Do you have any more deals of this nature? If possible, triplex and above.
I wish you the best but I have a bad feeling you're going to be stunned after you close. I buy properties from out of state buyers that went "Wow, that's a lot of rent for the purchase price. I can just buy it, hire a PM, and want the money come in"
You might want to take a deep breath before you plunge in with your $100k unless you have many $100ks behind that one. I think you are getting your revenue and cash flow mixed up. Revenue is nothing without cash flow. I recommend that you understand the numbers of a good and a bad investment deal before you buy. Instead of flying around, I would read every REI book I could get my hands on and listen to the BiggerPockets podcasts.
Saint Louis, MO · Member since 2017 · 34 posts · 12 votes
9y
@David Ferrette I'm good with understanding the difference between revenue and cash flow. I've mentioned them both with the context I had in mind. As far as understanding the numbers, apart from knowing things such as the cap rate, following the 1% rule or the 70% rule, etc.., estimated margins, estimates for repairs based on both types of inspections and appeal, rehabbing, taxes, vacancy rates, market trends, local rental amounts, service providers, ..etc what other criteria do you use to assess a good or bad investment? There comes a time when you have to put the literature down and get rolling with the practice. I never read a book on hotel management until a couple of months after I started running it. I actually never finished the book - got to about 3/4 of it. Yet, I was able increased revenue, yes revenue, by over a 100%.
Real Estate Broker · Seattle, WA · Member since 2012 · 76 posts · 14 votes
9y
@Luis Fernandez have you checked out Savannah, GA port city like Seattle pretty consistent as far as growth. I am in Seatle and units are 100K a pop right now.
Given your criteria, you'll want to chose places considered 'landlord friendly'. Your scenario, as pointed out, will most likely lead to a higher rate of physical and economic vacancy. Finding a suitable and competent property manager may be a bigger challenge than finding the property. Also do a loss run report on property you are considering to make sure you can get hazard insurance. I agree with @Jay DeCima about the 60-90 minute comment, since that's exactly what I am doing.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Luis Fernandez the big thing your missing is it all looks good on paper...
the tenant class IE the folks that live in the units that are D class or Hood.. are for the most part very difficult to manage.. and you simply will NOT get paid your rent.. and your expenses will be sky high.
there is nothing a PM can do when your tenant kicks kicked off of HUD.. or their car broke down and the rent does not come in...
you can run all the proforma's based on rental income.. just take your rental income profroma and cut it in Half or 1/3 for the year .. run your expenses up to 60 % at least of gross revenue and then see where the numbers flush out.... this is reality in the hood.
the only folks I see who make it with these props are those that live there and work it .. its a whole different set of society than your probably used to dealing with or understand how they live.
