Having no luck finding Multi Family Deals that would cash flow

74 Replies

Hi all,

I am new to multi family investing, only having just recently went into a MFR deal with a business partner to make a very, very, measly positive cash flow per month on a duplex. With that being said, is anyone willing to throw a bone as to some locations where there are still a decent amount of MFR that would cash flow well? As I stated I am new to this so I'm not surprised I'm having such a difficult time, but essentially no matter where I'm checking (online listings only, admittedly) across the US, numbers are barely even showing positive cash flow as I'm analyzing listings of MFR. This goes for Duplexes, Tri, and 4-plex!

Am I just trying to purchase at the wrong time since prices are still on the rise? Thank you ahead of time for any responses.

@Aaron Hall , @Dennis M. is correct to some degree.  C/D areas will generally cash flow better than A/B areas but I think your deal source is also very important.  If you are looking at only listed properties or pocket listings, there is much less of a chance of cash flow than if you are finding off-market deals.  All of our highest profit buy and holds, flips and wholesales have been when we were direct to seller.  It also helps if you are targeting motivated owners.  

Just my 2 cents.

Originally posted by @Robbie Reutzel :

@Aaron Hall , @Dennis M. is correct to some degree.  C/D areas will generally cash flow better than A/B areas but I think your deal source is also very important.  If you are looking at only listed properties or pocket listings, there is much less of a chance of cash flow than if you are finding off-market deals.  All of our highest profit buy and holds, flips and wholesales have been when we were direct to seller.  It also helps if you are targeting motivated owners.  

Just my 2 cents.

I do think cash flow on Paper and cash flow in the real world can be vastly divergent... other wise why would C/D areas return higher % returns....  Risk/Reward and actual performance .. 

when you look at MF in the bigger deals buyers want trailing 1 or 2  you need a few years of actuals to see what U may think future will bring.. so think about that as well.

and if it is not cash flowing enough.. just put a little more money down.. EVERYTHING cash flows with the correct down payment or simply pay cash that's the best solution to the cash flow dilemma  

Aaron, I agree prices are high, sellers/brokers can be ridiculous on the prices, and some buyers are overpaying for properties, so it makes it all okay. Every buyer is not purchasing for the same reason so some might "overpay" and it still make sense for their situation but not yours (or mine). You can't really worry, or even compete, with buyers that don't require a decent return. But you are still doing the right thing. Continue to analyze with the caveat that an asking price is just an "asking price". We all see pro formas with numbers somebody pulled out their arse and those arse-numbers are used to support their inflated asking price. Your analysis will show at what price the property makes sense. It's fine to write an LOI based on the real math that make sense. Find that number that makes sense, go after that number, and if you don't get it, cool, next.

Thank you everyone for your input, I am always appreciative in the feedback I receive.

@Dennis M. I've been looking at A/B/C neighborhoods. I definitely want to steer clear of D neighborhoods from the horrendous stories I've heard and read, time and time again.

@Robbie Reutzel This is what I suspected, thank you for this information. While I have an agent in WI I work with, It looks like I'll need to seek out experienced agents in other states as well to hopefully throw some off-market deals my way.

@Jay Hinrichs That is something I've not thought about. I suppose it is all a matter of how much money is being put down or paid out in full to affect your monthly cash flow. Unfortunately after my last deal I've got 50k, at best, to invest for my next property so it doesn't look like more down payment is possible, unless of course I save for another year or so.

@Damon Pendleton Thank you for your input, it seems you and me have the same mindset here. I just wanted to make sure I was understanding things correctly. Unfortunately, the vast majority of prices I'm seeing listed are so high now, it is hard to find a property that would make a good investment after purchase at this point, in terms of cash flow anyway.

May I ask you all, are you still actively investing in buy-and-hold rentals at this point with prices being so high and continually to rise? Do flips make more sense in this kind of market than buying properties for the purpose of rental income?

@Aaron Hall I understand your frustration at not cash-flowing well, but what is your cash-on-cash return like? If you're only out for $30k, $250 a month in cash flow is %10, which is definitely more than you'd get in a savings account or bank CD.

It isn't just about the raw cash flow numbers... A property can cash flow $2000 a month, but if I'm into that property for $1 million cash, that's a terrible deal!

@Nathan Milholin Thanks for your reply. Very true, and I agree on all points. Well, my other MF rental that I went into with a business partner is nothing less than highly unimpressive. We're cashflowing about $134 a month...and ofcourse then that is split in half 50/50. Downpayment was about 32k. So yeah... not exactly impressive by any metric.

I suppose this is why I'm looking to branch out on my own and try to find a better deal with better numbers. As stated, I've been searching (online only) and just analyzing various online MFR listings all over the net, I'm not finding much of anything that would cash flow positive anywhere near the suggested $200 dollar per door mark. Not even remotely close. Not sure what I'm doing wrong, or if its because others have mentioned that online listings are going to probably be overpriced and off market listings are a better bet.

@Aaron Hall   here is an idea for your 50k  buy a great performing first trust deed.. that has a 5 year term or so.

you can make EAISLY 8 to 10% return which is what your trying to do..

sit on the side lines and let the market cool for a bit but still get your return.. don't go into debt and be a little diversified being the bank as well as owning the asset.. plus the NOte will be at 50 to 65% of todays current value so that gives you some great equity protection.. that's one way to look at the 50k dilemma.. reach for something the herd is dong or be the bank and settle back and just collect your mail box money why you wait for the next buying cycle.

Originally posted by @Aaron Hall :

@Jay Hinrichs Excellent advice. It appears patience is key here. I will look into that, thanks again.

 yup  you will find many landlords after years will morph to trust deed investing.. its far more passive.. 

but I get the leverage up in the beginning.. Most of our investors are in the last half of their climb to retirement and or last 3rd and the note income is what they live on in retirement..  but I see it as a really good place setter in todays environment.. were its taking investors from what I see on BP  6 months to a year to find something that makes 8 to 10% or they never do .. so notes as I said have been red hot for us.. and most if not all get sold through referrals.. so that we like as well.

Another informative BP thread. Thanks all!

@Robbie Reutzel , I wanted to clarify a comment you made about doing deals "direct to seller". Do you mean that these deals don't involve buyer/seller agents? If so, are there reasons to do this aside from the seller saving on the commissions they would have to pay?

If you are not interested in being a completely passive investor, what kind of work are you interested in? Where do you think you can add value in the process of buying and landlording?

Some people are active real estate agents or have other connections that help them find deals. So, for them finding and negotiating deals is a place they add value.

Other people have project management or skills in the trades. For those people buying value-add deals where you do anywhere from a light cosmetic rehab to a full gut rehab is where they add value.

Figure out what kind of work you want to do in the process and how you will add value and I think you will get over the hump and get things really rolling for yourself.

@Aaron Hall sometimes it is best to do nothing. If you have a big bank account and the market corrects you will be in a good position to buy everything at a discount price later. Invest in your education and be ready when the time comes. Cash is king! 

@Josue Velney I agree and appreciate that advice. I think I'm a little too eager since I just started diving into Real estate purchases that it is hard to stop for a few/several years once I got going. Perhaps I will lay low and look for alternate investments until the market changes for the better.

@Gordon Starr Haha thank you good, Sir. I'll look into a turret system and land mines for the property :D

I agree that neighborhood makes a difference. Macon GA is tiny place that not many people have heard of.

Try that.

Darrell

I've been working on analyzing deals lately and one thing that I've found is that many properties that are listed on market just aren't deals at all. With the market in an upswing the value really seems to lie in overlooked properties and off market opportunities where value add can dramatically affect the property value and cash flow.

With that being said, I think that @josuevelney made a great point that sometimes the best investment is simply your education so you can be ready when future opportunities arise.

Depending on the time committment you're willing to make, you don't need your agent to find off-market deals for you. Drive around and look for properties that look slightly unkempt. Find owners houses who haven't sold in 25+ years that may be owned by someone elderly who is getting tired of running the place. Contact the local auditor's office and get a list of properties that are behind on taxes. Network your butt off. Widen your search area if possible.

That MF cash flow is horrible, when the cash flow is that bad usually you count on the appreciation, with MF appreciation is bad comparing to sfh. why not invest in SFH, I think it's still relatively easy to find a turnkey property for 15% cash on cash return. Just need find a good turn key company first. If you can find off market deals SFH can have much better returns even in B neighborhoods.

CASH FLOW IS OVER RATED IMO!!!  I haven't been active in real estate for some time. Yet, when I owned properties in the Bay Area from 1980 - 2011 I NEVER had positive cash flow!!! Property appreciation was key and still is IMO!!! I look back over the homes I owned, lost or failed to purchase they all have increased in value by approx 6%/yr!!! My grandmothers old home which my brother owned in the 90's for $65,000 and lost to foreclosure recently sold for $970,000. 

Yes Bay Area property is EXPENSIVE ... so what can be done??? ADU's!!! ( accessory dwelling units)!!! My neighbor recently converted her 200 sqft garage to an ADU that now rents for $1700/mth. That's serious cash flow. Point being she can sell and make a HUGE profit in the hundreds of thousands of dollars.

A home in Modesto much further out of the Bay Area was on Hubzu and recently sold for $206,000. It had a large back year. An ADU there would add at a min of $1500 in cash flow. So if the original home PITI was $1400/mth and now you're pulling in $1500 from the ADU you have no note and $100 positive. You think a buyer might buy that home for $400,000??? Their note with 10% down would be approx $2500/mth - $1500 income = $1000 PITI !!!!!

You invested say $50,000 (financed) to create the ADU. Your total cost was $210,000 home purchase + $50,000 ADU = $260,000. Sell for $400,000 x 6% commission = $24,000. Net = $376,000 - 260,000 = $116,000 profit!!!! WHO CARES ABOUT CASH FLOW when you can create WEALTH!!!

This can be done in any area that is experiencing a housing shortage. Google ADU's and see what you get.

Aaron, your MF with poor cash flow. What can you do to it to increase cash flow? Can you add a unit? Upgrade something? OR dump that SUCKER and take a loss and move on!!!! :)  Cash flow IMO is NOT a major deal when you can create wealth by thinking out of the box on what you are purchasing. What can I do to this property that will increase it's value in a short amount of time. I recently learned owning 5 units & more is the key. The value is now based on a commercial bases vs an appraisal of similar properties in the area. 

DUMP that SUCKER!!! Start a new vs experiencing a maintenance issue like a sewer line failure costing you thousands of dollars. What is your cash flow now??? :) 

Good Luck

@Aaron Hall , I believe there are tons of deals in Mid-west OH, IN, MO and even in parts of TX in my opinion. 50K is lot in my opinion to get on board with some decent residential MF that would give you a 12 - 15% COC.

How - Network with specific local area Realtor/Wholesalers and give them your criteria. Do not trust their numbers but only yours. Do lot of due diligence on the area, property and people you plan to work with.