Who can help me, a newbie find a deal in positive cash flow properties?

Question

I'm a newbie, trying to find a positive cash flow properties with only $30,000 down.
My goal is to have a passive income, holding long term, without the hassle of managing. Any input or deals from real estate agents or investors appreciated. I had a bad experience buying a deal at the top of the market. I got discouraged and stayed away for many years but I think it's time for me to get over the failures and start investing. Thank you!

Jon Holdman · Answer

I'm going to be a little negative, here.  Don't take it personally, its meant to be helpful.

You say two things that make me think you should not own rentals:
1) "Who can help me ... find a deal in positive cash flow properties?'"
2) "My goal is to have a passive income, holding long term, without the hassle of managing."

The best person to help you find good rentals is ... YOU! You personally will have to do you own research on prices and rents to find a target area (price/rent ration low enough to be profitable, strong rental demand, deals available.)  Then you will have to spend time looking at properties and making offers.  Once you buy something, you'll likely need to have it fixed up.  That's more time and money.  Then you have to find tenants, collect rents, and deal with the problems that come along with tenants.

Now, there are certainly outfits out there selling turn key rentals.  They will do all the work for you and provide you a rental property with minimal effort on your part.  At best, you're going to pay a price for their services.  At worst, you're going to get ripped off.  I've looked at quite a few of these.   Many, though certainly not all, are offering an over priced, poorly rehabbed property that won't live up to the claims.  Some include a one year rent guarantee and management with the initial price.  A year later you find out the hard truth - the real rent is much less than you were told, its hard to find a tenant, the property continues to have issues that you need to pay to address, and, if you want to sell you find out you'll have to bring money to closing becuase you owe more than the property is truly worth.  These bad actors target out of state buyers from expensive areas.  They're counting on the buyer not doing their homework and evaluating the properties based on prices where the buyer lives.  The buyer thinks they're getting a great deal because they compare the price to prices where they live.  But compared to other properties in the same area, they're overpriced.

So, if you want to go down this road, you MUST still do your own homework.  Learn prices and rents in the area.  Travel to the area and look around.

Second, you want a hassle free investment.  Rental properties aren't hassle free.  Sure, you can hire a manager.  That's not cheap, either.  But for many folks, it outsources a job they don't want to do.  There is a rule of thumb that says expenses, capital, and vacancy will eat 50% of the gross scheduled rent.  That does NOT include the P&I portion of your payment, but does include taxes and insurance.  Capital items are those big things like furnaces and roofs.  The IRS makes you depreciate these, but you spend the money all at once.  If you're in this for the long haul, you have to budget for a new roof for each property once every 20 years or so.  Similar for a heater.  Appliances might list 10 years.  Carpets last three years.  ETC.

With a manager, about 15% of that 50% is typically for the manager.  So cash flow is roughly:

cash flow = (50% * rent) - P&I

(By the way, anyone who says "cash flow = rent - PITI" is jerking your chain.  Avoid that person.  I've met many such people at REIA meetings, both buyers and sellers.)

Now, you will probably have a down payment plus some closing costs and some cash fixup cost.  So, add that all up to get your total cash invested.  Estimate a years cash flow from the forumla above.  Now, compute your cash on cash return:

cash on cash return = (annual cash flow) / (total cash invested)

Now you have the ability to do the math on a property.  It really is just that simple.

Dennis Tierney · Answer

Susie S.If you don't have the time or enregy to put into it to do it yourself you may want to consider putting the money into an investing syndicate run by someone who knows the business. As always though buyer beware and do your homework.

Susie S. · Answer

Thank you all for taking your time to answer my naive question!
I would like real estate to be added to my investment porfolio. But I do have a full time job. I run my business. Therefore, I am in need of a real estate professional to locate and mange my property.
It is very humbling and inspiring to read all of your input...Must feel great to have years of hard work pay off. I definitely agree that not everyone is fit to succeed or meant for investing in real estate.
 I will keep reading other posts and learn!

Shuai Zeng · Answer

Gotta Agree with Jon here,

We're here to Help you out with question, not doing the work for you. Do some research, using website like zillow, RE website ect. CA is Expensive, but for out of state, u gotta use PM for the work. I believe I read somewhere on forum that you needed minimum of 23 property to keep a positive cash flow or 17 debt free one.

Joel Owens · Answer

"My goal is to have a passive income"

You didn't mention the most important part which is the return you are hoping to get.

For every return there is more risk and less risk and more or less time involved.

The capital (which you mentioned) and the return you seek (did not mention) will tell you if you need to save more money or adjust your expectations for wanting a hands off asset.

For me I can tell you I value my time tremendously. If someone sells you a course they can make money and not have to spend personal time with you. If a mentor is not getting money and spending time with you then the mentor is losing money as it is taking time away from them closing their own deals.

So not only are you asking them to help you for free they are taking out money of their own pocket by spending time with you. This is a concept many do not seem to grasp or think of when approaching someone.

I used to have a bunch of agents at my firm but I got rid of all of them. I would suspect just like investors wanting mentors that it's like the agents in that you can tell them all day what to do for success but many simply will not do it or be lazy and skip steps.

They will always tell you they have what it takes but after a few weeks or maybe a month they fizzle out.

You could offer to work for free for someone to learn the ropes but if you have a full time job it will be tough to do that. Many times I find people say they want to be successful but on THEIR TERMS. Life doesn't work that way and if you want something bad enough you will do what it takes with no excuses to make it happen.

That is why I like BP. We can share knowledge and answer a question and then go out and handle our business and the answers are there for all to read 24/7.

Mike Osterman · Answer

Bruce Norris and the California crash seminar, all in or fold (check out his radio show)

Fixer Jay Landlording & Investors seminars

Peter Fortunato ( any seminar )

Jack Friggin Miller (Promoted to the next level)

Michael Morrongiello paper course

Mike Cantu (don't get voted off RE island)

John Schwab ( must see )

Ward Hannigan foreclosure trainings

Sean Watkins ( Investor Workshops, Free Audio)

Tony Alverez ( REO Mentor)

Rick Harmon's Probate Seminar

Can you tell I live in CA?

And a bunch I'm not remembering.

These guys are going to the other guy's seminars. They're doing deals and share.

This is a blog where strangers exchange emails, maybe some commerce is happening, seeds are planted.

Finding a mentor is not easy, they don't wear name tags and typically don't need you.

Go to the local REI club, network and see what others are doing, they share too.

Don't skip this step, it's the foundation of your business.

Dave C. · Answer

I agree.  BP seems OK so far.

I would add to your post, about finding a mentor, definitely find one who has experience to give you exposure through all the parts of the business.  Doing it for free may be a cost, but do it.  There is no seminar student out there who has ever educated me about real estate, except to confirm the demand of suckers is pretty high.  Learning hands on and losing your own money are the best teachers.

Manuel A. · Answer

Susie S. Personally, I couldn't imagine learning ANYTHING more from an expensive REI club, seminar, or guru then what I've learned from being part of the BP community. However, what has actually helped me besides BP, is a mentor. I'd recommend find a mentor and just read, read, read on BP. I couldn't imagine any expensive "educational" source giving you anything "secret" that you couldn't learn here.

If anyone objects, please, give me an example.

Dave C. · Answer

The way you say "only" in your first sentence makes me nervous.  You shouldn't purchase the property unless you can buy it in cash, have plenty for the renovation, and know what you're doing.  I'd advise starting very small, once you have plenty of cash saved up.

Mike Osterman · Answer

BAWB.info in the north bay  or SJREI in San Jose (http://sjrei.org/). Sacramento is always an option.

Charles is half right, I'd not spend thousands ( ok I did take Ward Hannigans Foreclosure AND Trust trainings ) on some schuckster who is not doing deals.... But Ward's knowledge has made me $$$$ so I love him.

Hey check out Fixer Jay's training in March. It'll be a hoot. He's getting long in the years and is an exceptional teacher. 3 days in Sac for only 1k.

http://www.fixerjay.com/

Who can help me, a newbie find a deal in positive cash flow properties?

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