How in the world do you find a property that has + cash flow?

Question

Having a ton of trouble finding a SFH or duplex that rents for 1% of the gross price, let alone one that has + cash flow after accounting for taxes and maintenance.

I'm looking in a Midwest, medium COL location. Looking to buy 1-2 properties for ~250k. I've spent a month searching the MLS across multiple sites, no luck. Am I missing something?

Oren K. · Answer

Trevor,

There are a lot of overpriced listings out there claiming 11 13 and even 15 CAP rates in the Mid-West but when you look at the underwriting (expense assumptions), it is either totally missing key categories or they are way understated to industry norms. The one I love is with respect to property taxes. They assume that taxes will remain the same despite the price being 2x or even 3x the current county valuation. If you ask, you get some BS.

Stick to your own underwriting assumptions and good luck.

Oren

Christopher Blanco · Answer

I guess everyone's definition of Cash Flow is different too. I define cash flow as after PM, Repairs, CapEx and all other expenses. I have never seen one work out to more than $100-$150 after all of that, but I am pretty green so that might just be me.

Kenneth Garrett · Answer

I am in the northwest suburbs outside of Chicago.  I have been able to find properties that cash flow on the MLS.  You have to analyze them very carefully and pick them out.  These are not turn key.  Put in 25-30K of rehab.  I have selected a few markets where I have become an expert.  I also have been fortunate to find some estate sales where the family is ready to move on.

The market is very tight and the banks are very inflexible.  Your not going to offer the banks 30K less then the list price.  A couple of months ago I was able to get the bank down 10K, It was a miracle.  Sometimes you just happen to hit the bank when they have to unload the property.  It does take a lot of offers.

Hang In there.  Maybe you are being to conservative.  I know I have that problem from time to time.  I look at cash flow first and I agree with @Jeff B. work the numbers back words to see if you can get an offer that cash flows and works within your criteria.  I need cash flow 250 and up.  I use to look for 400 - 500 but those are more difficult to find.

Good Luck.

Jeff B. · Answer

Try working the numbers backwards to see if a property is worth  chasing;

Take FMR * 12mo * GRM to find max FMV that a unit could still provide a positive NOI.

Frm (fair market rents) isn't too hard to find, but GRM(gross rent multiplier) is intuitive magic number 10 or less.  I sold using a GRM 11.5, but that's another story.

Matt Motil · Answer

Need to find better agents. Lots of options out there.

Christopher Blanco · Answer

I am having the same problem. In my area (Cleveland) taxes are the killer for me. If I can find a property with taxes less than 3% yearly then it usually cash flows better. I agree though, its tough. Yet people seem to be doing it as there are ton of SFR rented around here.

Trevor Crowell · Answer

@Kevin Siedlecki - Agreed, my preference would be a small multi-family, although there are of course fewer on the market.  I'm limiting my search to the city I grew up in, as I know it well and still have family there.  COL = cost of living

I'm not in a hurry to jump on a property now, and eventually I'll find an agent who is familiar with investment properties in the area.  How much of a factor are they in finding good deals?  I've read that they often contact potential buyers before the property gets to the MLS.

Kevin Siedlecki · Answer

@Trevor Crowell - SFRs are tough in most markets. I have found that small multi-families in B and C neighborhoods work the best where I am, but you should be able to find something if your searching the entire midwest. There are definitely areas that will not support renting SFRs if you buy right now at retail, but there are also definitely areas that will.

I'm not familiar with the acronym COL- what do you mean by that?

How in the world do you find a property that has + cash flow?

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