Trouble Finding First Cash Flowing Deal

27 Replies

Hey All,

This is my first post on bigger pockets and I'm super excited to join the community. I am about 6 months into my real estate journey and having been reading everything I can get my hands on. I live about 50 minutes north of Austin, TX and have decided to invest in buy and hold single family investment properties. 

I know I am fairly new, but have been analyzing about 3 properties per day via zillow (this is probably my first problem) for the last 3 months and havn't been able to find any cash flowing properties. I know its possible to find them but I feel like in Texas it is super tricky at the moment. I decided to get my license and according to the math I will break even on the board of realtors fees if I do one deal per year. I am hoping the education and access to MLS will aid me in finding better deals.

Would love to hear anyone's thoughts on dealing with super high property taxes, and getting your license as a newbie before even buying first property. Hoping I didn't make a mistake by doing it.

Welcome to Austin. Cash flowing on SFRs is very difficult, if not impossible. You might find a deal or two that makes sense in the secondary markets (Round Rock, Pflugerville, Georgetown, Hutto, etc...). Having MLS access is definitely necessary, but you don't need to be licensed to get that (any realtor can setup a property search for you). The other acquisition strategy that you may want to consider is direct mail.

Welcome to BP @Parker Smith ! I too find myself in that same boat. I'm in the middle of an inspection contingency on a home that would 'just' break even. It is a very difficult thing to do to have cash flow. Although I may not have an instant solution for you, I do offer sympathy. I think those of us who are in a hot market completely understand where you are coming from. 

If you found a deal that didn't cash flow but broke even, do you think rents are on the rise in your area? 

I would not recommend you to reach for a break even/negative cash flow situation in Austin at this time.  With all the new apartments coming on line vacancy rates will most likely dip for a period of time

All, I am in NJ but the challenge is the same as described above. I am also new to this. So when you say cash flow do you mean (rental income - all expenses - mortgage payment (P&I)) = cash flow  - at the most basic level? Right?

@Amy Nir There are ALWAYS deals out there. Pretty much in every market but you have to look hard to find them. Right now it is becoming more and more difficult to find properties that will cash flow on the MLS. So you give up or you look in other places. Craigslist, directmail, wholesalers, etc. Just find new sources.

You can google search, call the bandit signs that offer to buy houses for cash, go to any REI meeting. Wholesalers keep a list of buyers and will email out any properties that they have available. Be careful, as they will use some unrealistic renovation and ARV numbers but you can still find good deals from them.

Finding deals can be difficult in this market and @Rick Pozos is right about the power of wholesaling. The only time you are going to get a deal on the MLS is if you can get a property no one else wants for much lower than asking price. As far as cash flow, the best way to achieve at least 1% is going to be through multi units.

Getting your license wasn't a bad idea because it helps you get a feel for running comps and understanding the market better. I would make more use of it than 1 deal a year and start letting people know you can help them buy a home! Make sure you are with the right broker who your embraces your ability to invest in properties and doesn't limit it. That was the first mistake I made getting my license (joining a "retail" team) and it put me back almost a year from my investing and selling goals.

Thanks for all the advice everyone, wasn't expecting this many replies.

@Greg H. This is what I have been debating for a while now. Good to know an experienced investor's opinion on this. My thinking was even if I'm not breaking even on cash flow: 1: I can afford to pay a few hundred dollars more out of pocket every month, and 2: When you factor in the Rate of Return on debt pay down and the Rate of Return on Appreciation it should come out as a solid investment over time.

I have heard from multiple people that SA is the place is find deals right now.

@Rick Pozos You're describing the techniques that nobody wants to do, but where the deals are haha. Great advice.

I love when Brandon Turner talks about the "Deal Funnel". This was my primary attraction to having my license. You analyze 120 deals, offer 12 and get one accepted. I think I just need to get some offers out there at a price point where the property does cash flow, just to get my feet wet, and then go from there.

@Parker Smith Get working on that deal funnel today. Find an area to focus on and go at it hard. Craigslist ads (post about twice a day and reply to every for rent post in your target area), Direct mail (send letters/post cards to every foreclosure filing in your county and then follow up with them again about 3 weeks before the foreclosure sale is set to happen), Drive for Dollars (when you see a house that is in need of repair, knock on the door, ask about the owner's plans). This is all jump start your investing and if you commit to doing just one of these consistently for a month you should have a deal show up. Make sure to run proper analysis and ask for second opinions from the other investors you have networked with.

Good luck and persevere. You got this.

@Parker Smith Welcome to the BP and RE Investing! Allow me to add to the pile of free advice:

1. You should read Is Becoming a Real Estate Agent a Good Path to Investing—Or a Pricey Distraction?

2. You should check out the meetup scene - we organize one in Round Rock - and expand your local networking possibilities.

3. You'll have a hard time finding rentals that will cash flow after all expenses (!), even with 20 or 25% down payment. Short of buying something well below market value (70%ARV), which means you'll have to source those deals yourself - you'll not find them on MLS, and the wholesalers are peddling "deals" at 90-95%ARV plus repairs...which is most of the time 98% ARV)

4. The prices simply went too high, while rents didn't follow proportionally (IMO, because a lot of the house were bought by investors, thus the market rental saturation is quite high...and guess what, all those landlords are competing with each other and have to keep the rents lower to get them rented). 

Go on Zillow and look at all the active rentals in your area of interest (Zillow gives you a count). Compared that with San Antonio (like areas around 1604 ring), where you can get much better houses (newer, cheaper), but with low rents too, because there are so many.  Or run a RentRange report for your properties of interest.

5. And guess what else kept with the prices - the real estate taxes, which are also sky rocketing, eating more in your cash flow every year. I actually predict a influx of rentals of the sell market next year, when the new landlords of the current and past couple years realize the promised cash flow is nowhere near expectations, their property taxes have increased 30-50%, and they actually have to put money in every year. Now that, coupled with appreciation, might be a strategy in itself for high income individuals, but if that's not a large percentage of landlords, ...like I said, expect a sell wave at the smallest sign of economy trouble or appreciation slowdown.

6. Like @Greg H. said, I would not recommend deals that barely break even or negative cash flow. The market is closer to "euphoric" than it is to "distressed", and while you can't time the market, getting burned in your first deal might be too hard of a lesson to recover from. You make your money when you buy, not when you sell.

7. You don't need license. Just find a agent willing to allow you as an assistant.

8. Cash flow = Rents - PITI - Expenses (Property Management 10%, Vacancy 8%+, Utilities, Repairs and Incidentals, Capital Expenses fund, Legal and Accounting)

9. There are deals to be found, but not easy - @Ryan Blake and others gave you good directions, but you'll need a lot of work, time, resources and money to get there. Just be realist and don't drink the RE gurus "get rich fast" cool-aid.

10. You are in the right place to learn and get answers. "Ignorance is bliss. Knowledge is power, but also a burden. The cure to both - the 4 ions: education, action, progress(ion), not perfection".

@Parker Smith The best piece of advice I could give you is look at wholesalers in the area. A lot of wholesalers offer really bad deals, but its my opinion that you'll have a better chance in finding a deal with a wholesaler rather than trying to weed through the MLS. Getting with a investment lender can really help you with understanding the numbers and they usually have a preferred wholesaler that can be beneficial in your search for that first property. Good Luck!

Consider it "free expedited reality adjustment". One way or another you are going to pay for your "tuition" - either a. being scammed by gurus hoping they will teach you the "secrets" on how to become a millionaire in your first year/month/property/flip/deal, or b. while doing mistakes in your first projects/deals (but at least you get something out of it and is the best form of education)  or c. putting a lot of time, effort and resources in learning about real estate investing industry (and that includes marketing, financing, negotiation, contracting/legal, taxation, hiring, project/people/property management, etc.). I suggest a good dose of C combined with B (cause that's inevitable).

Just concentrate on #9 and #10 - real estate investing is a long game (at least IMHO). You can make it shorter with a lot of risk and leverage, but again, IMO, nothing good comes easy (nor fast).

@Dylan McCabe The 3 big time wholesalers in north Texas are Myers Home Buyers, New Western, and Net Worth Realty. All of these groups will have relatively high prices and almost always over inflated ARVs. This is known throughout the industry. They will have lots of homes. Each of those will have 4+ homes in Dallas every week and even more in the surrounding areas.

The best way to find smaller wholesalers who will typically leave more meat on the bones for you as an investor is to call the We Buy Houses signs you see littered on every intersection. Let them know you are an investor looking to buy. They will add you to their list. Expect to get an email about once or twice a month from each of these. That is why you will need to call on every sign you see to get a good flow of deals to look through. You can also check your mail. If you are in a house that you own, you will probably be getting offers mailed to you by medium sized wholesalers wanting to buy your house for cash. Call them and say that you want to be added to their buyers list.

@Dylan McCabe A good wholesaler is a real pain to find. Dallas has many meet ups that will be beneficial for you for education and networking to find deals. At big events like the Dallas REIA there will always be wholesalers so if your looking to get into touch with wholesalers that are working with investors this will be the place to do so. They usually have booths you can go right up too and get on a buyers list. The deals that they will send you will not always be good deals so learning how to properly analyze will be your saving grace.

@Ryan Blake Thanks for the tips! There are so many ways to go with all this. Exciting/confusing at first. But for some reason, I'm drawn to multi-family and commercial opportunities. I'll keep all this in mind as I continue to learn.

First off, welcome!

This market is zooming. If deals are not meeting my metrics, I don’t buy. I save my cash for a better deal. Whether you become an agent or work with one, definitely get connected to the MLS. I don’t care for Zillow but like Trulia and Redfin. Stay the course and keep looking. You will find a fit for you.