It happens to the best of us, and it’s not your fault. There are a lot of areas where homes just don’t cash flow. The first thing most new investors do in these situations is start trying harder, viewing more homes, setting up text searches and wanting to see homes within minutes of them hitting the market. They believe there’s a killer deal out there; they just have to find it.
Here’s the thing — market prices are determined by supply and demand. Looking harder and wearing yourself thin won’t change that. I’ve seen too many investors give up doing this.
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Why Can’t I Find a House That Will Cash Flow?
If demand for purchasing houses is high, prices go up. If demand for rentals is low, rent goes down. That’s what’s happening if you can’t find properties that will cash flow.
What separates amateurs from good investors is how they think. Good investors can look at the market and know they shouldn’t waste time looking for good deals but should instead create killer deals. Start doing things most people don’t even think about. Good investors adapt to their surroundings and find new ways to succeed.
Here’s how I turned a deficit into $900/month cash flow.
Renting By the Room
In my area, a three-bedroom house rents for about $1,500 or $500 a bedroom a month. Unfortunately, the mortgage on a “good deal” is about $1,600 a month. This leaves no extra for repairs, vacancies or early pay down. Most investors pass on these houses.
What if the house has a den, office, garage or an unfinished basement that could be converted into more bedrooms and each rented out separately? This might sound crazy, but that’s why most people don’t consider it.
Think about this for a minute — adding one bedroom to a three-bedroom house increases your rental income by 33%. Add two bedrooms and a second bathroom, and your rental income increases by 66%.
That’s how you turn a deficit into cash flow. To make it work, you’ll need good tenants.
Finding Tenants Who Want to Be Roommates
When I started out, we targeted college students because they don’t mind living with other people. As you can guess, most of the applicants were people we didn’t want to living in our house. To remedy this, we added our professional occupations to the ad to attract students who were looking to live with people like us. It wasn’t long before most of our applicants were graduate students, professors, teachers, medical students in town on rotation and even traveling nurses.
Wow. This took me by surprise so I went to Craigslist to see what the competition was saying. We had the only house that appealed to professionals. Our niche.
I was baffled, so I spoke with the applicants and asked them why they wanted a room rather than their own apartment. Most of them said they liked the feel of living in a house, it was cheaper to rent a room than an apartment, and most importantly, they were new to the area and wanted to make friends. We create social networking through real estate.
We now have some of the best tenants you can ask for, our house is better taken care of than we could imagine and the people living there have become great friends. You really do get paid in proportion to the value you create.
Writing the Ad is Key to Making This Strategy Work
The most important thing you need in a good ad is good pictures of the house. Professional pictures are best because they will attract professional people.
The second thing you need is a tag line that draws them in. I typically use “1 bedroom in a clean, quiet house.” That gets at the people I’m looking for. If you’re a clean person looking for a bedroom in a house, you’re clicking on my ad because it’s the only one that says “clean.” The pictures support that.
The third thing you need is a good description. Use emotion words to paint a picture they can interpret. They don’t care about the features of the house, and they’re reading the description because they liked the photos and tag line.
- “We are fun-loving house that often has group dinners and game nights, but that also enjoys some quiet time.”
- “The home is four blocks from the park, grocery store and coffee shop. It’s centralized between the beach, forest and two rivers for lots of weekend fun.“
You want to appeal to the people you are trying to attract. If you say things about group events in the house, you attract someone wanting the group environment and someone who will get along with others. Saying things about having fun brings up good emotions towards your house.
I would also suggest also listing the occupations of the people in the house. This will help attract like-minded individuals and improve the chances of finding someone who fits with the group.
Whatever you do, don’t say what you are looking for in your ad. You don’t want to break fair housing rules or turn people off. You want to show the value of living there and attract people to you.
Another benefit to doing this type of investing is interviewing tenants. I let the people living in the house choose and interview new tenants. Giving them ownership over the process reduces turnover and saves you a lot of time looking for new tenants. You still have to do background and credit checks, but that’s easy.
Real estate is a dynamic environment, and there are a million ways to generate cash flow. Everyone is doing the easy things, and that’s why they aren’t very profitable. To achieve your wildest dreams, you’ll have to start creating success. Waiting for good deals is letting other people decide your success. There are no limits when you create success.
“There is nothing wrong with ordinary. I just prefer to shoot for extraordinary.” – Darren Hardy
What creative strategies do you use to boost cash flow? Have you ever rented your properties by the room?
Leave your comments below!