Positive Cashflow markets? - Posted by Jason

Posted by David Krulac on December 14, 2007 at 08:48:07:

  1. I’ve heard that arguement that why would people rent when they can buy for less per month?

First of all even with all the efforts of the mortgage companies and the government the peak home ownership was only 70% of the population.

Secondly there will always be renters. There will always be people just starting out graduating from high school or college and starting a new job. There will always be people getting divorce and splitting one household into two, often times neither can afford to buy a house. There are people who don’t want the responsibility, maintenance or permanance of a mortgage. There will always be bankruptcy, foreclosure, illness and death, which affect a family ability and esire to own a house.

  1. Obviously you need to get long term tenants. The properties that I rederenced were SFH, which inho have longer tenancy. Currently I have a tenant that has rented from me for 23 years. Other tennats have been with me for 10, 15 1nd 20 years. sure there are tenants that stay much shorter times. This year I have lost tenants who had been with me for 3, 4 and 5 years. Several did buy houses, from me of course, and one went to CA. to look for a better job. It doesn’t always work out. for example I rented to some tenants, who had rented an apartment for 16 years, before coming to me to rent a SFH. I figured that they would be long term tennats with me since they had a history of saying and renting the same place for 16 years. They ended up only staying 3 years. the liked the neighbborhood so much that they ended up buying a house on the next street.

  2. You sort of missed the point, these are not flipper houses because you can buy them all day for $15K to $20K and so can everybody else. One of the reason that they sell so cheap is that NOBODY wants to buy them. There is no growth in the area, no new jobs, no population increase, and no other economic factors pushing the sale prices. And even if you buy a $15K house for 20% less than FMV, that’s only a $3k discount. You can’t over inprove these houses, you can’t expect any appreciation and you’re buying SOLELY for cashflow, nothing more, nothing less.

  3. A friend of mine bought a 4 unit, 60 miles out of the city in a small town. The property was for sale for 2 years, during the good days of several years ago. Nobody wanted this property. He paid $19K. He’s fixing it up to rent it. Maybe you could sell it, but there weren’t any buyers at the height of the market, why would there be buyers at the declining market? but its a great cashflow play, and will churn out money day after day, year after year.

  4. This is not a rehab play, its not a flip play,its not even a lease option play. It a buy and hold play with strong cash generation, nothing more, nothing less.

Positive Cashflow markets? - Posted by Jason

Posted by Jason on December 11, 2007 at 13:39:58:

I have a quick question. I am looking through different real estate markets and trying to find locales where I can generate a positive cash flow. In my are area, SF Bay Area, there is no such thing. Or at least it is incredibly rare due to the high valuation of homes here.

It appears the best markets to provide positive cash flows are the ones that are not recently listed in financial magazines as “hot” or “up & coming”. Is this a safe assumption and what would the feedback be about going into markets that are not appreciating quickly? I see this similar to stocks. I am not looking for the hot technology stocks, but the dependable ones with dividends…

Thoughts or strategies people follow. It appears most people on this list are not landlord though, would the be a correct assumption?

How did I miss this thread? - Posted by James - Michigan Investor

Posted by James - Michigan Investor on December 13, 2007 at 09:43:58:


Anyway, my market (city) was named the #1 market in the WHOLE country!


Ok, it was the #1 Declining market, so there’s cash flow property as far as the eye can see.
Not many properties in SFBay for 10-15k and that will cashflow $400/month I bet. lol

Michigan Investor

Re: Positive Cashflow markets? - Posted by Anne_ND

Posted by Anne_ND on December 12, 2007 at 10:18:15:

Many of us have landlord experience, even if that’s not our major activity. There is an incredible amount of landlording experience posting on this newsgroup.


Positive Cashflow NEIGHBORHOODS - Posted by Jimmy

Posted by Jimmy on December 12, 2007 at 04:41:03:

it would be innaccurate to describe a particular place (e.g., Tulsa) as a cash flow market. because there are parts of town that will be very negative, and other parts that will be very positive.

by the way, I lived in the Bay Area from 1985-2005, but but did all of my investing 2000 miles away.

here’s is what O have noticed in my little slice of East TX:

  1. lower income areas work best.
  2. stay away from new construction and nicely renovated properties.
  3. 4-plexes cash flow better than duplexes, which do better than SFR’s. but the headache factor has the reverse order.
  4. Your best bet is to do rehabs on older properties in the lower income areas, and then retain the properties indefinitely. This is what I do. I generate more rents per dollar of capital than almost anyone in my market. Because I add significant equity myself.

example: I remodeled a 4-plex last year. was n terrible shape. paid 20K and pumped 60K into it. rents out at $1600 a month. $1600 gross rent on an 80k investment is excellent. but if you wanted to buy this place already-renovated, you would have to fork over 125K. a HUGE difference.

learn how to manage a rehab crew, and you will thank yourself 10,000 times.

Re: Positive Cashflow markets? - Posted by Al

Posted by Al on December 11, 2007 at 14:01:08:

you can create some cashflow by using seller financing such as a wrap or all inclusive trust deed(AITD).

pretty much the incoming buyer will take over payments at a slightly higher interest rate and the seller or investor will get their cashflow based on that spread.

its doable. you just have to be knowledgeable about how to structure it. let me know if you need help. im in southern cali.

Re: Positive Cashflow NEIGHBORHOODS - Posted by Jason

Posted by Jason on December 13, 2007 at 07:33:48:

How did you start out investing 2000 miles away? Did you do this full time? or Part time?


Re: Positive Cashflow NEIGHBORHOODS - Posted by Mark (SDCA)

Posted by Mark (SDCA) on December 12, 2007 at 07:19:05:

Question about your example. Did you refi after rehab? If not, you have A LOT of $$$ in that property.

2000 Miles Away - Posted by Jimmy

Posted by Jimmy on December 13, 2007 at 08:30:46:

its a long story…an experiment morphed into a hobby, which became an investment activity which becamse my full-time biz.

  1. A client of my Bay Area law practice moved to east TX in the mid-90’s. he started buying houses in a poor area of Tyler, TX. he’d pay 5-10K for a house, put another 10K or so in in, and rent it up for $600-650. I liked the numbers. I asked him how I could do it. He told me to come down for a visit, and bring my checkbook. That was in 2000.

  2. On that trip, I got contracts to purchase two houses he had rehabbed. My friend agreed to manage the properties for me. That was my start. over the next 2-3 years, I stumbled around and tried different things, before finding my niche: buying clusters of properties needing significant rehab work, rehabbing them, and holding them indefinitely.

  3. the hardest part of this biz is finding good people. I am constantly hiring and firing. I am always trying to find better, faster, cheaper tradesfolk. Aces are hard to find, but once in hand, I don’t turn loose of them. I network constantly in my quest to find better people. and I find them.

  4. What I do is not easy. and its full of headaches. but the better my people, the less painful and less frequent those headaches.

yes, post-rehab refi - Posted by Jimmy

Posted by Jimmy on December 12, 2007 at 09:21:35:

I did a 67% refi after this one finished. got 84K or so, which got me all of money plus a little extra. 15 year am loan. loan payment around $750.

compare that to the investor who wants to buy this property in finished condition for 125K . his loan payment on an 80% 30 year am will be a little less than mine on a 15. I have more equity, no net cash in the deal, and a lot more ability to tolerate bad news.

Re: yes, post-rehab refi - Posted by Andy

Posted by Andy on December 12, 2007 at 12:08:10:

You mentioned you buy in low income areas. When rehabed, are your properties comparable to other properties in the neighborhood that are in good condition or are they far superior in value?

Re: yes, post-rehab refi - Posted by Andy

Posted by Andy on December 13, 2007 at 07:34:56:

I get the impression that you dont have too much trouble finding property to buy and renovate. Is this correct?

If this is correct, why dont you think others are snapping up these properties and doing the same as you? Is it that they are in such bad condition that they are afraid to tackle such a large renovation?

Thanks for sharing all your experience!

Nicer, but not over-upgraded - Posted by Jimmy

Posted by Jimmy on December 13, 2007 at 05:13:17:

my properties will be comparable to other properties that have been nicely restored. and way better than the ones that haven’t. I am sensitive to the issue of over-upgrading, because is makes no sense.

there are several reasons… - Posted by David Krulac

Posted by David Krulac on December 13, 2007 at 09:04:39:

I don’t speak for anybody else and I don’t know Tyler Tx. but here there are places where you can buy a livable house for $15-$20K and rent for $450-$500 a month.

Why isn’t everybody snapping these up? the monthly rent is way bettter than 1% and would seem to be a great investment. Right?

Reasons why not snapped up:

  1. They are not glamourous, hot, poppin’, or what ever term you want to use.

  2. They are boring, un-intreesting, cash cows. People want to talk about Porsches not Escorts.

  3. Around here many of these properties have low or no chance of appreciation. Economic factors determine if there is an increase in the prices, and prices are not going up, but there are still people who want to rent.

  4. The more rehab that you do is money down the drain. forget your granite countertops and imported Italian tile floors. These are basic houses that can be easily over improved.

  5. Work done on these houses should be limited to cleaning, painting and the basics.

  6. I bought a house for $32,000 that had been extensively remodled by a former owner, much more than I would have done. New windows, doors, drywall, electric, plumbing 2 full baths, kitchen and siding. almost everything had been new. I rent it for $900. I told some fellow investors about this niche opportunity and they also bought several houses there too. I cautioned them that this was strictly a cash flow play and NOT an appreciation play. A year later they wanted to sell their property and were shocked that it had not appreciated like other neighborhods and towns.

  7. Owners of real estate have been spoiled by high appreciation of this centruy with prices double, triple, or more since 2000. But there are areas, believe it or not where there has been little or not appreciaition, even since 2000. And typically the prices aren’t going down now either. They didn’t go up and there not going down either.

  8. This niche of low priced houses with little or no appreciaiton does not lend it self to flipping in many cases. there’s a price ceiling in many of these neighborhoods. This niche is underserved, and I like it that way. Don’t tell anybody this secret.

Re: there are several reasons… - Posted by BigV

Posted by BigV on December 14, 2007 at 05:42:24:

Dave, thanks for your response.

But let me ask you, what is the quality of the tennants that you are getting for these areas? Since their rent payment would exceed their mtg payment (on a SFR) why would they pay you rent and not pay their own mtg?

A landlord friend of mine told me that her tennants are very unstable (tend to move away without advance notice to you, seem to always have a hard time coming up with rent payment, etc…)

So, it would seem that the lower neighborhood quality, the higher your cashflow AND the higher the management headaches, etc…

If you are looking on a paper only, then 50K house with $600/mo rent is great cashflow, however, if in practice you’ll have to evict your tennants 2-3 times/year and rehab the place after each one, your nice cashflow has turned into a negative cashlow.

Is there a secret to these that noone wants to share?

Perhaps it’s buying these 50K houses at 15K or 20K, so that you can still sell for profit even at 0 appreciation, which is not an easy task.

BigV -Chicago