cheap, cash flowing properties

[jdeity]

i am on a hunt for the best deal on a 4 unit that will cash flow very well.

if i search over america, trying to find areas that have the best cash flow, will that, for some reason or another, hurt my chances of finding bargain purchase prices?


i want to get a 4 unit that i intend to hold for a year and then profit off of, so having positive cash flow will be important, but my profit in the end will clearly be determined heavily by how cheap i can get the place.  

i guess i'm just afraid that maybe the best cash flowing areas of the country will be harder to find cheap purchase prices.  is that justified?  if so, why?  

[propertymanager]

The best cash flowing areas usually have some of the cheapest properties.  High priced properties usually will not cash flow well.  However, your plan is flawed.  Buying multi-family properties for resale is not generally a good plan.  The only people who buy multi-family properties are investors and these investors normally want a good deal (i.e. to buy at a big discount).  Therefore, you should buy multi-family properties for long term cash flow and not for a quick resale.  

Mike

[jdeity]

my plan is flawed because i won't be able to get anywhere near market value on the resale you're saying?  

i really need an owner-occupied so i can have a place to live, and also so i can use an HUD insured loan.  i figured a 4 unit would be a better approach than a single family, but maybe I should just find a single family to live in?  Or a duplex?  

there really isn't any way to sell a 4 unit for market value, that doesn't make sense to me... i know investors 'want' properties for bargains, but you're saying that if a 4 unit appraised at 400K, and i buy for 320K, there is no way i will be able to sell for closer to market value?

[propertymanager]

Your plan is flawed because it is much more difficult to sell multi-family properties at retail.  Properties sold at retail usually will not cash flow.  The only people who buy multi-family properties are usually investors needing positive cash flow and therefore most investors want a deal.  Additionally, there is a much smaller pool of buyers for multi-family properties than single-family properties.  

Is is POSSIBLE that you could buy a multi-family property at a discount and sell it at retail for a profit?  Yes, but it is also possible that you'll find the winning Mega Lotto ticket as you walk down the street.  Are either likely  -  no.

Good Luck,

Mike  

[jdeity]

if it is so unlikely to get close to retail, why are they even appraised that way (definitely not trying to argue, i am just new and know what you are telling me, but don't fully understand why)?

seems that if there is no way of hoping to get an appraised value on a 4 unit, in an area you could get close to appraised on a 1 unit, that it would just appraise lower.  

cash flow is helpful, but i am WAY MORE concerned with a big cash out at the end of my year in the property, so that i can go get a more expensive property

[propertymanager]

JD,

Appraisals are meaningless as far as I'm concerned.  The only thing that really matters is what a property will sell for under the current conditions.  Did you ever notice that appraisals frequently come back at exactly the value that a person is trying to borrow?  Is that just a coincidence or is the entire appraisal process a big joke?  Do mortgage brokers tell the appraiser what they need the appraisal to be?  Do appraisers make the appraisal come back at what the mortgage broker suggests so that they will get future business?

That is the reason that an investor should be intimately familiar with their target investment area.  This can only be done buy looking at dozens (perhaps hundreds) of houses in their area.  It is a lot of work, but well worth it.

cash flow is helpful, but i am WAY MORE concerned with a big cash out at the end of my year in the property, so that i can go get a more expensive property

Again, you don't seem to understand business.  In a business, cash flow is everything!  Furthermore, I don't understand why you would sell one property to buy a more expensive property.  What does the cost of the property have to do with anything?  I don't get it!

Keep Studying!

Mike  

[reoconsultants]

Mike is 100% correct appraised value is just about as worthless as a blown up yugo. I have appraisers that will give just about any value that you need.

[jdeity]

Again, you don't seem to understand business.  In a business, cash flow is everything!  Furthermore, I don't understand why you would sell one property to buy a more expensive property.  What does the cost of the property have to do with anything?  I don't get it!

Keep Studying!

Mike  

i should've clarified.  i don't intend to keep getting larger purchases on a single building, i would split to multiple buildings once i had more money.

let me explain what my thoughts were, and the plan i was hoping to follow.

using the leverage of a very high LTV mortgage, i purchase a property.  by finding a property at a great price, i will make a good profit on the sale.  i then use my profit to buy a more expensive property (or properties).  i repeat until i have a whole lot of money.  
It scares me that you seem to think this is a horrible idea.  i have been studying for over a year and this makes complete sense in my head.  maybe my down payment will be enough for a 400K property, given my current fico and income.  i get the property for 80% market value, sell, and use that profit as a down payment on a larger property.  if i am finding properties at 80% market value, but the value of the properties keeps going up, then my profit keeps going up.

please let me know why this isn't a good idea.  i can't see what the flaw(s) are here.  you say cash flow is everything in business;  as far as i have come to know, in REI, you don't just get properties for cash flow.  sometimes you buy them to sell them and make quick profit, sometimes you buy and hold to have passive income/cash flow.  my idea was that it woudl be like buying and selling for a quick profit, only i would be in the property for a year, owner occupied, and thus be able to take advantage of extremely low% down HUD-insured loans.  

[propertymanager]

JD,

So basically your plan seems to be to flip properties.  If that is the case, I'd forget living in one for a year as that will really slow down getting your profit.

I'd try to find a property at a BIG discount (and I'm certainly not talking at 80% of market value).  Find a property at 50% or less of market value (after repairs) and then borrow 70% of the ARV (after repaired value).  Notice that you're borrowing at a relatively LOW LTV, not a high LTV.  You instantly have 30% equity which will protect you as prices drop (yes drop).  The real estate cycle has topped out in my opinion and will be heading down over the next year or two.  These deals are out there, you've just got to do the work to find them - meaning get out there and meet people.  Generally, personal contacts are best.

Anyway, as soon as you've got the thing rehabbed, immediately sell it at a discount.  Try 90% of market value.  The idea is to churn your money and keep it working for you  -  in other words CASH FLOW.  Cash flow is necessary to keep any business going - not just rental businesses.  This sounds easy but is much more difficult than it sounds.  Getting buyers financed is a nightmare; seasoning often becomes an issue; buyers change their minds; buyers suddenly quit their jobs; etc, etc, etc.  Even after you get a significant sale, the IRS has their hand out and takes a significant percentage of the profit.

With flipping, you generally must do a lot of deals to make a living.  

Mike
 

 

 

[jdeity]

what exactly is seasoning?

[reoconsultants]

length of ownership. How long the owner has owned the house.

[Infowell]

Mike is 100% correct appraised value is just about as worthless as a blown up yugo. I have appraisers that will give just about any value that you need.

I think bragging that you "have appraisers that will give [you] just about any value that you need" is extremely foolish, but I'm not surprised.

While Mike is partially right; Appraiser's feel pressured to hit predetermined values for future business...it's unethical & illegal for appraisers to hit predetermined values. They can (and do) lose their licenses & they can be criminally charged for such behavior (along with their accomplices...it's called fraud).

You want a good solid appraisal? Consider hiring the appraiser yourself. Many people don't realize that while a borrower may be paying for the cost of the appraisal...the appraiser typically works for, and has a fiduciary responsibility to the bank (though the borrower may have a right to a copy of the appraisal).

Got a question???...Seek out professional advice...rather than getting the opinion of any Tom, Dick, or Harry [/b]

[reoconsultants]

Hey Infowell glad to see your back we missed you!!

So Infowell,

Why is it that we had the same property appraised by three appraisers. One came in at 160k then next at 210k and the last at 230k.

Do you think that the property jumped in value by $70,000.00 in less then a week?

This was a Bank owned property!! Hmmmmmm!

[Infowell]

Hey Infowell glad to see your back we missed you!!

So Infowell,

Why is it that we had the same property appraised by three appraisers. One came in at 160k then next at 210k and the last at 230k.

Do you think that the property jumped in value by $70,000.00 in less then a week?

This was a Bank owned property!! Hmmmmmm!

Thanks Robb, but my brief appearance is temporary as always (too much work to visit here with frequency).

Three different appraisers...three different opinions of value???

I need more information to be able to accurately answer your question.

Why three different appraisers?

Were any of the "appraisers" trainees?...if so...were they accompanied by a Licensed or Certified Appraiser?

Remember: Appraising IS NOT a science...it's an art...that's why Automated Valuation Models (AVM's) have a deplorable accuracy rating.

An Appraisal is someone's professional opinion. I'd be amazed if three different appraisers came to the same exact conclusion regarding value.

However, three knowledgeable & experienced appraisers performing their duties with no undue influence...will probably arrive at a fairly similar conclusion (say within 10% or less of the other's opinion).

-Info

[propertymanager]

Info,

You should read some of that Ron Legrand Stuff if you need more time.  The less he works, the more he makes!  So, taken to its logical conclusion, if you don't work at all, you'll make a fortune!!!  I know that he's right because he sells a lot of expensive courses and he's a guru.

Mike