How do you find cash flowing properties?

[Tyler J.]

Ive spent countless hours looking and doing a quick analysis on atleast 100 properties on Zillow all over the USA (Mainly 4-plex's) and they are all negative cashflow with a mortgage, sometimes negative with 20% down, sometimes negative without 20% down.
I know there are creative ways to make every property work, but I guess my question is how long does it take to find a decent property that can cash flow atleast 100/unit with less than 20% down? I have a couple properties ive bought, but not 20% down for a 500k property

[Michael Dumler]

@Tyler J., you essentially answered your own question. Unfortunately, due to market conditions and scarce inventory in select markets, traditional on-market rentals rarely pencil out. As you noted, investors have to get creative with their strategy and deal acquisition. If the property doesn't work as an LTR, ask yourself, what about STR? Rent by the room? Can I at least BRRRR to pull some capital back out? Does the deal work as an LTR if I submit X below the list price? You either have to get creative with your investment strategy or you need the skills/resources to acquire deals off-market (below market value). If you're trying to cash flow $400+ on a fourplex I can tell you your criteria are too strict/conservative. I had investors in my market buy small multifamily that broke even.

[Vicente Terán]

Hi Tyler! In my experience, I have had the best luck finding / creating cash flow properties by getting CREATIVE as you mentioned.

Every property I own, I purchased with the intent to add value to create cash flow. A few ways I have done so successfully and might be applicable for you.

1) ADU - look for properties where you can build an ADU / create additional rental income by adding SF and livable area. This can also help increase your equity rapidly in your deals.

2) Convert Existing SF - Often time in small multi families this could be an extra storage area or office area that you. In single family homes we have had alot of luck enclosing garages and adding bathrooms. Again this helps get you an equity bump as well...a WIN WIN in my book. Another example is backyard shop areas, I recently purchase a house with a 400 sf wood shop out back... I was able to convert to livable and added a bathroom, and no it rents for over 900 dollars a month.

Hope this helps!!

[Eliott Elias]

What did you learn? Sellers who put their property on the MLS are asking retail, or you need to be better at negotiation.

[Jared Hottle]

I think keep doing what you are doing. Look in midwest cities and keep running numbers. Look off market as well. 

[Bob Stevens]

Quote from @Tyler J.:

Ive spent countless hours looking and doing a quick analysis on atleast 100 properties on Zillow all over the USA (Mainly 4-plex's) and they are all negative cashflow with a mortgage, sometimes negative with 20% down, sometimes negative without 20% down.
I know there are creative ways to make every property work, but I guess my question is how long does it take to find a decent property that can cash flow atleast 100/unit with less than 20% down? I have a couple properties ive bought, but not 20% down for a 500k property

Well 1st mistake is looking for listed properties ,that is NOT where the deals are . I have done 100s and 100 and 100s , all off market. Aso pay cash an refi you get a better deal 

[Tyler J.]

Quote from @Bob Stevens:

Quote from @Tyler J.:

Ive spent countless hours looking and doing a quick analysis on atleast 100 properties on Zillow all over the USA (Mainly 4-plex's) and they are all negative cashflow with a mortgage, sometimes negative with 20% down, sometimes negative without 20% down.
I know there are creative ways to make every property work, but I guess my question is how long does it take to find a decent property that can cash flow atleast 100/unit with less than 20% down? I have a couple properties ive bought, but not 20% down for a 500k property

Well 1st mistake is looking for listed properties ,that is NOT where the deals are . I have done 100s and 100 and 100s , all off market. Aso pay cash an refi you get a better deal 

Hey Bob! How do you go about finding off market deals? Thank you!

[Sam McCormack]

@Tyler J.

Instead of $/door, you should focus on ROI. Makes it a lot easier to give yourself and everyone else a better idea of what you should look for.

Like previously mentioned, market conditions right now aren't 2021 numbers, so properties under 20-25% down likely won't work, unless it is in a warzone, very rare, etc. Even at 25% down it is hard, sellers think they are very entitled to getting top dollar and want buyers to do all the work as well. I digress. 

It really depends on the market. Something in Cleveland, Indianapolis, Cincinnati, etc, could cash flow right away, but in 10 years, be doing relatively the same, or better at a slower rate. But market that are more appreciative friendly, will be doing MUCH BETTER. Worth more, rent a lot more, etc. It really just depends on what you want, when you want it. People say don't bank on properties appreciating, but they always do. 

I forgot what I was getting at to be honest, I hope that solves anything for you, lol. My bad

[Cullen W Jones]

hi @Tyler J., what markets are you looking in if you don't mind me asking? Indianapolis Metropolitan still provides opportunity to acquire more cash-flowing multifamily. There are many 4-plex's here as well. 

[Henry Clark]

In the next two weeks do the following.

1.   Make 5 offers subject to inspection periods of 1 week.  All  at the same time.  Start with the oldest listings first that meet your review.  As mentioned above try some vale add properties.

2.  Make an offer that meets your metrics.  Forget the list price.

It’s a buyers market.  The new sellers don't know it.  Your competition is sitting on the sidelines.

[John McKee]

Make a couple of offers.  Option A:  Give the seller close to their price but demand affordable seller financing that meets your cash flow number.  Option B: Offer a very low price with traditional financing to meet your cash flow number.  The pressure is on the sellers so give them a choice.  I bet if you make 50 of these kind of offers you will get at least 10 that will engage with you and two that will close.  

[Wale Lawal]

@Tyler J.

Now, let’s take an in-depth look at how to find and analyze cash flowing properties.

1. Focus on cash flow real estate markets
The key characteristics investors look for to find the best real estate markets for cash flow property are typically:

Diverse economy not dependent on one major employer
Strong population growth and job market
Strong demand for rental property where the number of renter households is greater than owner-occupied households
Affordable property prices since paying too much can reduce your net cash flow
Drill down to the neighborhood level because cash flow can vary from one zip code to the next

2. Value property based on cash flow calculations
As you analyze each opportunity, you’ll notice that rental property with the highest cash flow usually has a very low rate of projected appreciation, oftentimes less than 2%. That’s one of the reasons why cash flow property also goes by the name ‘cash cow.’

The property likely won’t see big gains in market value, but it will throw off steady streams of cash that you can use to increase your capital for future investments. In addition to a low rate of appreciation, two other financial metrics you can use to find solid cash flow property are:

Price to rent ratio: The price to rent ratio is calculated by dividing the average property price by the average rent. Generally speaking, the higher the ratio is the better it is for people to rent rather than become homeowners. However, when you’re investing in cash flow property, a price to rent ratio that’s too high can make it harder to find positive cash flow property because the property prices in the area will also be too high.
Cash on cash return: This percentage compares the amount of cash generated to the amount of cash you invested. For example, if you pay all cash for an $80,000 house with an annual cash flow of $6,000, your cash on cash return is 7.5% ($6,000 / $80,000 = .075). The higher your cash flow is compared to the cash invested, the greater your cash on cash return is.

3. Prepare a CMA to understand rents and competition
A comparative market analysis (CMA) helps you to understand what the fair market rents really are, choices tenants have on where to rent (in other words, who your potential competition is), and what a reasonable price to pay for a property with good cash flow is.

The accuracy of a CMA depends on how well the comparable properties are chosen. Comps should be as similar as possible to the subject property being purchased, in the same neighborhood, and with very recent closing dates. Also, potential comps that have sales prices significantly higher or lower than the subject property should be discarded.

After that, there are eight steps to follow when creating a CMA to analyze your potential cash flow property purchase:

Collect detailed data for the subject property
Review previous sales date for the subject property and the tax assessor’s most recent assessment
Analyze the neighborhood for amenities and potential issues that would affect rentability
Carefully select comparable properties that most closely match the subject property
Make value adjustments to the comparables so that you can make an apples to apples comparison with the subject property
Calculate the average price per square foot of each comp
Compare the comps to your subject property
Have a member of your real estate team view the property

4. Use a pro-forma to itemize income and expenses
Once you’ve determined a fair purchase price for your cash flow property, create a pro-forma P&L (profit and loss) statement to drill down on the income and expenses.

Start by creating an individual line item for every income and expense. For example, rather than using a single entry for “rental income”, break the income down into individual components such as monthly rent, late fees, application fees, etc.

Do the same thing on the expense page of your pro-forma. Instead of having a single expense labeled “repairs & maintenance,” itemize each expense such as landscaping, lock changes, and drain cleaning. It will take more time, but taking the time to detail each dollar coming in and out will help you unlock hidden value – and additional cash flow potential – of the property you’re thinking about investing in.


5. Set fair market rents
The website Rentometer is a good resource to use if you’re purchasing a turnkey cash flow property already rented to a tenant. By entering the property address and the current rent you can see if the tenant is paying too much rent, too little, or a fair market rent compared to other local properties. It’s also a good way to forecast what your future property cash flow will be.

This simple spreadsheet by Roofstock provides an easy way to view the potential financial performance of a given property. You can use it to forecast the potential return of a property. Simply enter some information to view projected key return on investment (ROI) metrics, including cash flow, cash-on-cash return, net operating income, and cap rate.


6. Remember, good tenants are like gold
Vacancy in your rental property can take a big bite out of the potential cash flow. Successful cash flow investors know that it’s always better to keep a good tenant than run the risk of trying to find another.

Make sure your property manager visits the property on a regular basis, responds to maintenance issues quickly, and is always friendly and professional. Not giving your tenants a reason to look around goes a long way toward getting the lease renewed year after year, even as annual rent increases are passed through.

All the best!

[Johnny Sheehan]

Quote from @Tyler J.:

Ive spent countless hours looking and doing a quick analysis on atleast 100 properties on Zillow all over the USA (Mainly 4-plex's) and they are all negative cashflow with a mortgage, sometimes negative with 20% down, sometimes negative without 20% down.
I know there are creative ways to make every property work, but I guess my question is how long does it take to find a decent property that can cash flow atleast 100/unit with less than 20% down? I have a couple properties ive bought, but not 20% down for a 500k property

Look at bigger buildings with more units and a high occupancy. Know your financials on the property and add value where you can.