Am I doing something wrong?

Question

Hey everyone, I'm just getting started looking for a multi-family home in areas I would prefer to live in and be owner occupied: Dallas, Houston, San Antonio, Austin, etc. I've actually not set any filters and have just been trying to find certain properties with cap rates > 6% under $800,000 nationwide (just to evaluate my ability to find/audit a given deal). Over the last week, I've looked at over 1,000 properties. Around 3% of those actually passed the 1% rule, but it was because they are mostly in developing areas which have a lot of associated crime/break ins. When following the 1% rule, a lot of properties fall within 0.5% of that and are very cash flow negative when plugging into the calculator. I've tried "configuring" the deals in a variety of ways, 40% down, less interest, significantly lower listing price, but a lot of the numbers just don't align for it to be cash flow positive.

I'm going to keep looking, but wanted to make sure there wasn't something I was overlooking or glaring. Is this because we are predominantly in a sellers market?

Eliott Elias · Answer

You are not going to find deals that meet your metrics. You’re going to have to create them. Whether it’s finding them off market or via distress.

Matt Barth · Answer

No, you aren’t doing anything wrong. Prices haven’t adjusted to the new reality of higher rates. It will likely take some time to find something that actually makes sense and lots of people are still willing to pay too much from money they’ve raised for deals and need to spend so just keep looking and when the time is right you’ll be ready.

Ray Hage · Answer

In a hot market at the moment and the demand is much higher than the supply out there. You're probably not doing anything wrong in your calculations but as others on this thread have said, you need to make deals. That means finding off market properties or ones that need a lot of work where you can create the value. I know a lot of people don't want to live in a "construction zone" but I have met a few people who have done it and did very well for themselves. There are sometimes deals on the MLS but they are rare. I wouldn't advise going to a high crime as even if you get tenants, they are going to require a lot of attention.

Jaron Walling · Answer

@Ray Hage I lived in two construction zones. My wife lived in one before we meet. It's a nightmare but a massive learning experience. Agree with everything you said.

Jaron Walling · Answer

100% agree with @Eliott Elias and that's been our strategy since 2018. Distressed deals, value add, refinance, retain as much capital as possible, and rinse and repeat. Pretty much everything in our market negative cash-flows or traps capital. When we trap capital a lot was created upfront. You're not doing anything wrong but in my opinion investors need to create there own deals. That means value add, hiring contractors, remodeling property, and swinging hammers if necessary. There are moving parts all of which can learned in the BP forums, YouTube, and reading books.

Hamp Lee III · Answer

Welcome to BiggerPockets!

What I'm finding in our market is that it takes a bit of patience to find a desirable property. They are out there (even on the MLS), but it takes a little time and strategy to see what might work for you.

Because you want an owner-occupied property, having significant repairs may not appeal to you...and that's okay.

Find a great investor-friendly real estate agent that can help you navigate these "mirky" real estate "waters."

I believe your house is out there. Give it time. You'll find it.

If you have any questions or want to look into the San Antonio market further, please message me.

I wish you all the best.

Rick Pozos · Answer

YES you are doing something wrong!! You are looking at retail properties. You have to find properties that are priced below market. How are you going to find those?? That is the big question that everyone wants to know. Some people do direct mail marketing, some send to pre-foreclosures, etc. Do you have a website that attracts people who might be behind on their mortgage?? You are NOT going to find lots of these 1% properties from properties that are listed.

Chris Seveney · Answer

@Kamran Pirwani

Not doing anything wrong that is how the markets are right now. You will not find anything decent under an 8 cap at this time (find it under 6 you are lucky).

Bruce Lynn · Answer

Welcome to 2023.....very rare I see anything in DFW area with those metrics.  You are correct, if I do it is in C/D area.  Maybe improving area, but still C/D.   Typically I say 30-40% down with you paying your fair share of the rent for whatever you occupy....50% on a duplex, 25% on a 4unit and you'll probably be at breakeven.

Very little inventory...very little incentive for seller's to sell.   What would they do with the money?  Tough to roll up right now.   Probably they have good locked in interest rate.   Probably less new construction coming on the market.

Good news is you may not have to make crazy crazy buyer unfriendly offers to lock something up, at least in DFW area.  Likely it will be a more balanced offer vs the past 2-3-4 years....where most of the offers were 100% in favor of the seller.

Am I doing something wrong?

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