What am I missing here

[Brian Whitney]

Hi All, 

Just looking for some thoughts/opinions as I continue to look for my first property. I may be purchasing a property shortly, but I also have leads on 2 duplexes and a SFH.

As I continue to analyze properties, it seems that the expenses are eating up a large portion of the cashflow, especially when utilities aren't separated. 

Duplex 1 would cash flow about $105 per month at a 10-12% cash on cash because the utilities are not separated. The seller is asking 50k but I believe I can get the property moderately cheaper; however, whether I pay 40k or even 30k, its not going to change the mortgage payment much, thus not really changing the cash flow. In an instance like this, how do you decide if the property is a good deal? Im looking down the road at how to scale my portfolio and cash flowing $100 per month doesn't seem like the way to get there. But how would I justify passing up the equity if I can get a good deal on the property? 

Duplex 2 is a similar situation. The seller is asking 40k but it needs some rehab. Lets say I can purchase the property for 25k. Even if the property is rehabbed and there is equity in the property, Im back to the same lack of cash flow, but a good purchase price with equity. 

Finally, I can buy a SFH all in closing/repairs for 13k. The expenses are $425 and it rents for $625, renter pays all utilities except garbage and sewage. This property would give me cash on cash of 18%. But its not in a good area, and the seller has horror stories collecting rent. Even though the property is very cheap, I dont foresee much appreciation and would bet on a high hassle factor.

I guess it seems that if the utilities are not separated, its very hard to cash flow because you are not going to find the properties much cheaper. It doesnt seem like the mortgage cost is what is eating the cash flow. 

Any opinions on the aforementioned jumble of thoughts ?

Thanks in advance, 

Brian  

[Andrew Johnson]

Brian Whitney 1.) If you haven’t already, you really, really, REALLY need to look up threads on $50K houses. Managing them is another world and there are all sorts of lovely aspects that newbies (who haven’t done research) won’t expect. If you have you might what to regurgitate what you know here and ask for perspective.

2.) Have you crossed the financing bridge? These $50K and under homes aren’t going to be simple/easy to finance. The (vast) majority of lenders have mortgage minimums. And the origination fees, appraisals, inspections, etc. will be a huge percentage of the loan amount if you *can* get a loan.

3.) Expenses always each into cash-flow. It’s the nature of the beast. And it’s more beastly with low-dollar rentals as a percentage of collected rents. Why? It costs the same to repair a refrigerator, change a lock, clean a carpet, whether the rent is $500/month or $1,500 per month.

4.) The same can be said for utilities. But on a $50K property it’s hard to justify spending the capital to separately meter. That said, I’m pretty sure water rates are the same whether your duplex rents are $500 or $1,500.

Anyway, not to be a wet blanket but when I read your post...I...see...pain...