Having Trouble Getting Cash Flow for 1st Property

[Jason Poquette]

Hi. I'm brand new here. My wife and I own our own home and have about 5 years left of the mortgage. But I've never owned an investment property. I would like to get into this. I'm interested in multi-families with 2-3 units. However, my only resources for the down payment would be a home equity loan. We have great credit, so getting the money is no problem. But when I do the math, I just don't see how any properties in my area will ever have a positive cash flow.

I'm guessing most people get into this another way. Maybe they do owner-occupied. Or maybe they had a big stash of cash for a down payment so they didn't need to pay it back, or maybe they are handy and could buy a fixer-upper and quickly make improvements to drive higher rents.

But for someone like me...I'm having trouble seeing how to get started. When I do the math on the home equity loan repayment and the new mortgage payment and the taxes...the rents just hardly cover that amount, leaving no room for maintenance, improvements or vacancy. 

What I'm wondering is if there is some other way to get into this that I'm not aware of. 

As an example, a MF unit for $349,000 would cost me about $2700 per month to repay the loans (home equity loan for down payment and then the mortgage itself) and pay taxes. This house would maybe get $2600 monthly between the 2 units. I'm not breaking even, and that doesn't factor in any upkeep or maintenance. 

I feel like maybe I"m not getting into this the right way. Any thoughts or advice or guidance would be appreciated. 

Thanks. 

[Marcello Di Gerlando]

@Jason Poquette

First of all welcome to BP. Every single question and thought you posed have all been discussed thoroughly on BP forums. I promise, you will find the the answers you seek. Your situation comes up a lot. Take the time to search the forums and sort the wheat from the chaff. Avoid gurus they have a habit of bursting bubbles and making promise they cant keep.

BLUF: Not all markets and types of properties will generate positive cash flow. Fact.

Speculating on property appreciation is a strategy that some folks use to justify negative cash flow. Think San Fran and NYC. Some folks have been spectacularly successful speculating on appreciation. Many others have failed terribly playing this game. 

Personally I do not rely on appreciation but rather seek a combination of appreciation and cash flow. The secret - which is no secret at all- is buying a property for UNDER market value. Not only should you be acquiring for under market but then seeking to add value to the property. 

You may now ask; how do I acquire for under market value and what kind of value can I add? And- boom - welcome to the REI game.