When all the MLS deals have no cashflow...

[Andrew Kuiken]

Hello BP!

I have spent the last few months analyzing many deals that I'm getting from MLS. In the Northern NJ area, it seems that many deals after accounting for taxes, capex, mortgage, etc all have almost no cashflow based on the expected rentals and the costs of the house.

I think I had a realization the other day that I may just need to start putting in offers at a price that makes sense, but here where prices are significantly higher than other parts of the country, looking to cut off 100-300k off the asking price to make something cashflow doesn't seem like it would fly.  

Anyone have any advice that can help me to change my approach to finding the deals?

Andrew

[Ali Boone]

Well, yeah, an approach change... Residential property prices aren't based on potential cash flow. Commercial properties, yes, the prices are based on the cap rates based on the income. Residential, for good or for bad (bad in your case), you don't have that luxury. So you could certainly put in low-ball offers but you're probably going to get laughed at, if you get a response at all. You can't force a cap rate or cash flow against market rates. The market determines the prices on residential, not returns. So the approach change would be to realize you can't really force cash flow in cases like this.

The reality is, there's just not cash flow in the area you are looking in. I'm in Southern California and it's the same problem here. So I've always bought out-of-state where there is cash flow. 

So unfortunately it's going to have to be you and your strategy that adjust if you want cash flow, not the prices.