Question on numbers . . . . .

[Andy Sabisch]

OK, quick question.  We have found that the calculators on BP are pretty much spot on as long as you put in good data and have used them on several property purchases.

So the question is, if you run the numbers and the analysis shows a negative cash flow, what is the basis for buying that property?  We have looked at properties where the numbers did not show a positive cash flow and there really was not much you could do to raise rents enough to change that result (or lower the purchase price).  However, we have seen the properties sell for asking price (or more) and question why would someone buy a rental that is not flowing positive?

Thanks in advance . . . hope the question makes sense . . . we have shot for positive at Day #1 or seen what it would take to make the numbers positive . . .but when the area or property can't get through the $0/month barrier, not sure why they still sell.

[Drew Sygit]

@Andy Sabisch depends on the Class of property you are trying to buy.

Many investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A rarely generates positive cashflow for the first 3-5 years, but usually makes up for it with higher apprciation

9) Class B usually has a good mix of cashflow and appreciation

10) Class C has great cashflow, but relatively low/little appreciaton

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799