Need help with my strategy - barely cash flow/cash flow negative

[Amanda G.]

Hello All!

Last time I posted, I spoke with many investors who advised me to go look in person at the neighborhoods I was interested in purchasing. I went up to Rochester, NY this past weekend and looked by myself and also with my realtor. I have been using the BP Rental Property Calculator, and of the homes I viewed, most of them are negative cash flowing ~$50-100 or so, or barely cash flowing at less than $100/month. The best COC return I got while playing with the calculator was around 3%, but many were 1% COC return or even in the negatives. I looked at a couple of homes in C/D neighborhoods which had more cash flow, but I would rather invest in B neighborhoods for the long term appreciation/equity. I am not expecting several hundreds per month in cash flow, but I don't want to go into something that isn't making anything either. Duplexes in that price range are in D class neighborhoods, so that is not a strategy I'm willing to pursue right now. Some information:

Single Family Homes $150-175K

20% down, conventional 30 year loan (pre-approval rate: 7.75-7.875%)

Average rent in area: $1500-$1700/month

5% vacancy, 5% maintenance, 5% capex, 10% property manager (I haven't factored in lawn care/snow removal, which would most likely eat up the rest of the positive cash flow in many of the properties I looked at). 

- Are these percentages acceptable for the Rochester area? (Edit: I know many investors use higher percentages. The houses I was looking at it seemed they were flips and had newer roofs, new hot water heater, new HVAC, etc. - having trouble finding houses that need some work - see below)

After looking at several houses, it seems many are flying off the market quickly. The low priced homes go from for sale to pending within a couple of days. The houses that are priced at a good deal are receiving multiple offers, resulting in bidding wars, and further resulting in the price no longer being a good deal. I know that overpaying for a house is not a good investment strategy. I was looking for the "house with good bones" and in need of some cosmetic repairs, but many of the houses in the neighborhoods I'm interested in seem to already have been flipped and put up for sale by investors. I think many people are looking for what I'm looking for in the Rochester market, so I'd appreciate some advice from anyone who has experience with this situation. I'm not done looking in Rochester, but part of me is wondering if I need to pivot to a different state with lower property taxes and not as competitive of a market.

[Amanda G.]

Quote from @Jaycee Greene:

Hi @Amanda G.! Sorry to hear about your frustration in finding good rentals in Rochester. One thing I didn't see in your analysis was the rents you expect to receive for the properties you were finding. I'm assuming they'd be in the $1,500 to $1,800 range, is that accurate?

 Hi Jaycee, yes that is correct. $1800 is a bit high for the area, but $1500-$1700 seemed to be the going price for the areas I was looking at.