Having trouble finding deals that 'pencil out'.

[X X]

As you can tell, I'm a newbie - so if this is the wrong section or anything let me know.

My situation: I just sold a business, and have a decent amount of cash to invest. I'm fed up with the stock market, and don't want to own another retail business [ever :)]. So, here I am - getting into REI.

That being said, I'm having trouble finding properties that I can buy and rent with positive cash flow in my area. The average entry-level house here is about $225,000+ for 3br, 2ba - nothing special, average neighborhood. However, the average rents are around $1,100-$1,300/mo. Not enough unless I put a large amount down. I want to leverage the bank's money as much as possible, and I'm getting pretty good rates with 10-20% down. Should I not be looking at MLS to find properties? I've looked at the foreclosure auctions, and they don't seem to be that great, either.

I have spoken to 2 other landlords; they both told me that when they started they had negative cash flow and raised the rents over time until they flowed. They both said they contiuned to make money from the tax benefits, and even more when they sell properties, as this area has been enjoying some great appreciation. However, when I read most opinions here, it seems that the negative cash flow [or even breakeven] deals are losers, and should never be touched. Can anyone offer any advice on this?

Thanks in advance.

[Richard Warren]

This is the difference between investing and speculating. An investor is looking to get a return on the money invested plus mortgage pay-down. Any money that comes from appreciation is gravy. A speculator is making a bet on appreciation. We saw a lot of that here in Las Vegas, realtors were saying it was ok to have negative cash flow because you were really in it for the appreciation. I don’t speculate only invest. It’s ok to speculate as long as you do it with your eyes open and know that you are taking a much greater risk in hoping for that reward.

8)