Advice for buying a rental property

[Dustin Cook]

Hi BP.  I live in Los Angeles where my wife and I have been having trouble buying a home for our residence.  We took a cash out refi on a rental property that she owns in Murfreesboro TN, which we were going to use for a downpayment.  We've been in escrow twice now, this second time is looking likely to fall out on Monday.  It's starting to look like we are priced out in our market, as anything that we can afford always seem to come with major flaws.  

We are considering changing direction and buying a rental property out of our Los Angeles market.  I would like to hear some feedback and advice on how we should proceed.   As I said my wife owns a condo in Murfreesboro TN that is valued at $109K.  It is about $200 a month cash flow positive.  She owned the condo outright, but we took a cash out refi for 80% of which we have about $75K remaining.  So like I said we are considering using this money to buy another rental property.  Cities we are considering include, but are not limited to Pittsburg, Philadelphia, Memphis, Atlanta, Milwaukee, and Riverside County, CA.  Any advice on how to proceed?  Keeping in mind that I won't be familiar with any of these areas should I use an agent or let the seller's agent double end it?  What about turn-key rentals?  That seems to be a hot button issue.  If yes on turn key, would like to know specific reputable companies to buy from.  Any other advice appreciated.

[Joe Villeneuve]

You're heading in the right direction.  The buy/rehab/refi and repeat has been very good to me...and many others I have taught it to.  One of the secrets is to never spend the money...use it an unlimited number of times though.  This is where the refi comes  in to play.  The refi must get enough cash out to be able to get into the next deal...and each deal must cost no more than the cash gained from each of the previous refis.  If you follow this method, you'll continue to build without actually spending any money.

Now, with all this said, after the refis, each property must still cash flow at a minimum (decided by you...mine is 300/month).  You are doing this not to get the next property, but to get the next CASH FLOWING property.

Since many markets will not allow for this (to expensive to get into it), many investors (CA investors are a great example of this) are flocking to other states in the midwest (like MI) where the REI can flip in their state, and buy all cash from the profits in states like MI...where they can then CF at a minimum of 300-400/month. Do the refi, and the rest is history. They don't need any new money this way...and never spend any money since the last refi in the string of refis gets them the original cash back.