Hello Fellow Investors!
Lately a lot of people have mentioned feeling frustrated that they can't find deals that cash flow on the MLS. It is harder these days than a few years ago, not going to lie, but there are definitely still deals out there so I wanted to share some tips on how to get into the best properties from a cash flow perspective. I live and invest in Minneapolis and St Paul MN, so this will be specific to our MLS but I am guessing most of the thoughts and ideas will be relevant in any market on all MLS databases.
Tip #1: Most landlords set their rent too low, and sometimes way too low! I would say this is the case 90% of the time, not kidding. Sometimes by as little as $50 and I have seen as much as $500 per unit per month given away! So instead of using the rents the tenants are currently getting, use real life rental comps/averages instead (I use www.rentometer.com for comps). This will usually uncover some deals hidden in plain sight. You may have to wait out a leases for a few months but if your goal is long term buy and hold then a few months of forgone cash flow is usually worth it.
Tip 2: Set your search to leave out properties with 1 bedroom units. Making sure the property has only 2-3 Bedroom units will help you cash flow much better. "Rent ceilings" are much lower with 1 bed units and they often also mean you only have one source of income which I try to avoid as well.
Tip #3: Look for unfinished attics. They can often be a way to add value with more finished square footage, bedrooms and baths. Ideally the deal should cash flow without finishing the attic but if not, you can quickly finish the attic right after closing and bump up rents by adding 1-2 more bedrooms for the upper unit.
Tip #4 Look for properties that have higher DOM. (DOM = Days On Market) Many of these sellers may now be willing to negotiate a bit on price. Also, some of these have had an offer that fell through during inspection (*which your agent can find out for you) which means they are now starting over and likely have more realistic expectations giving you an edge to work down the price a bit.
Tip #5: Make offers under ask price with no inspection contingency. (**THIS IS ONLY FOR VERY EXPERIENCED BUYERS) When you do your 2nd showing on a property you really like, schedule to have a contractor or retired inspector or builder come with you to identify any of the super major items that would cost a fortune to fix and do a mini inspection (IOW, test water pressures, run dishwashers, get outlet tester, turn thermostat up or down to check appliances are working if possible, etc. I would say you can often get $5-10k off of a purchase price by doing this and often win against other higher offers. Sellers like it because you can do a faster close time with no inspection and move right to appraisal after acceptance and they don't have the unknown of worrying about what will come up in the inspection that might lower the price or have the deal fall apart alltogether. Most good listing agents coach their sellers that stuff always comes up in inspection, and they will often push the seller to go with an offer with no inspection for this reason.
I hope these help! Good luck and private message me if you have questions or want help looking in Minneapolis and St Paul.
