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There is a "third way"--investing in REITs--real estate investment trusts. You can buy shares in REITs just as easily as mutual funds and many of them have really excellent returns.

Well just to update everyone: I did ask the seller about the maintenance figures. He basically just said it was a very low-maintenance building, but that he had made some capital improvements (like $3,000 for a new furnace) that he wasn't including in the figures. I didn't get the impression that he was being dishonest, just that he had had a good run and some longtime tenants who probably didn't give him much trouble. Although he was willing to be somewhat flexible on the terms, the price was really at the top of the market and there was no way it would cash flow without a huge discount, which obviously he wasn't willing to do. So I let it go.

One suggestion I have heard is to ask to see a seller's Schedule E from their income tax return which would show the expenses they were actually reporting to the IRS. Has anyone ever tried doing this?

Would you include taxes and insurance in with the 50%?

If anyone wants to see the actual figures and property info, PM me and I will email them to you.

I was emailed some information about a property that I inquired about. It is a 4-unit, FSBO, in a rural area. The asking price is $175K. The seller provided a very well laid out spreadsheet purporting to be of his income and expenses for 2005, 2006 and 2007. The gross annual rents are $24K and his figures show a net income of about $19K. I'm extremely skeptical about his numbers as it seems to good to be true. His figures suggest there is a potential positive cash flow of hundreds of dollars a month, yet according to my back of the envelope calculation based on the various formulas I've learned, at those rents there would be potentially a negative cash flow of a couple hundred dollars a month based on 100% financing.

According to his numbers, this seems like a great deal. I just don't feel like I should trust them. Am I missing something? What should I do?

I hear what you're saying and that's why I'm reluctant to leave my present situation. I live in a nice in-law apartment attached to some friends' house and it's in a very nice area. Plus my rent is very cheap. I sold my house a couple of months ago and haven't decided what to do next yet.

However I assume you use some sort of a process to screen your tenants? My idea was by being very selective, I could find good tenants. With that said, there seems to be a glut of rentals right now where I live and landlords are scrambling to put any warm, rent-paying body they can find in a unit.

Mike, do you have any thoughts on owner-occupied rentals? This is a possibility for me as I am renting right now but I'm torn as to whether I want to leave my situation for personal reasons. I haven't done any financial analyses of owner-occupied rentals but I know that the conventional financing terms at least are much better in general than non-owner occupied.

It is possible to get 100% financing on NOO properties. I was in the market for that type of financing until I found out I would have to put up several thousand in cash reserves which I don't have. If you have adequate cash reserves, you may find it easier.

The hard part is getting the properties to cash flow at 100% financing. In my area, rents are low and it is virtually impossible to get positive cash flow unless you can find sales at an extreme discount to the market price.

This weekend I'm running a trail marathon in Connecticut (the Nipmuck marathon in case anyone has ever heard of it). This will technically be my first marathon, although I've run longer distances several times.