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Hi Minna! I noticed that (re: low end & cash flow) on paper, too, although the concern there is A. problem tenants and B. resale down the line and lastly C. the seller usually overstates income/understates expenses so upon diligent research, I've found that the cash flow often is minimal or disappears altogether--and the repairs necessary (usually involving heating & insulation, since all the low ends I've looked at include H&HW) to make the property flow are quite high. I've started looking at pricier units in better neighborhoods (not the best, but not the worst) because that $20K difference in price really doesn't affect my debt payments significantly, but it can make a property easier to rent.

Right now, I look at MLS properties; craigslist (which in my area is mostly MLS anyway); classifieds for FSBO; and a couple of bank REO sites. I don't do much in the way of driving around looking for distressed properties or FSBO signs because I don't live in the area where I'm "shopping" for a property--its about 45 minutes away (my agent lives there). Where else would you suggest I look?

Hi fosters,

Luckily the city I'm looking at also has the R of D online, and they don't charge to view the documents (Just to print them) so I can find out quite a bit that way--the mortgage is usually there and depending on the lender and/or if it is a variable rate, I can usually find the rate and figure out their payment. I can also see if a divorce has been filed, whether there are any leins, etc etc. It can be very informative. I actually find that kind of research to be a lot of fun, but I'm dorky that way. :)

What I'm having less success with is finding truly motivated sellers. Seems like EVERY agent tells my agent they have a "motivated" seller. :roll: However, they still reject my offer that will clearly cover their mortgage payoff and agent fees, and ask for considerably more in the counter. *MY* idea of a motivated seller is someone who wants to dump the property ASAP, even if they don't make any money on the deal or even take a small loss. Apparently to a seller's agent, a motivated seller is anyone with a property currently on the market.

Noob, could you define what you mean by situation? I'm not entirely clear on that.

One thing I do immediately is go to the registry of deeds and look up anything I can on the property--what the current mortgage amt is, what the terms are (if included), any liens (current and discharged). So I guess I'm finding out the financial situation that way.

There are no REI clubs in my area, at least none that I've been able to suss out. (I'm in Maine.)

There are LL associations, which I plan to join as soon as I have a property. Unfortunately I can't join until I am a landlord. Once in, I expect I'll get some good connections that way.

The properties I've looked at are all in the 150-250k range for asking price, most also seem to have been purchased within the last 2 years, so they often don't have much room between the mortgaged amount on the property and the asking prices (growth in the area I want to invest in is slow, but reasonably steady). Most have also been sitting on the market for 4+ months. They are all 3-4 units.

I've been looking at rental properties for about a month now, and have learned a lot during that time (I'm also a voracious reader, and am reading about real estate all the time). My down payment & closing costs are going to come from a HELOC on my personal residence, which will cover anywhere between 10-20%. I'll get a 30 yr for the bulk of the purchase price, and a 15 yr variable on the remainder, if any. So, although I'm technically using my own money in the form of equity, its still a loan so I therefore consider it to be 100% financing.

Most properties I've come across are at a negative cash flow, some severely so. A few looked good on paper, but upon further inspection/investigation, the amount of repairs necessary would suck out any possible flow for a couple of years.

I'm not looking for a high cash flow to start, I fully realize it's not going to happen with my financing. But it is starting to feel like there isn't any cash flow possible. I'd be happy with just $100/month in order to set some $$ aside for potential repairs and improvements.

I am just being naively hopeful in thinking I can find a property that fits my perameters? I have no problem at all waiting for the right property, but I just don't want to be waiting for something that's never going to come, and would instead prefer to rethink my investment strategy.

Thanks in advance for your feedback. :)

SL

Make sure you get actual bills for expenses, if the seller says they don't have them, tell them they can contact their heating source supplier (gas or oil, I'm assuming) and utility providers for billing history. Also get copies of leases so you know for sure what expenses the landlord pays and the tenant pays. When you are cutting it as close as you are for cash flow, a few bucks here and there can make a big difference. In my limited recent experience, sellers often vastly underestimate their expenses and overstate the income.

Good luck....I know from experience it is tough to find a property in the northeast that will flow. I'm still looking!

Even though I am mostly a lurker, I can't tell you how much I missed the forums while they were down! Thanks so much for the speedy recovery, and I am SO glad you are back!!!!

Oh, I know I won't have any problem walking away from the deal with ALL my money back to me since the seller clearly misrepresented the property on his disclosures. It's one thing to say "I didn't know the chimney needed a liner"--that's completely possible--but he signed off on the rental income and the division of tenant/landlord responsibilities....clearly a misprepresentation, not a matter of being unaware.

So my concern isn't being able to get out of the deal, really I'm just whining about it not working out the way I hoped. :D Granted, not every deal works and that's part of the biz, but this was going to be my first "big" (I know it'd be small potatoes to most of you) deal and now I'm back to square one.

*sigh*

Such is life! Hopefully something bigger and better is just around the corner! I'll definitely still be keeping my nose to ground and my eyes to the skies!

Thanks for the feedback, Michael. The property was listed at $111,000; I offered 100, they countered 105 (expected), I accepted. The owner bought it a few months ago at 80K, fixed up the 2nd unit (although it still needs some major cosmetics--he replaced flooring throughout, but there's some ceiling damage), fixed a leaky roof, and replaced all the windows. It wasn't a flip, however (at least not a successful one); my research revealed he took out a mortgage for 93K, and got a terrible rate (12%), and is having difficulty meeting the payment--with my offer as it stands, he'll just break even after commissions. He's eager to sell, but not yet desperate--but he will be after a couple of months.

Hard to get comps in the area, since it is surrounded by several buildings that have 8+ units. It's on the cusp of "the ghetto" of the area, and near the largest church in the city (big catholic population there). The STATED rental income was $1300, $650/unit--a bit high for the area, but from having looked at other buildings, I know the units are larger and nicer than most. Turns out the first floor actually rents at $600. I'm not sure now about the ability to rent the 2nd unit at higher, although it IS larger, cleaner, and nicer (and currently owner occupied). Throw that loss in with the fact that my expenses just increased by $75+/month for electric, and there goes any chance of cash flow.

My goal wasn't entirely cash flow--but for this particular building, the cash flow was going to be necessary to set $ aside to take care of one major issue (chimney needs a liner) that's going to have to be addressed in the next year or two, and further address the cosmetics on Unit 2. My plan had been to hold it for 5 years, then either sell (if it proved to be too much of a PITA) or tap equity, if it had good tenancy. Now that there is no cash flow, it's going to turn into negative cash flow if I want to address the chimney--which I would want to do, it's a nightmare waiting to happen, the mortar is starting to deteriorate.

And you are right, I'll chalk it up to a lesson learned. As it stands, I don't think it is going to be worth the hassle and personal $$ invested, unless I plan to hold the building for 10+ years, which I certainly do not. Growth in that area, while steady, is slow compared to other parts of Maine. So while equity was part of the plan for this particular property, it can't be all of the plan.

I'm very disappointed right now, and trying to decide what to do. I FINALLY got the requested paperwork from the seller of a property I'm interested in, and found out that they understated the expenses (said tenants pay their own electric, turns out landlord pays first floor tenant's electric AND it is part of the Sect 8 lease) and they overstated the rental income (again, found that out from the sect 8 lease), PLUS the first floor tenant has a pit bull (told us they only had 2 cats) which will increase the liability insurance, which now means.....no cash flow.

I'm so frustrated and angry right now. I just paid for a building inspection, which turned up a few problems, which of course can easily be negotiated, but the now 0 cash flow is a real problem. I don't see a way around that without at least a 5% decrease in purchase price, and I know for a fact at that point the seller will be taking a loss, and since the property is only recently listed, he won't go for it.

My RE agent seems less pessimistic about the revelations than I am, but then she's also seeing her commission slip away and she isn't the one buying the property. Or am I being overly naive and pessimistic? What would you all do?

I've been lurking for a few days now, and am very happy I found this forum. It's hands down one of the best I've found for REI, in terms of information available and helpfullness of members. Thanks to you active members for making this a great place.

I'm in the process of closing on my first investment property. In fact, I have the building inspection scheduled today. It's a duplex in a lower income town that has a strong rental market. After much reading and research, I choose this type of investment for several reasons, not the least of which being it is what I can best afford; vacancies shouldn't be a big problem since its a high rental area; its a low income area, so if I find a sound building, I won't need to spend a lot on improvements to attract tenants (since the tenants wouldn't be able to afford to pay for those rental extras anyway).

I'm doing the deal with "no money down-ish" by tapping the equity in my personal residence (HELOC, rate is prime, no margin, 15 year term) for the down payment, and financing the rest at 90% with a conventional 30 yr, 7.75%. (I'm saying "no money down-ish" since none of it is OOP, although technically 10% is my money through equity that is otherwise just sitting there)

The rental income on one unit will pay the conv. mortgage; I'll need to find a tenant for the 2nd (and much nicer) unit since it is owner occupied. With that unit filled, I should be able to cover all expenses and have about $100/mo cash flow (which will go directly into an acct to save up for any repairs down the line first; once that's built to my satisfaction, it'll go towards paying down the HELOC.)

If all goes well with this unit, I hope to buy another by years end. I realize I'm very lucky in that I have considerable equity in my home, and I have outstanding credit.

I have the typical ups and downs of the first time investor; I worry that I'm too eager and overlooking things, or that I'll lose money, or end up with horrid tenants (yes, I'm going to screen them!!). Some days I'm terrified and just want to walk away and other days I'm elated that I'm finally getting into real estate.

I work a standard 9-5 office job, make a decent (but by no means extraordinary--probably be classified as upper-working class or lower-middle class) wage and am a single mom with 2 teens.

Anyway, that's my story. I'm a voracious reader, and I'm constantly reading this and other forums on the net, as well as a bunch of books (waiting for 2 more to arrive from Amazon!), not to mention the newspaper. When I'm not reading about real estate, I'm thinking about it or working numbers or what have it. It's an obsession.