The new real estate investor asked, "Please explain to me what is so hard about getting me a positive rental cash flow on a property your group sponsors." Why is it so hard for a bulk group like you guys to simply get me a property in a appreciating area, with strong rental cash flow, and with little down?"
Depending on what an investor is willing to accept as a purchase price compared the market price, they may be right.
But it may or may not be in the investor's best interest to create a scenario such as developers doing four years with no mortgage payments to cater to their desires. By doing this they are creating the positive cash flow.
The last few years since the real estate explosion, newer investors do not have the understanding as to what is realistic and practical. What we are going to do today is just put some reality back into the goal for break even or positive rental cash flow. I will show you that you can create OUTSTANDING rental real estate investments with the following characteristics:
* 10% true discount to market value;
* Neutral cash flow with 10% down;
* Expected appreciations of 5%+;
Sounds easy enough! But what you will realize in this article is that in most areas, these opportunities realistically DO NOT EXIST. To find these type of investments in volume, you must be creative. That is what we do on a daily basis.
Why is this so difficult to do? Prices compared to rents have skyrocketed compared to historical values. In a moment, I will be giving you a spreadsheet and video so you can see for yourself how this really works. In the meantime take my word on the following.
"To create neutral/positive rental cash flow, you will most likely need gross rents to be 1% of the purchase price per month".
For example if you buy a property for $150,000.00 and put 10% down. For this to be a neutral cash flow, you will need to charge $1,500.00 per month for rent. If you don't understand the real world issues of real estate such maintenance, vacancies, etc., this is much easier on paper than in reality.
Many homes in parts of Florida are typically selling for $250,000.00. By applying our last scenario we would need to charge $2,500.00 per month in rent to achieve neutral cash flow. We honestly are seeing rents closer to 0.5% rather than the 10% per month, this is a far cry from being a positive rental cash flow.
For investors to want to buy developers have had to resort to offering
* leaseback
* HOA payments;
* tax payments
* cash back at close;
* mortgage payments;
* other incentives to make it look attracting and worthwhile.
As there is nothing wrong with offering incentives, just keep in mind that the developers are in it to make money also. The more money committed to making your property neutral rental cash flow (which translates to money out of there pockets), then there is less to offer discounts to the market. I personally like real world discounts and neutral cash flow.
Just understand that it is harder for developers to create good sensible opportunities for investors if the rent to prices are out of whack in the area. The next time you are looking at an opportunity know what the ratio between the purchase price and the REGULAR RENTS... this will give you a good understanding about what is really going on.
