Here is another question asked by a reader, to my post “I Know You Have Questions”: “If you had $45k to invest, would you buy one property with 20% down to get some cash flow or buy two with 10% down and break even on cash flow or have a small negative cash flow.” Truthfully, I would do neither:
In this current market, in Minnesota, there are so many amazing investment property deals out there that I don’t believe you need to settle for a property that has little or no cash flow. In fact, even in the best market, I would never buy a property that had negative cash flow. In the recent past, I have heard of some mortgage brokers proposing that you should take some of the money that you put into your 401k each month and divert it to paying the negative cash flow on a property each month. That is rubbish!
Who wants to be dealing with tenants and toilets and then, on top of it, take money out of your pocket each month to support the building? If we lived in California, I may agree that you will need to accept negative cash flow, but it is not necessary when buying Minnesota investment property. If you look at all the foreclosures and short sale deals out there right now, you can almost throw a rock in some neighborhoods and hit a good property investment that cash flows.
One of the best opportunities out there, right now, is to find a property that is vacant, needs work, rehab it, and then rent it out. I work with a realestate investor group that has been flipping properties for about 18 months. They have accumulated 76 rehabbed single family houses that all cash flow in their portfolio. They are buying houses in Minneapolis for $.30 on the dollar, spending $20-40k to rehab them, and renting them out for a nice monthly cash flow plus around 75% LTV.
Please do not listen to anyone who tells you that you must accept negative cash flow in this market. Get out and see for yourself. In fact, let me make this offer: Send me an email with your search criteria and I will send you back a list of properties that cash flow. I am happy to help anyone find a good MN investment property.
6 comments
#1The Property PunditDecember 7, 2007, 2:27 pm
Here, here! I just don’t get people who want to lose money each month, and deal with the headaches of being a landlord. That’s a recipe for getting burned out on real estate investing.
I wouldn’t even buy a negative cash-flow property in California. Who knows when their market will turn around. As you say, Scott, you may as well take your money and buy properties in places like Minneapolis where you can make money…
#2Scott FicekDecember 7, 2007, 8:41 pm
Thanks. It is amazing that I still hear about people (agents and mortgage brokers) preaching about negative cash flow.
#3Minnesota Investment PropertyDecember 12, 2007, 2:30 pm
Hi Scott,
I thought I would comment on the idea of “fixing and flipping” properties. It seems that the media glamorizes this process by condensing all of the pain and strain of doing a rehab – down into 60 (easy) minutes where the show ends with a “thumbs up” and a “SOLD” sign (or whatever).
But in REALITY – buying property and rehabbing it can be very stressful for most of us who don’t know how to do plumbing, electrical, sheet-rocking, etc. – and that’s why I prefer investment properties that are already in good shape before I buy them.
People who want to “fix and flip” should just be fore-warned that they had better have a team of experts that they can trust (and afford) before they decide to take on a rehab unit.
Cheers,
Alex Anderson
#4Scott FicekDecember 12, 2007, 4:34 pm
Alex-
I agree, but I consider it my responsibility to coach my customers through the decision process on whether to do a rehab or not (and then if they do one, what type). I have not had a customer do a rehab and fail, but I can see how that can happen!
I have a long list of contacts from individual trades to full general contractors to recommend to my customers to make sure they can be as successful as possible.
We are advising most of our customers to rehab and hold properties right now as the market is tough to rehab and sell.
Thanks for the comment.
Scott
#5tim fosterDecember 28, 2007, 11:06 pm
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thank for the tip “find a property that is vacant, needs work, rehab it, and then rent it out.”
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#6realtors mortgageMarch 12, 2010, 4:51 am
in the housing market, it is best to buy one house and pay off that house as soon as you can so I wouldn’t split the money on two, there is a bigger risk of losing both housing. If you have oe house secured then you could go back and with the security of your first house get another house loan and get another house to invest.
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