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Cash Flow properties

T

TomB

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I am new to investing and have thoroughly read both of Don Campbell`s books. I am also ready to get busy buying properties. My hold up is I can`t seem to find properties that meet the first filter. I live in Calgary and I`ve heard that there are cash flow properties here but that is so hard to believe! For example, the formula for the first filter says that a property purchased for 300,000 needs to rent out at $2500/mo. in order to be further considered. I doubt that such a property exists in Calgary. I have looked high and low in Calgary for a property in any price range and cannot find anything that even comes close to passing this filter.

So I quit looking in Calgary and considered Red Deer, Lethbridge and Edmonton. All of these cities have properties selling for much lower than in Calgary but they also have lower rents so it seems like once again the filter kicks out everything I look at.

I am looking at MLS properties for sale but surely this is okay. I`ve heard Don say that you can make this system work purchasing at market value, so unless MLS properties are priced above market value (if so, then not by much), I should be able to find cash flow properties through the MLS.

So my question is this. How do you locate these cash flow properties? What methods are best used to find them? I am prepared to do due diligence, and have been doing due diligence, but I am coming up empty handed.

Any tips would be greatly appreciated. Thank you!
 
Hi Tom,
I`m not sure if this will help you but I went through exactly the same issue for almost 3 yrs after reading Don`s first book. The few times I did find a property that cashflowed it would either be snapped up by another investor or just didn`t meet any further criteria. I joined this forum in October of 2007 because - why not, free and access to RE discussions. Somebody suggested an agent who was a REIN member and listed all his properties` financials on his website, I ended up purchasing one of his listings in Dec. 07. During the interim I joined REIN and am now learning the `system`. While the REIN system is invaluable for a number of different reasons, the biggest advantage to joining REIN is the `network`. So to answer your question - joining REIN will give you more access to finding those cashflow properties and the expertise to analyze them further once you do find them. Plus the added bonus of being able to associate with like minded people. Believe me doors will start opening faster than you can walk through them. Right now I`m trying to hold myself back until I finish studying the Quickstart Homestudy Program.
There it is my shameless plug for REIN membership. I look at it the same way I do anything else I want to accomplish - associate with other people who are there already and others who are on their way.
If you want further proof just do a search for REIN membership in the search function, you will read the many `testamonials`

best regards,
Ed R
 
Obviously with great appreciations going through Western Canada in recent years and cap rates going down, there was no option for me but to look more towards eastern Canada, since I was ready not to give much for downpayments. That`s if you look for good cash flows and not ready to put much in. Try Ontario, Manitoba, New Brunswick. And you might even get appreciation along the way.

Cheers, Dejan
 
Bob is right. Ontario`s top cities offer positive cash flow properties even with 10% down. Good luck!
 
Tom B,
Good question, a while I was also having difficulty finding properties that met this 10% rule or even just broke even. I would definitely recommend looking at Russel Westcott`s JV strategies as they offer many lucrative and creative ways to increase cash flow and decrease expenses.

A goos example we utilize, when you purchase your property: pay your taxes and insurance upfront in a lump sum for the entire year. This helps decrease expenses but increase cash flow over the first year. The following year be sure to raise and adjust rents accordingly, provided the market allows, since the following year your cash flow will decrease since these bills will come due.

I suggest using a realtor who is hungry for business and understands exactly what it is that you are looking for in regards to cashflow. These guys will work hard to find the right property over and over again as opposed to a realtor who has a ton of clients and your halfway down the list and get the leftovers. I suggest if your realtor isn`t working for you, let them know so they can address the issues or change Realtors immediately, its envaibale anyway as you grow - your team will change.

Dan B
 
Hi Tom,

There are a significant number of properties available in Calgary that would cashflow (or very close to it) by my numbers. Cash flow is a very subjective term because there are so many input variables in the equation. Some properties don`t cash flow but make better long term buys because of the fundamentals in Calgary (transportation outlook and economic/demographic initiatives by the city). Lots of things need to be considered!

I am a Realtor in Calgary and as a result of my own personal search for investment property for my JVs I have made significant strides in getting a grip on this market and knowing what to look for and where depending on the capital you have available. I`ve also spent lots of time and cut my teeth with several contractors on improving property and maximizing our cash on cash return. Some things you want to sweat others you don`t!

For starters, here are some pointers on getting good investment properties in Calgary:

1. To cash flow here you will almost definitely need a property with a secondary suite OR you will have to get up in the fourplex territory to get economies of scale on your side.

2. Some properties can have secondary suites added for minimal cost others have them already but they need work or you`ll get vacancies.

3. You get the best rents by taking your marketing *local*. Everyone is doing rentfaster.ca and homerent.ca because it`s easy but renters can be good budgeters too and it`s the most savvy of them that are on these sites and they all want the best deal. To maximize your income and minimize your stress (or get the best `ratio` )for each property you really have to take the tenant selection part seriously.

4. In many instances you are better off with a breakeven or small negative cash flow property over the short term if you can buy one in the best areas in town and you don`t have to do a pile of work to it. Lets say you have a reno that will cost you $5k. Well, you can carry a -$200/mo property for over two years if you didn`t spend that extra $. Buuuuut you may increase your turnover so it`s really a `pick your poison` type of problem.

5. Don`t forget to build in rental rate escalations into your future budgeting... many people kick out properties because they don`t work in the here and now but would if you could fix your costs and increase rates by 3% in each of the next three years.

6. If you are going to pitch your investments to money partners you are going to have to sell them a `return` number or ROR (rate of return) You get the best returns when you put the least cash down, however when you put less cash down you are borrowing more so it becomes harder to cash flow. There is a `sweet spot` of return vs. cash flow that is often overlooked because everyone is screaming "cash flow cash flow cash flow" but it`s the ROR number that is really what you`re after. Convince your JV you need a bigger `reserve fund` to deal with the negative at the start until you have the property rolling...

7. You can get better cash flow and better tenants by working in a `rent to own` option on your rentals.

I have lots more but they start to get property specific once you get really detailed. In short there are lots of ways to make deals work you just have to be creative and disciplined with your business!


Cheers,

BT
 
To find the best deals you need to get to know the local landlords. The the best deals seldom get on the MLS unless they are owned by a newbe investor that got into a negative cash flow property. The best deals pass between investors without ever being listed.
Drive around and look for 3-4 plexes that look run down. Search out the owner and make an offer, they may be tired of doing evictions. Check the records to see who has resently done evictions they may be vulnerable. A property dosn`t have to be for sale for you to buy it. Frustrated landlords are your best bet.

Many will suggest that a negative cash flow can and does work for them but in my oppinion if you start out in this business with that attitude your chances of still being a landlord in 5 years is slim to none. Why have negative cash flow when you can have positive cash flow by waiting for the right deal.
The differance between negative and positive cash flow is the differance between Business investing and Speculation.
Do not set yourself up for failure by rushing into what is a very stressful and risky venture.
Wait until you are a seasonsd investor before you buy a property that you need deep pockets to support.
Remember when someone says they "can`t" find a cash flow property in their area what that really means is they just have not found one yet.

Keep looking there is a deal out there for you.
 
These are all very high quality replies to my question and thank you all for your thoughts. I have come to similar conclusions as some of you have. I agree that Ontario looks like good cash flow potential as well as other spots east of Calgary.

What is hanging me up is that the messages from Don C seem to be to buy in Alberta. That message is loud and clear and will net the most in the long run. The other message, also from Don, is go for cash flow and the equity will take care of itself. So if I want to follow both messages from the guru, then I need to find cash flow in AB.

The multi-unit purchase seems to be the obvious way to go in Alberta and that means JV partners in my case as I can`t handle the purchase cost of MF on my own. Then the problem with the JV idea is that I am not a seasoned investor and will I be able to convince others that I know what I am doing?

So, I have lots to think about and consider. It has been very helpful to put my thoughts out here on this forum. The `discussion` on this topic has been excellent in my view. Thank you all, again.

Tom
 
I am an investor from Calgary. I moved to Hinton to enjoy the mountians becuase I do not have a job I am tied to.
We have developed some amazing relationships with some key people who will sell us property way undervalue becuase we buy at least 30 units at a time. We have a deal that will be ready to sell march 1st it is $20,000 under value with some great insentives from the seller to help cashflow this property. I.E. Seller will pay condo fees for 1 year, provide 6 months mortgage payments, and pay 1 year of property taxes. If you want a to connect with us call me at 780 740 5041 or email me at I am new to investing and have thoroughly read both of Don Campbell`s books. I am also ready to get busy buying properties. My hold up is I can`t seem to find properties that meet the first filter. I live in Calgary and I`ve heard that there are cash flow properties here but that is so hard to believe! For example, the formula for the first filter says that a property purchased for 300,000 needs to rent out at $2500/mo. in order to be further considered. I doubt that such a property exists in Calgary. I have looked high and low in Calgary for a property in any price range and cannot find anything that even comes close to passing this filter.

So I quit looking in Calgary and considered Red Deer, Lethbridge and Edmonton. All of these cities have properties selling for much lower than in Calgary but they also have lower rents so it seems like once again the filter kicks out everything I look at.

I am looking at MLS properties for sale but surely this is okay. I`ve heard Don say that you can make this system work purchasing at market value, so unless MLS properties are priced above market value (if so, then not by much), I should be able to find cash flow properties through the MLS.

So my question is this. How do you locate these cash flow properties? What methods are best used to find them? I am prepared to do due diligence, and have been doing due diligence, but I am coming up empty handed.

Any tips would be greatly appreciated. Thank you!
 
Hi Tom,

Some possibilities to get positive cash flow:

- Get tenants to pay utilities
- Property with secondary suite
- Small renos to increase rent (I drove around the area of my property and mapped out the rental range vs. quality of property)
- Consider doing property management on the first property yourself so you get to understand the business. Do be careful here, because if you get to a point where you have multiple properties you will want to outsource this)
- Charge extras for parking/storage

If you want to consider Ontario but are concerned about not being around to manage the property, you may wish to start with a condo/townhouse (where property management is included in condo fees) in one of the top ten areas in Ontario. Good luck!

Cheers,
Manjula
 
Hi Tom,

One way to get cashflow positive single family properties is a Lease to own. All of our properties are positive cashflow in which we estimate a 30-50% return per annum. We have a couple of AB properties that are coming up soon if you would be interested in having a look at the numbers please let me know.

[email protected]

Regards,
 
Tom - first off, don`t be overwhelmed. All the analysis you`ll ever need to do requires about Grade 9 mathematics. And with all due respect, I wouldn`t listen to the fellow who responded earlier and suggested that it might be better to accept a negative cashflow position because the real estate market might go up a lot more than your net loss multiplied over 12 months or whatever. Never buy a negative cashflowing property! Makes no sense at all.
Whether it cashflows or not depends on the amount of the mortgage, the interest rate, and the rental revenue. That`s it. If rental revenue exceeds the mortgage + taxes + insurance + utilities (if applicable), snatch up the property. If not, walk away.

It also depends on when you`re able to lock down the tenant(s). As an example, I have a downtown condo renting out for $1600/month which gives me about $90/month PCF. Not bad. But, the building manager owns a smaller suite in the same building that he`s got rented for $1900! So the revenue aspect can be quite variable - do your analysis with a conservative figure, as you do not want a negative cashflowing property.

Don`t forget - you`re not splitting the atom here! It`s very simple math.
 
Hi Tom,
I completely agree to the above statement. Honestly, the rental that my wife and I recent bought is projecting to be a break-even proposition to $50 per month cash flow.

Do get a realtor(s) to work for you. Use their expertise to find you properties given a price range and then spend your time determining which one will cash flow (or break even at least).

Due diligence is so very important Tom. I have "weed" through at least 10 properties before buying.

James Kwong, CGA
style_emoticons
 
Wow,If I only had to weed out ten properties before buying I would be a happy camper. I usually go through at least 150.
 
It`s also a good idea to do year over year cash flow analysis. Many investors will tell you it takes a while for things to be reliably positive due to normalization. Rents do increase over time, so even assuming a 5-10% annual increase in rents can have a signifigant impact in your projections.

Then again the cost of repairs can increase all year long.....
 
This is a great question!

In my networking with other REIN members, I`ve heard time and time again that Cash Flow is next to impossible to find in Edmonton, Calgary and Red Deer without getting into illegal or non conforming suites.

If REAL cash flow if your main concern (and not the break even or $50/mth we hear so often), then perhaps you should look at other areas. For example, I invest in Fort St. John and Dawson Creek (BC`s #1 and #2 Towns) and we are often picking up properties that cash flow $700 per month (usually more) without the need for illegal suites that could get shut down.

I hear Ontario is good for cash flow as well, however I`m not specialized in that market, so I can`t really offer help there where to look.

I agree with Don when he says buy for cash flow and let appriciation take care of itself!

I`d be more than happy to provide more information to you about my area - contact me!

Good luck with the hunt for cash flow!

Mitch
 
QUOTE (MitchCollins @ Feb 22 2008, 09:09 AM) This is a great question!

In my networking with other REIN members, I`ve heard time and time again that Cash Flow is next to impossible to find in Edmonton, Calgary and Red Deer without getting into illegal or non conforming suites.

If REAL cash flow if your main concern (and not the break even or $50/mth we hear so often), then perhaps you should look at other areas. For example, I invest in Fort St. John and Dawson Creek (BC`s #1 and #2 Towns) and we are often picking up properties that cash flow $700 per month (usually more) without the need for illegal suites that could get shut down.

I hear Ontario is good for cash flow as well, however I`m not specialized in that market, so I can`t really offer help there where to look.

I agree with Don when he says buy for cash flow and let appriciation take care of itself!

I`d be more than happy to provide more information to you about my area - contact me!

Good luck with the hunt for cash flow!

Mitch

Cash flow in smaller towns is often a result of a quick turn in industry that drives demand for workers ASAP. These guys need a place to stay while they work (often on contract) and often times their employers will provide a living allowance to get them to relocate for work.

However, if you`re going to do small town investing you have to be confident in the business risk associated with acquiring property in these areas. It would take an awful lot to spurn an exodus from Calgary or Edmonton but what would it take for this to happen in a smaller town? Another royalty review or commodity price change which makes fringe developments less attractive? Local producers bought out by a national co. and workers relocated to other projects? Op costs simply too high due to remote location? You also have to be very mindful of when you are going to exit from the property as small towns are much more sensitive in this regard.

Add in high management fees (and most management co`s suck in small towns) and very transient tenants and it soon becomes a question of `is the extra few hundred $/mo worth it`.

Also - regarding secondary suites in Calgary - there is a municipal initiative (brought on by the mayor, no less) that is gaining considerable momentum to legalize secondary suites and even have landlords subsidized by the city to get them legal. Vacancy rates here are at ~2% and with so many investors condominiumizing their apt. buildings there is even more pressure to increase rental stock - a factor which is most certainly benefiting my business. So the city isn`t very motivated to shut down secondary suites and in fact this type of thing only really happens with a neighbor complaint.
 
Thanks Brett!

Your comments have once again reassured my thinking.

James Kwong, CGA
style_emoticons
 
QUOTE (markl @ Feb 20 2008, 09:49 AM) Hi Tom,

One way to get cashflow positive single family properties is a Lease to own. All of our properties are positive cashflow in which we estimate a 30-50% return per annum. We have a couple of AB properties that are coming up soon if you would be interested in having a look at the numbers please let me know.

[email protected]

Regards,

Hi Mark:
I would really appreciate knowing more about rent to own. I`m considering the northern BC market.
Kind regards,
Gary Born
 
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