How do they get such great cash flows? - Posted by Ed

Posted by Ed on July 02, 2002 at 07:47:46:

One suggestion I have for new people is to start small, but start. Your attitude with your first investment shouldn’t be so much to make money, as to learn how to make money. Then as you do more and get more experience, the confidence and the money will follow.

And I think your criteria should be JUST a little looser with your first one - e.g. you’ll take a slightly smaller cash flow, etc. That’s so you don’t end up with a terminal case of analysis paralysis. Then as you do more REI, your goals and criteria get tighter and more ambitious.

For example I dug into my savings to put down a 20% down payment on my first one (Regardless of what the Sheets course says) just to make the numbers as safe for me as possible to give me confidence. Now that I have more experience and confidence I usually put little or nothing of a down payment any more.

And as for analysis paralysis, I think George Patton once said something that applies to your first investment - something about an average plan aggressively excecuted this week is better than a brilliant plan next week.

I remember my first mortgage pymt on my first one - $258.72. And my attidude was I’m going to find out whether or not this REI stuff works, even if I lose $258.72 a month for 30 years.

I held that house for several years before doing a 1031 exchange for a bigger property, And sure enough I got it rented most of the time and overall did very well. And if you calculate the return on investment even with my 20% down payment, as a REI investment it wasn’t outstanding, but if you compare the ROI I got with any stocks or mutual funds I had, you’d see why I got hooked on this business.

How do they get such great cash flows? - Posted by Ed

Posted by Ed on July 01, 2002 at 21:48:57:

Here’s a question for everyone - I’d like to know how do some people with the Carleton Sheets course claim to get such great cash flows?

I’ve used the Sheets course successfully for 3 years now and for you newbies I’ll vouch for just about every part of it except for 1 thing - large cash flows.

I’m a buy and hold person. I’m getting close to $150 positive CF per property. It’s steadily growing, and it’s enough to provide a cushion for my growing net worth and let me sleep at night, but certainly not enough to live off of and quit my JOB.

So even if you buy let’s say 30 or so properties and let’s say that is theoretically $4,500 a month, I don’t see how you’re really going to ever see that much because of big repairs, maintenance, etc. And even say a 10% vacancy rate (that’s average in some areas) will cut that down a lot too.

Maybe rehabbers can do it if someone does a lot of rehabs in a year? Or maybe A LOT of lease options? Maybe just a lot of properties? How many? Only in certain areas of the country? Or is the secret to buy and hold large multi-units with better economies of scale? Or just slick marketing on the infomercial?

So guys what’s the secret?

Re: How do they get such great cash flows? - Posted by M Lee

Posted by M Lee on July 05, 2002 at 23:30:04:

Try
www.Landlord.com

The markets are different around the country, and there are different advantage everywhere you go.
Some markets price to hi to make money renting…
Southern Cali is a perfect example–$200,000 Home rents for $1,600 a month…MOrtgage Payment and expenses are $1,700…

Get out and network, and see if someone can help you figure out ways to maximize current rents…something, like sending a note to current renters, and saying due to financial constraints you are raising rents $25 a month.

That is a short suggestion…but keep asking others how to get more profits.

Much Success!

Re: How do they get such great cash flows? - Posted by Ron

Posted by Ron on July 03, 2002 at 23:11:13:

$150. positive cash flow a month, are you kidding me? It is not worth it. One $1,200 dollar repair and your profit is gone for the year. I only do deals that are bring me at least $350/month. I am a buy & hold investor to and I try to make all of my money back the first year. Try analyze your deals factoring the return on investment (roi) If you invest $6,000 to gain control of or purchase a house, then you should at least make $300/mo in cash flow. That will give you a little more than 50% roi. That does not include a rental deposit or non-refundable option fee. 10 houses averaging $350/month plus a couple of flips a year can really change your financial picture quickly.

Re: How do they get such great cash flows? - Posted by BrianG (HouTx)

Posted by BrianG (HouTx) on July 03, 2002 at 15:09:53:

I would venture that they calculate cash flow the simple way: rent - PITI (principal, interest, taxes, insurance) and obviously monthly expenses (Home owners accociation). Likely no thought for vacancies, reserves, or other expenses…

Re: $250-$300 cashflow - Posted by Dan-Fl

Posted by Dan-Fl on July 03, 2002 at 06:52:46:

I do two things to get higher cashflow.

  1. Buy right.
  2. I convert any extra room,like a FL room or a den or even a laundry room into a bedroom.This easy to do and costs about $1000 and when its done,it will bring in a extra $150 a month cashflow.

Re: How do they get such great cash flows? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 02, 2002 at 15:13:26:

Ed-----------------

I’m inclined to say “all of the above.”

I’d guess mainly that the big-cash flow properties are in very poor parts of old towns with stagnant or declining populations.

I’d also guess that some of the buyers are getting very good deals, either by looking at lots of properties and insisting on a great deal before they will make an offer or by being very good negotiators. Perhaps even combining the two.

I’ll bet you could move to higher cash-flows if you insisted on it. You get what you are willing to accept. You might try structuring financing with lower payments near the beginning, such as rising-rate interest rate – 3% first year, 4% second, etc up to may 12% in the 12th year. With the right to refinance anytime that you feel like it. After 6 or 7 years, if interest rates are about the same for the owner carry loan and other loans, you switch to another loan.

Also, study your market carefully for areas where you can get better cash flow than average. Only buy when you get the cash flow you want.

Now, I feel confused. When I talk about a cash flow on a property, I am thinking after all expenses, including vacancy allowance, capital projects, such as you mention, and taxes, insurance, regular maintenance. If you are getting $150 but that is not clear, you are probably working too hard for your money. Unless you think there are prospects to get more money in the future. Due to rent appreciation, or forced appreciation, such as converting 2-bedroom units to 3-bedroom and the like.

I hope you are reading lots of different books on property management and how to increase rents. Do you have Jack Reed’s book on “How to Increase Rents and the Resale Value of Properties?” or something close to that. His website: johntreed.com .

Good Investing*Ron Starr

Re: I have a question for you Re carlton - Posted by kris

Posted by kris on July 02, 2002 at 03:03:50:

Were you already a seasoned real estate investor before you got his course? I’m basically a novice at this and haven’t purchased house #1 yet. Guess part of it is just nerves. I just want to know. I purchases Carltons course a couple months ago.

Kris