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Finding Real Estate Deals That Cash Flow: Positive Cash Flow In Tough Markets

James Orr

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You have looked at 6 (maybe 12 deals) and you are finding it near impossible to make them cash flow based on collecting a reasonable rent and getting 30 year fixed rate financing.

Take a deep breath. This is one of the most common problems for real estate investors and what I believe to be one of the things that discourage many people away from starting a lucrative real estate investing business. There is hope though.

First, unless you happen to be lucky enough to live in or near a city that has a low income area where you can still buy “rental houses" where the values are about 100 times the monthly rent, you need to realize that finding these deals is like the Easter Egg hunts you had as a kid. You got to look at a lot of deals to find that special one that will work.

How many will you need to look at? It can vary, but I do not think that looking at 100 is out of the range of possibility.

What?! So, I need to look at 100 houses to find one that will work? Yes, you might need to look at 100 houses, making better distinctions about what might work and what will not work to find a good deal.

You may also find that putting out marketing to find motivated sellers makes finding these types of houses easier rather than just looking at houses that are for sale by owner or listed with a real estate agent.

Buying houses at a discount and/or with good terms can significantly improve your ability to make a house cash flow, especially if the interest rate on the terms you can get from a seller is much better than the current rate you could get from a bank or lender.

What if you have some houses that are very close, but none that will have positive cash flow? First, keep looking. Second, there are some ways to ethically increase the amount a tenant pays you in rent which could make a negative cash flow house a positive cash flow house.

For example, if instead of just renting the house, you sell the house on a rent-to-own, you can get payments that are on par with what your actual mortgage, taxes and insurance expenses are because they need to be able to pay your actual mortgage, taxes and insurance payments to afford that house.

When you interview your potential buyer, you explain that market rent is $1,000 (or whatever it is), but that if they have $10,000 to put down toward purchasing the house their mortgage payment with taxes and insurance would be $1,400 (or whatever it is).

You tell them they need to pay the $1,400 but that you will credit the $400 above market rent toward the purchase of the house when they do go out and get their own loan and buy the house from you. In the meantime, they rent with the payment that resembles your mortgage payment.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.


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