Friday, May 15, 2009

Cash Flow is Back

For years now I've been searching neighborhoods around me. Even in other markets, thousands of miles away, willing to even be a long-distanced landlord, but to no avail. I simply couldn't put that 1% rule to the test. You've all heard it...a viable investment property should bring in 1% of the purchase price, in rent, each month. If not, don't bother. It's not worth the aggravation.

I became an accidental landlord when we moved up to a bigger condo in a better part of town, and had a hard time selling our first condo. So, we rented it out. We got $1,750/month which came out to almost two-thirds of a percent, or .57%, of the purchase price of $289,000 in rent per month. Not bad, given the year we purchased was 2003, and real estate prices had already got on board the hot-air balloon. Incidently, we've sinced incremently raised the rent and are now at $2,150/month, which is almost three-quarters of a percent, or .74%, of the original purchase price.

That all sounds decent, but nearly 6 years into owning this rental unit, we're still not at the 1% rule-of-thumb, which is the recommended starting point for a viable rental. And when you factor in the headaches, the fix this, and the fix that phone calls...deduct hoa fees and any other rental expenses, it's been a steady stream of lossed revenue. Now, agreed, that loss can be carried over and off-set my personal income. Which for a lot of us, is kind of a nice way to re-coup at least some of those lost dollars. But to jump ship now could mean months of marketing the unit, without rental income, before it can be sold. And the sale price would not be enough to make up for all the time and effort we've put into this one. I guess you could say we're in too deep, so we're holding on. We're about breaking even now, and should be in the green soon enough. We have wonderful tenants who pay on time, and don't want to move. So we'll hang on. However, the best decision we made was to leverage the property while loans were still obtainable. And we have that leveraged-money set aside for the purchase of a second rental property.

And so the search continues...Can I find a property that will cash flow immediately? Can I find a property that will meet the 1% rule?

Yes, I can.

In Phoenix right now, some condos are selling for $10K. Single family homes starting at $15K.

Investors are in a frenzy. The bottom is here in greater Phoenix, except for the high-end market. We are eating up the inventory faster than the banks can foreclose them.

I've seen investors get much better than the 1% rule. How about 2%? How about 4%? Like rent out a unit for $650/month that you picked up for $15K.

I'm here in the trenches. I can help you find that next rental. You're not too late. There is a wave of REO bank-owned homes coming on. The moritorium has lifted. Let's take a closer look.

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