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How to Find Cash-Flow in Real Estate: Navigating High Interest Rates
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Finding Cash-Flow

As we all know, the common real estate theme of the day pertains to interest rates. Spend 5 minutes scrolling through Bigger Pockets, and you'll undoubtedly see a "what am I doing wrong, I've tried everything & nothing cash-flows" post. We get it - we've seen the drill a thousand times.

Newbie goes to Zillow -> clicks random property -> inputs info into spreadsheet -> spreadsheet says No -> repeat.

So the question is: what do we do about this? Do we buy bad deals? Do we wait until interest rates come down? Do we give up?

F*ck no.

The US is a big country, and the odds that there's at least one great deal out there at any given time is virtually 100%. So what do we do? We find them. And here's how.

House Hack

Especially for those who are young and unmarried - this will be a top option. Assuming you have a credit score of 580 or higher, you can apply for an FHA loan and make a down payment that is as low as 3.5% - or perhaps lower if you qualify for any down payment assistance programs. Although the odds of breaking even on a house hack are pretty slim unless you're sleeping on the couch - or are fortunate enough to live in one of the US's most cash-flowing markets, you'll at least be living for free (or close to free). This alone will help build equity, whilst also saving money.

The other great element of this strategy is its inherent repeatability. As part of FHA loan conditions, you need only live in your chosen property for 12 months. This means that if you're able to save enough for a subsequent 3.5% down payment, you can keeping doing this again and again!

Partner Up & Pay Cash

Pooling resources and expertise in real estate investments can be a game-changing strategy, particularly during periods of high interest rates. When you team up with a partner, you share not only the financial burden but also blend your unique skills and experiences. This aspect could mean gaining access to markets beyond your individual reach, and the ability to undertake larger, potentially more profitable ventures. Sometimes you can have one partner who brings the capital, and the other who can do the handy work. Or if neither of you are particularly handy, you can just split the costs, and reduce (or even eliminate) the debt you need to raise from the bank. With interest rates at around 8% for a 30 year loan, paying cash (or at least putting a large down payment) can be a real benefit to your respective bottom lines. Not to mention that by splitting expenses and down payments, you can move faster in increasing your portfolio, which in turn will give you the economic stability to then invest alone when you're ready (assuming the investments went well of course)!

Go Out of State

Investing out of state can indeed be a remarkable strategy, especially for those residing in more expensive markets like New York City or California. These regions are known for their high property values, which might not always align with the average investor's budget. By expanding your horizons and considering properties outside of your home state, you can tap into markets where the cost of real estate is significantly lower. This strategy allows your dollar to stretch further, enabling you to acquire properties that may provide a better return on your investment. Besides, if you're earning a salary in these high-cost areas, you'll likely have a greater purchasing power in other states. This dynamic could lead to faster portfolio growth and higher cash flow, making out-of-state investing a potentially lucrative approach in your real estate investment journey.

Lowball Season

As we find ourselves in this period of escalating interest rates, it's officially lowball season, folks! This unique phase affords us the opportunity to make offers that might seem ridiculously low compared to the listed prices, and that's okay. When determining the price point to offer, it's crucial to assess your financial goals and investment strategy first. The price you put forward should align with your profitability targets, not the seller's expectations. Yes, there will be eyebrows raised, scoffs made, and you might not be the most popular person in the room, but remember, this is a business, not a popularity contest. Your primary concern should be your financial growth, not pleasing others. So go ahead, make those lowball offers!

BRRRR Strategy

The BRRRR strategy - standing for Buy, Rehab, Rent, Refinance, Repeat - has emerged as an effective approach in real estate investing, particularly for those looking to maximize their ROI. These steps provide a roadmap for investors to transform a cheap, often neglected property into a profitable rental unit. The crux of BRRRR is not just purchasing a property but adding value to it. The rehab part of the equation is where you upgrade and repair the property, thereby making it reach its After Repair Value (ARV). An uplifted ARV paves the way for refinancing to more favorable terms, which can free up capital to repeat the process with another property. The BRRRR strategy can be especially useful if you have an eye for spotting properties with a high margin between their current price and their ARV (minus the renovation costs of course). These properties, though cheap in price, can yield significant returns after rehabilitation, creating a cycle of sustained cash flow and portfolio growth.

Creative Financing

Creative financing methods like Subject to (Subto) and Owner Financing can offer unique advantages for both buyers and sellers in real estate transactions. In a Subto agreement, the buyer takes over the seller's existing mortgage while the property deed transfers to the buyer's name. This approach allows buyers to acquire properties without securing a new loan, often avoiding higher interest rates. On the other hand, Owner Financing involves the seller providing a loan to the buyer to purchase the property, creating a stream of cash-flow for the seller. Both these strategies can be particularly beneficial in scenarios where traditional financing options might not be available or appealing. It's a win-win equation, with sellers generating cash flow and buyers avoiding traditional lender fees and high interest rates.

Conclusion

In conclusion, navigating the world of real estate investment doesn't have to be daunting, especially when it comes to high interest rates. There are numerous strategies at an investor's disposal, each offering unique ways to mitigate the impact of these rates. From BRRRR, an ingenious strategy that allows savvy investors to leverage access to cheap properties with high potential ARV, to creative financing methods like Subto and Owner Financing that bypass traditional loans and their associated high rates - the options are plentiful. Yet, the key to successfully employing these strategies lies in persistence. The real estate market is rife with opportunities, but they won't simply land in your lap. Investors must embrace a proactive attitude, tirelessly seeking and seizing deals when they arise. As the adage goes, fortune favors the bold. And in real estate, boldness is reflected in an investor's willingness to delve deep, explore unconventional strategies, and stay the course, irrespective of market conditions.