Positive cash flow is king. If a property does not produce positive cash flow, then don’t even think about it. Without positive cash flow, you are doomed to failure. Eventually, the bills and the expenses will mount up and you will be writing a check every month just to keep the property afloat. A lot of people cannot do that. They have or will run out of money.
What happens then?
Repairs stop being made. At first it is little things. Apartments are not repainted. The property begins to look worn out. Soon it turns in to major problems. Roof leaks continue to leak, air conditioning fails to cool, the dead refrigerator is not replaced.
Next, good paying tenants start to leave. How long would you put up with a leaky roof? No AC in the summer? I am out of here! Bills continue to mount and now less cash is coming in.
Perhaps then the owner begins to take in a lesser quality tenant. They may or may not pay. They definitely will be dirty if not trash the place. They will drive any remaining good tenants away. They will likely leave in the middle of the night and stiff you on rent.
At this point it is unlikely that the owner can even get tenants in the property. It sits vacant or nearly vacant. It is not long before vandals take notice. Copper starts to disappear. First it disappears from the HVAC units then from the plumbing. Now the property is truly uninhabitable. The only people living in it are perhaps squatters.
With no money coming in foreclosure is not too far away. The property has become a distressed property. Smart investors have been watching this property for a while. They noticed when the current owner paid too much. They have watched the property slowly deteriorate. They know that a potential deal is now available because someone bought without positive cash flow.
Think the above does not happen? It is how I have bought many of my properties. Stay tuned in the future as I write about what to watch and look for and how to pick up some of these properties yourself.
