Real Estate Investing Forums

Real Estate Investing => Rehabbing, Fix and Flip, Rental Properties => Topic started by: LRrenewvating on December 13, 2006, 10:31:36 am

Title: Minimum cash flow on rentals
Post by: LRrenewvating on December 13, 2006, 10:31:36 am
What would be a normal cash flow position for most of you seasoned investors are looking for in a rental property?  Do you look for a percentage or a specific dollar amount?

I am new and setting my 2007 goals but am not sure where to start with my figures as to what I should be expecting from my rentals.  I would like to say my goal would be to have a $300 positive cash flow monthly from each unit (after utilities, insurance, taxes and loan payments) but I think I might be shooting a little high.

What can be expected.
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on December 13, 2006, 11:08:13 am
The first thing that you have to do is accurately determine the cash flow.  Operating expenses are NOT utilities, taxes, and insurance (& loan payment).  How about management, maintenance, advertising, entity maintenance, evictions, exterminations, capital expenses, court costs and fees, fuel for your vehicle, office supplies, legal fees, lawsuits, damage done by tenants, etc, etc, etc???

Throughout the entire United States, operating expenses run 45% to 50% of gross rents.  After you subtract these operating expenses from the gross rent, what's left over is used to pay the mortgage payment (principle and interest) and for any cash flow.

To answer your question, after I use these real world expenses, I like to have $100 per month per unit.

Good Luck,

Mike

   
Title: Re:Minimum cash flow on rentals
Post by: LRrenewvating on December 13, 2006, 12:02:41 pm
Mike,

I realize my operating expenses were not all inclusive, but you were able to get my jist and answered my question thank you.

I am quite supprised to hear that operating expenses run between 45 to 50%.  It would seem to me that with expenses this high the rentals you speak of must have a high tenant turn-around.  If you are speaking from the managers point of view I guess I could see 45 to 50%.

I would like to hear from others on what they generally expect as their positive flow.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on December 13, 2006, 12:30:51 pm
I agree with Mike, expenses do run around there I also like to get at least 100 per unit positive of course more is better. It is a business so anything you do needs to be counted towards an expense. Even use of your computer if you use it to find deals. Everything involved.

Title: Re:Minimum cash flow on rentals
Post by: propertymanager on December 13, 2006, 12:49:56 pm
Rick,

No, the real expenses run 45% to 50% throughout the entire United States.  This includes capital expenses, management and maintenance.  Most newbies simply ignore the real world expenses (as you did).  If you manage and maintain the property yourself, then you will earn back 15% to 20% of the gross rent, making your operating expenses 25% to 35%.   In low income areas, your taxes will be lower but your maintenance and tenant related expenses will be higher.  In higher income areas, this is reversed.  You won't hear the truth from any gurus because the truth cuts into their profit.  After all, who wants to pay $5,000 for a bootcamp to hear that real estate investing is hard work and is not a get rich quick scheme?  

Mike
Title: Re:Minimum cash flow on rentals
Post by: LRrenewvating on December 13, 2006, 01:18:55 pm
Mike,  

I have not ignored the, as you put it, "Real World Expenses".  I have an accounting background and know of these expenses.  

I think I should be more clear that I am not in the management business but am taking on some rental property to create passive income.  My focus is rehabbing and wholesaling but if I can swing it and a good rental deal comes by or market conditions recommended holding that is what I will do.

Some of the expenses you outlined I would put under my regular business expenses and not directly related to the rental property.  I will proportionitly allocate these expenses directly to the unit if that is what drove the expense,  but otherwise, office supplies, fuel and capital expenses and some of the others are business operating expenses.  They are a cost of doing business not a direct expense to the rental. This is why I feel the numbers are a little high.

I thank you for all you input and knowledge.  I am not fighting your point just bring a different view.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on December 13, 2006, 01:24:55 pm
Hi Rick why not put all expenses related to the properties to the properties? Correct me if I am wrong but arent the tax consequences much better for yourself by creating passive rental income in the way of buying fixing renting and refiing to pull your money out as opposed to flipping or wholesaling?
Title: Re:Minimum cash flow on rentals
Post by: LRrenewvating on December 13, 2006, 01:49:08 pm
DWJ

Yes, your correct and the rentals I have where rehabs that I kept because of the tax consequences. I also do allocate all expenses directly to the properties that incured those expenses.  I would not allocate my legal retainer fees to my rentals if the rentals did not use any leagal services it is a business opertaing expense.  If i did use the legal service to evict then that cost and a percental of the retainer would be allocated to the rental.

My passion is rehabbing.  I like taking a run down delapitated building and returning it to its glory.  Rehabbing is a hobby to me at heart and the feeling I get retailing to a new homeowner and offering them the chance at something they thought they could never own makes me feel good.  Everyone should have a chance at the American Dream of owning a home.

Wholesaling is what you do with your excess inventory.  I can only work on so many at a time.  I am not looking to be another Donald I just want to retire between 50 and 55 (about 10 years from now) and never have to worry about anything financially.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on December 13, 2006, 02:02:19 pm
Thats great and also why we are all here. To learn from others experiences.
Title: Re:Minimum cash flow on rentals
Post by: LRrenewvating on December 13, 2006, 02:13:15 pm
well said because I have learned a lot here from people like you and the other members of this organization.

THANKS :D
Title: Re:Minimum cash flow on rentals
Post by: bdub on December 13, 2006, 05:36:13 pm
i'd like to get to the point propertymanager is at.  however, on my first property, i'm simply $100 over PITI.  my next property will do better (aiming for a MFH for early 2007.)
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on December 13, 2006, 06:30:51 pm
bdub,

It's not optional.  You must do better on future deals if you are to keep investing (or unless you're already rich).  Most people, including me, can only have so many losing deals and believe me $100 over PITI is definitely negative cash flow.  Most people could afford a few deals like that, but I certainly couldn't have dozens of rentals if every one was losing money.  Besides that, what's the point.  I'm not doing this for fun.  If I didn't make money, I'd do something else.

Good Luck,

Mike

Title: Re:Minimum cash flow on rentals
Post by: Land Baron on December 13, 2006, 10:26:46 pm
propertymanager,

Thanks for your willingness to share your experiences and help out us newbs.  You've responded to a couple of my previous posts.  Thanks.

I'd like to pick your brain a little more about how you calculate expenses.

First, to make sure that I understand correctly.  You use 45 - 50% of gross rent to estimate operating expenses, which covers everything except for the mortgage payment (principal and interest).  After deducting that 45 - 50% from the gross rent, what's left is available for the mortgage and cash flow.  Right?

Now, for my questions:

1. For "gross rent" in your calculations, do you assume a full 12 months rent to get that number, while allowing for vacancies within your 45 - 50% expense estimate OR do you presume a vacancy rate to calculate "gross rent"?

2. How do you allow for the security deposit within the 45 - 50% expense.  Assuming that damage isn't major, the security deposit would help to reduce this burden, no?

3. Do you find that the 45 - 50% figure holds true at different price ranges?  Median priced versus lower priced properties?  I would suspect that landlords of median or higher priced properties might not have some of the issues that lower priced properties and lower quality tennants could present.

4. Has the 45 - 50% rule held true throughout your experiences or is it a worst-case scenerio allowance?

That's it!  (for now).  Thanks.

Title: Re:Minimum cash flow on rentals
Post by: propertymanager on December 13, 2006, 10:57:20 pm
Land Baron,

Quote
1. For "gross rent" in your calculations, do you assume a full 12 months rent to get that number, while allowing for vacancies within your 45 - 50% expense estimate OR do you presume a vacancy rate to calculate "gross rent"?

Yes, assume 12 months of rent.  The vacancy allowance is in the 45% to 50% number.

Quote
2. How do you allow for the security deposit within the 45 - 50% expense.  Assuming that damage isn't major, the security deposit would help to reduce this burden, no?

The security deposit has nothing to do with the expense figure.  In fact, by law, the security deposit belongs to the tenant even though you are holding it.  In my experience, the tenants rarely get any of their security deposit back.  Tenants are very hard on property and even a good tenant will do enough damage to lose their security damage.  I've only given back the entire security deposit twice!  So, the security deposit is basically irrelevant as far as expenses are concerned.

Quote
3. Do you find that the 45 - 50% figure holds true at different price ranges?  Median priced versus lower priced properties?  I would suspect that landlords of median or higher priced properties might not have some of the issues that lower priced properties and lower quality tennants could present.

Yes, the 45% to 50% holds true at most price ranges where rentals are found.  In relatively more expensive properties, you have better tenants but higher taxes and longer vacancies (when they occur).  For example, a $200,000 house in our area should definitely have better tenants, but could easily go many months between tenants.  Most tenants in that price range in our area would only stay while their new house was being built or other such similar situations.  In lower class rentals, you have more tenant related expenses, but lower taxes.  I have never personally dealt with upper income rentals or mansions or anything like that, so that is outside of my experience.

Quote
4. Has the 45 - 50% rule held true throughout your experiences or is it a worst-case scenerio allowance?

Yes, it holds true and is certainly not the worst case scenario.  The vast majority of new investors fail and the number one reason is lack of cash flow!  

Good luck,

Mike

 




Title: Re:Minimum cash flow on rentals
Post by: Land Baron on December 13, 2006, 11:30:43 pm
propertymanager,

Thanks for the reply.

To clarify my Security Deposit question:  I was asking if holding a Security Deposit would actually help to REDUCE the expenses should there be damage repair costs.  Granted, it would only be worth what it was.

I still have to check on how Security Deposits are handled and make sure I'm not using the wrong terms too.  Security Deposit, Damage Deposit.  Can the same deposit be used for damages AND any backrent or fees?  I'll just have to check it out.

Thanks.

Thanks.
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on December 14, 2006, 07:14:36 am
Land Baron,

The security deposit can be used for damage, cleaning, trash removal, unpaid rent, late fees, unpaid utility bills that were the tenant's responsibility, etc.  In fact, your lease will probably say that the security deposit can be used 'to fullfill the tenant's obligations' as outlined in the lease.  

Does having a security deposit reduce your expenses as compared to not having a security deposit?  Yes.  However, it is standard practice to have a security deposit.  Therefore, a better way to think of it is that the 45% to 50% expense figure assumes that you will have a security deposit.  Therefore, not having a security deposit would actually INCREASE the expenses beyond the 45% to 50% range, because you would be paying expenses that should normally have been paid by the tenant's deposit.

Hope that helps.

Mike
Title: Re:Minimum cash flow on rentals
Post by: bdub on December 14, 2006, 11:23:24 am
bdub,

It's not optional.  You must do better on future deals if you are to keep investing (or unless you're already rich).  
Good Luck,

Mike
Mike,
I agree, it is definitely not optional, which is why I don't yet have another deal.  It is easy to find a $100 over PITI deal (which we have lost money on already, because of fixup and closing cost).  I'm looking for a deal on MFH, but first i need some time (can't quit the day job with a newborn and wife at home) to look and make offers... lots of offers if i'm going to find a MFH at a price that is going to clear 50%GR+$1...
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 03, 2007, 12:53:50 pm
Would that 45%-50% expenses be less if you were renting a condo, co-op or townhouse?
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 03, 2007, 01:47:41 pm
Morningnewsman,

No, the expenses would not be less.  

Mike
Title: Re:Minimum cash flow on rentals
Post by: henryinma on January 03, 2007, 11:58:54 pm
Morningnewsman,

No, the expenses would not be less.  

Mike

It depends what part of the country you're in. I sold a 388k condo where the new owner rented it out. She got $2800 a month for it. The condo fee was $325 a month and the taxes were $300 a month. Rentals are still stong in this area and she actually had it rented before closing. She actually got a pretty good deal, probably worth about $420-$430k right now and that's a year later. Some markets are still strong as there aren't that many units on the market.
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 04, 2007, 07:10:24 am
Henry,

You're certainly not saying that the only expenses are the condo fees and taxes...are you?

The property you mentioned certainly does not have positive cash flow if it is mortgaged.  It might be a good deal if the owner sells it, but it is a TERRIBLE rental.

Mike
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 04, 2007, 07:59:23 am
I just dont think some understand fully expenses. Just imagine you had no job and you had to count on your rental properties as your sole source as some on this board do. Now take every single thing even remotely related to operating your rental business and separate that from anything personal that has absolutely nothing to do with your rental business. Those are expenses to be included in your property expenses.
Title: Re:Minimum cash flow on rentals
Post by: ChrisABQ on January 04, 2007, 12:38:50 pm
propertymanager:

What does all of this mean to those of us (me) who are cash-poor, and need to utilize a home equity loan to finance our first property - or take a 100% mortgage?

Is positive cash flow possible without having a large portion of the property paid for, thereby lowering the mortgage payment?

It seems that finding a rentable property that meets these criteria would be difficult, or impossible.  Is it?

Right now I'm struggling with the decision to use my current home's equity to make a purchase, or to wait until I have sufficient cash saved for the down payment.

Thanks,
Chris
Title: Re:Minimum cash flow on rentals
Post by: Bluemoon06 on January 04, 2007, 01:26:57 pm
Right now I'm struggling with the decision to use my current home's equity to make a purchase, or to wait until I have sufficient cash saved for the down payment.

Chris, it is a numbers game.  The equation has two sides.  Instead of putting more money down, find a property that you can buy cheap enough that after fix up it still cash flows.  What I buy I call trash houses.  I can buy a house that you can stand in the living room and count the stars.  That house will be $50k below market price.  I can put a new roof on a house for $3,000.  Add that to normal fix up and I have $15,000 to fix up a house that is at a $50,000 discount.  I don’t need any money down with that.  What I do is I will take one major problem.  I will take one problem like foundation, or roof, or HVAC, no more than one but that is usually all that is needed to get a huge discount.  The last house I bought in December 2006 had a garage door that was off the track and the trees were grown up around it.  I paid a garage door company $150 to re-hang the door and my son and I took a chain saw and whacked down the trees and paid a guy $60 to haul the limbs off and I got that one for $40,000 below market price.
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 04, 2007, 04:39:56 pm
ChrisABQ,

If you are cash poor, can you afford an "investment" that loses money each month?  I am not cash poor, but I still can't afford too many "investments" that lose money.  Regardless of the ability to afford negative cash flow, why would I do it?  The purpose of being in business is to MAKE MONEY, not lose money.

Yes, finding properties that will cash flow is difficult!  If it were easy, everyone would do it.  The reality is quite the opposite.  I heard one guru say that 95% of the REI students will never even do a single deal.  Of those that do, the vast majority will be out of business in a short period of time.  

You can see evidence of this at REIA meetings and on these internet forums.  Every few months, nearly all of the faces and names will change.  An entire new group of newbies will be around and only a very few seasoned investors will still be present.

That's just the reality of things.

Mike
Title: Re:Minimum cash flow on rentals
Post by: henryinma on January 05, 2007, 12:34:27 am
Henry,

You're certainly not saying that the only expenses are the condo fees and taxes...are you?

The property you mentioned certainly does not have positive cash flow if it is mortgaged.  It might be a good deal if the owner sells it, but it is a TERRIBLE rental.

Mike

Of course there are other expenses, but those are the major ones. Also I never said it was a good rental. Some people are in this business to buy properties as investments and in certain parts of the country like Boston, you're never going to find a good rental unless you have a large down payment. Some people just go with the negative cash flow and make it back up on their taxes when they deduct the interest expense and take their 1/27.5 depreciation on the property.
Title: Re:Minimum cash flow on rentals
Post by: ChrisABQ on January 05, 2007, 08:36:57 am
property manager:

You said: "If you are cash poor, can you afford an "investment" that loses money each month? . . . The purpose of being in business is to MAKE MONEY, not lose money."

Exactly the reason for my original question.  No - I cannot afford an investment that loses money.  Hearing that 45-50% of the gross rental income goes to expenses, and the rest is left over for paying the mortgage and (maybe) some profit is both eye-opening and discouraging.  Although, I'd rather go into this knowing what I'm getting into rather that fooling myself into believing that every property is a good investment.  Thanks for being honest.

So, all of that being said, I must go back to what I already knew, and that it that I must make my profit when I BUY my property, not through speculative market appreciation.

Chris
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 05, 2007, 09:33:49 am
BINGO!  If you follow that strategy, you will be one of the FEW that survives.

Good Luck,

Mike
Title: Re:Minimum cash flow on rentals
Post by: LRrenewvating on January 05, 2007, 10:30:05 am
Propertymanager,

Why do think that is?  (That so many people don't continue.)

Is it that they lose interest when they are not able to find the deals you seasoned investors talk about?
Is it a lack of knowledge and they make too many mistakes at the beginning and cannot recover?
To scared to take the first step?
Because they are expecting to get into a get rich quick (less than a year) business?
Is it because they came in only thinking that having knowledge of rehabbing and wholesaling is all they need and they having some business knowledge is not necessary?
Is it lack of funding?

I am a newbie and am courious why so many fail.  And I don't want to follow that path.  

I am having a hard time here in York, PA without any local REI club to meet other investors.  I have met a couple though and have been trying to work with and learn from them but I do not feel comfortable with them I sometimes feel like they are taking advatage of me because I don't know everything they do.

Sorry to get off the initial cash flow subject that I started myself (thanks for all the input on that evveryone) but your last remark lead me to this post.  I don't want to fail so I want to know why people do.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 05, 2007, 10:46:24 am
My belief is they dont have a plan. They do initial research and are flooded with ideas from everyone and dont know which way to start? Rentals or flipping but how? Why do you want to do rentals or why do you want to flip properties? How are you going to go about doing this? You need a plan. Stick with the area you want to concentrate on in real estate investing and become an expert in that field. Make sure the properties make you money the day you buy them. Do you research. To answer your question why most fail is they fail to make a good plan, they hit a bump in the road and give up. Its much easier to just settle for a job. Its hard work but the payoff is phenomenol. Dont give up. Good luck.
Title: Re:Minimum cash flow on rentals
Post by: bdub on January 05, 2007, 11:23:42 am
i am loving this thread...  been reading it every day that it's been here...  it's helping me to stay motivated as i look for a MFH this year...  thanks to all of you "seasoned" investors, i know what REALLY need to do, and that is WORK to find/make a REAL investment.
Title: Re:Minimum cash flow on rentals
Post by: NoMoneyDown on January 05, 2007, 11:43:58 am
My belief is they dont have a plan.

Bravo.  People have written volumes on being successful - you summarized it all in 8 words.  IMHO, that's why 95%+ people are never going to be rich/wealthy.
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 05, 2007, 12:07:56 pm
Rick,

I agree with everything that dwj said.  Those things are all part of it, especially the part about not having a plan.  However, my opinion is that most people are looking to get rich but are too lazy to put in the WORK that is required.  Is that too blunt?  Sorry, there's not even one politically correct bone in my body.  

If you have been reading the recent threads on this website regarding expenses, you've seen a lot of people say "but it's hard to find a property using these expense numbers in my market".  What they are really saying is that they want it to be easy.  The truth is that there is NOTHING easy about running ANY business.  I have owned and do own several businesses and I can tell you that being in business is a constant hassle.  Once you get past the hobby phase, there is a hassle almost every day.  

Because it is not easy to find a property that will actually cash flow, most new landlords simply buy a property at retail and delude themselves into thinking that they are making money.  That is easy to do until your portfolio starts to grow.  As you get more rentals, it becomes increasingly impossible to ignore the real expenses.  For example, when you have one rental, most landlords do not include postage as an expense.  Just yesterday, I put about $40 worth of stamps on bills that I sent out!  When you have one rental, most people pretend that they don't have any office expenses.  It seems like I'm at Office Max every other day spending $50 or $60 on ink cartridges.  When you have one rental, it may be years between evictions.  I posted a three day notice and took the paperwork and a check to my lawyer just this morning.  

In short, since the truth is unpleasant, most newbies simply ignore it and pretend that everything will be ok.  When reality strikes, they're out of business!

Perpetuating this entire myth are the gurus.  I'm a big Robert Kyosaki fan.  I enjoy his books and think that they are good from a philosophical standpoint.  I've seen him on TV and in videos saying that getting rich is when you have enough passive income coming in that you never have to work again.  I work hard, but I doubt if I work as hard as he does.  For someone that proclaims that he doesn't ever have to work again, he seems to be continuously working.  He seems to always be speaking and promoting his products.

I attended a big REIA convention recently.  I was riding in the elevator with a guru that proclaimed in his presentation that he was rich.  In the elevator, someone asked him how he was doing.  His reply was that he was worn out from being on the road all the time!  Evidently, he is still working like a dog too.

In conclusion, my opinion is that most people are looking for a get-rich-quick scheme that does not exist.  The truth is that they are not willing to do what it takes to succeed.

Mike    
Title: Re:Minimum cash flow on rentals
Post by: slambert007 on January 05, 2007, 04:03:03 pm
Good informative post Propertymanager...

You might want to use online bill pay to trim that $40 postage habit.
Title: Re:Minimum cash flow on rentals
Post by: cRod on January 07, 2007, 10:21:50 am
Will the equity that is being built by renting the property not offset the negative cashflow in the long run?
Title: Re:Minimum cash flow on rentals
Post by: DannyTheGreat on January 07, 2007, 10:30:49 am
Will the equity that is being built by renting the property not offset the negative cashflow in the long run?
That would be a waste of time. If you can carry a properties negative cash flow until it accumulates considerable equity, why not just use that money as a down payment in the beginning? Your building equity with your own money, therefore profiting very little with just appreciation.

If you've got money to burn, there are more productive ways to handle it then slowing building equity in a property with negative cash flow. Just spend the money upfront and have a property that can support itself. Not only that, but you will have to eventually sell it at a price the average investor can cash flow, so you might not be building as much equity as you think.

Your better off taking a little more time and find a property with a lot of equity and that cash flows. Negative cash flow properties are for aggressive investors who don't own a calculator and own properties for the sake of owning properties.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 07, 2007, 03:37:53 pm
crod. With rental properties cash flow is king. If you arent getting it when you buy it then whats the sense? Right?
Title: Re:Minimum cash flow on rentals
Post by: Sexxxy_Beast on January 07, 2007, 04:54:37 pm

Perpetuating this entire myth are the gurus.  I'm a big Robert Kyosaki fan.  I enjoy his books and think that they are good from a philosophical standpoint.  I've seen him on TV and in videos saying that getting rich is when you have enough passive income coming in that you never have to work again.  I work hard, but I doubt if I work as hard as he does.  For someone that proclaims that he doesn't ever have to work again, he seems to be continuously working.  He seems to always be speaking and promoting his products.

I attended a big REIA convention recently.  I was riding in the elevator with a guru that proclaimed in his presentation that he was rich.  In the elevator, someone asked him how he was doing.  His reply was that he was worn out from being on the road all the time!  Evidently, he is still working like a dog too.

In conclusion, my opinion is that most people are looking for a get-rich-quick scheme that does not exist.  The truth is that they are not willing to do what it takes to succeed.

Mike    
>:(

I still consider that guy is rich enough to quit working.  It all depends on what level of life the guru wants to have.  Is he content with just having 1 Ferrari or 50 Ferraris?  When someone is so successful at Real Estate the next step i guess is doing infomercials and selling your books to millions for mass market profits.  Bill Gates was the richest guy on earth and he still works, why?  I guess most people can never stop working and be content with what they have.   I was just thinking about what my future would be like if i was successful at flipping houses.  Would i make a small fortune and go off to live on a nice beach house in south America with my supermodel wife and not work again(what would i do with my free time...)?  I think that if I reached that level of success id still want to have a bigger house then my neighbor and still work at making more money to have a better life then the people around me.  

life sucks sometimes < lol
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 07, 2007, 05:49:04 pm
I agree to some point. Inregards to the flipping. You can become rich by flipping but you wont become wealthy if all you do is flip. What will you do if you flip and retire? Where is themoney going to come from once you stop flipping?
Title: Re:Minimum cash flow on rentals
Post by: d_sbrown on January 07, 2007, 07:06:33 pm
I think that the reason that guys like Gates and others that are wealthy beyond anything we can dream still work is not that they are still chasing bigger and better.  It is that there is an inherent urge or drive in them to continually improve and do better.  It is not about the dollars, it is about winning.  If you played sports well and then moved on in life, you probably felt the loss of having that challenge to win until you learned to channeled that into something else.  Sitting on your butt in a big house and not doing anything may sound great, but in reality it will usually cause most doer kind of people to just get depressed.

My two cents,

DB
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 07, 2007, 07:10:42 pm
Hey dsbrown those 2 cents you just gave were right on the money. I think the same thing. Good points.
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 07:25:00 am
Any of these formulas change with mobil homes?  I do wholesaling...have not done a rental yet.  Are mobil homes decent rental options?
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 08, 2007, 07:56:52 am
Mobile homes do make good rentals.  They often generate excellent cash flow.  However, there are a few things that you should know about mobile homes.  They are often more difficult to repair than standard houses.  Many of the parts are specifically mobile home parts.  In addition, water lines and electrical lines are located under the floor and above the insulation.  

Insurance is also an issue.  For example, insurance on a double wide is double that of a house.  

Finally, it can be difficult to sell mobile homes, especially if they have to be moved.  Moving expenses can be high (especially for double wides), and where they can be placed is often restricted by zoning.  Additionally, obtaining a loan for mobile homes can be difficult and the credit rating of the people looking at them is often poor.  Seller financing is often needed to sell mobile home.

Good Luck,

Mike



 
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 08:06:20 am
Thanks Mike.  Sounds like, all things being equal, a single family or townhouse that cashflows is a better investment than a mobil home.  The tough part here in NY, as mentioned by some other folks, is that most decent single-family homes are at least in the upper $100's, so getting them to cash flow is tough.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 08, 2007, 08:27:59 am
Hi morningnewsman. Mike is exactly right. I happen to work on mobile homes and know the ins and outs of them although I do not invest in them because they generally do not appreciate. They are more like cars even though the newer ones are very nice and actually built better than some houses. (what house can you drive down the road at 50mph? Anyway I live in an area in new york. (dutchess county) that is just as you say impossible to create a cash flow without putting down at least 60k and thats on a fix up. The area is one that went up fast and is going to go back down to where it should be. I am seeing signs of it now. A lot of houses on the market (still overpriced) and not being sold. This years forecast in the area for properties is in the neg. for appreciation. For instance A while ago I called up a realtor that owned a property. The company bought it as a foreclosure fixed it up and put it on the market for 220000. It was a very small house. (maybe 700-800 square feet.) I offered 140000 for it the realtor laughed at me and the house sat on the market for 2 years after that until someone overpaid for it. Probably from new york city. To make a long story even longer. I decided to invest in central and upstate new york where prices are low appreciation is steadily on the rise and rents to price ratios are great. Good luck with your investing...
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 08:50:35 am
Thanks DWJ.  I'm also in Dutchess.  You belong to Mid Hudson REIA?  
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 08, 2007, 09:00:58 am
Hi no I dont belong to it. The reason being is because I never wanted to invest in the area because I have always thought that the housing prices have been overpriced and never saw any money in it without coming up with a lot Which I dont have. My goal is starting this with nothing and so far its working out well. I tried some creative stuff but the realtors had absolutely no idea what I was talking about and at the time houses were flying off the market at record pace so I went on a mission to find places that had properties that made sense for cash flow. If I had a lot of money then sure I would have gotten into it in the area because I would not have had to look elsewhere I would have just blindly put down 5 figures without thinking. Fortunately in a way its better I didnt have that kind of money to start because I am learning to invest with no money out of pocket. What part of dutchess do you live in? I live in pleasant valley.
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 09:02:54 am
I'm in Poughkeepsie.  Do you do rehabs?  Rentals mostly?
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 08, 2007, 09:07:33 am
I just got done with a rehab (a 2 unit) and it is fully rented out. Waiting for the rent checks from the property manager.I actually can do most of the work myself. Its a property total price including work done to it was 39k bought with hard money. It is rented for 1190 per month section 8 tenants. In the process of refinancing it right now to pay off hard money lender pull out some cash and still have a decent size cash flow after the fact. I will post the final numbers on my site after I know them. The bank is slow as molasses and always comes up with something else they want to see.
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 09:18:56 am
That's great.  I find quite a few rehabs in Dutchess and Ulster...I then wholesale them to cash buyers who want to do the work and make the big profit.  Let me know if you want me to keep my eyes open for something that meets your specifications.
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 08, 2007, 10:37:06 am
What kind of properties do you usually find? Ballpark pricewise? How far below market?
Title: Re:Minimum cash flow on rentals
Post by: morningnewsman on January 08, 2007, 12:29:46 pm
The homes I get under contract usually need work - and after the work, there is still 30% spread left.  For example, I had one late last year that was worth about $280k fixed up.  I sold the contract for $121k cash, which included my assignment fee.  My buyer has lots of work to do, but there will still be a large spread.
Just referred another one last week.
The most important thing with these kind of homes is that when I sell the contract, my buyer must be a cash buyer.  
Title: Re:Minimum cash flow on rentals
Post by: propertymanager on January 08, 2007, 05:54:16 pm
Nice deal DWJ!  $39K for $1190 rent  -  NICE!

Mike
Title: Re:Minimum cash flow on rentals
Post by: dwj469 on January 08, 2007, 07:05:43 pm
Thanks Mike I am hoping I can find a bunch more of those. I am working on it now. I just recently had to pass one up that only needed a minor clean up for 32k and rented for 1k per month. OUCH! Had to pass it up because I am waiting for a refi to go through on the property mentioned in this post I did for 39k. MOre will come I am sure. Hopefully by then I will be able to take advantage of it. :D