Im a part-time invester with two properties currently(buy/hold) and on the hunt for the third. Have a question though… How can a property 120k and over cash flow? without putting 20percent down, I dont understand… Rent ranges in my area for 3beds are 750-950 depending on the area and quality of the property, so that puts purchase range btw 0-110k… Using the 1% guide someone that buys a 150k house has to charge 1500?
thanks
Yes to your last question
The 1% guide (if it works for your area) is used by determining the Fair Market Value (FMV) of the property and then using 1% of THAT figure to get your basic rent.
So, if your investment property is worth $120K and you by it for $85K (or about 70% of FMV), then using the 1% guide on both, your monthly payment/expenses should be about $850 and you should be able to rent for $1200, which translate into a $350 positive cashflow per month.
Understand that this is very simplistic, but you get the idea.
Raj
Also, keep in mind that it is just a guide. Overpriced markets and/or markets that have high insurance/property taxes make it more difficult to achieve the 1% guide. A lot of investors I’ve read and spoken with say that 0.8% is a more realistic guide.
Some markets have great difficulty cash flowing, where as some are quite good.
When you read the oft-printed verbiage of ‘most over priced’ markets that’s precisely what they are referring to. By that I mean that a market like California that is considered ‘over priced’ has rental ranges that are less than the mortgage payments for a particular house. Texas as an example, has rents that are greater than the PITI for a given house. That’s what is meant by ‘under-priced’ or ‘over-priced’ markets. To cash flow in an over-priced market you must acquire the property at substiantially lower than retail to make money from rentals (not factoring in appreciation). In under-priced markets you can purchase at near retail prices and still cashflow.
Do a rent to own, you can go way up on the rent, and have a possible sale down the road.