1st Property Question

Rehabbing, Fix and Flip, Rental Properties
1

Well I am a long time reader, first time poster here. I want to thank everyone as I have learned a lot from this site.

I started thinking about real estate investing 1 year ago, and after talking to my uncle who has been doing this sucessfully for the last 10 years I decided to take the leap. He has been a lot of help in terms of a mentor, so I am very fortunate.

I have my first deal in the works, I will be closing on it next week.

SFH, purchased for 16,000. 10,000 in estimated repair costs. After rehab value at around 50,000. The current appraised value is 30,000.

Not a huge deal, but I feel like the numbers are really good. My problem is I am not sure what to do with it? My long term goal is to build wealth and cash flow. The numbers work really well for it to cash flow. But I want to get some of my investment $ out to do my next deal. How easy will it be to refinance after rehab and get cash out? Or should I sell, deal with capital gains and build my cash. I would hate to pay 25% taxes on my net profit, and really this not in my long term goals.

Monthly cash flow is appoximately.

Monthly (PITI) $230
Monthly Rent(Appox) $475

That is 245 monthly cash flow, before maint, repairs, etc.

What do you guys think, even if I refinance at 30000, and get cash out, it should still cash flow at aprox 115 mo. before maint, repairs, etc.

I don’t have a good feel for what maint. and repairs are going to eat up, so any advice on that would be much appreciated.

Josh

2

Josh,

Cash flow “before maintenance, repairs, etc” isn’t cash flow at all. Cash flow is what’s left after all of the operating expenses and the mortgage payment are paid. I’d strongly suggest doing a search of this site for “cash flow” I think it has the potential to be a decent deal as a rental or a flip - just look at the real numbers.

Good Luck,

Mike

3

I do understand that Cash Flow is after maint. and repairs, which is why I said before maint. and repairs. Being new to this, I don’t know how much difference I need between Rent and PITI to cover the other operating expenses and have it cash flow. I am sure it is a little different depending on location.

Anybody have any advice for estimating those costs, or some guidelines to follow?

Josh

4

INREI,

Expenses are far more than maintenance and repairs. Expenses include (but are not limited to) taxes, insurance, management, maintenance, advertising, utilities paid by the owner, vacancy allowance, capital allowance, evictions, court costs, legal fees, lawsuits, damage done by tenants, etc, etc, etc.

Throughout the United States, operating expenses run 45% to 50% of the gross rents. Therefore, in your case, about $238. Therefore, to estimate your monthly cash flow, subtract the monthly mortgage payment (P & I) from 1/2 of the gross rent.

If your uncle has had a lot of rentals for 10 years, he should know this stuff and be able to help you.

Good Luck,

Mike

5

Thanks Mike

He has helped me a lot, I just started thinking about possibly renting this place, he is out of town for 2 weeks, so I thought I would see what everyone’s thoughts on here were.

Josh

6

Mike,

I have a question about your rental equation, is it:

(gross rent/2) - PITI = real world cash flow, or

(gross rent/2) - PI = real world cash flow

thanks
Chris

7

The RULE OF THUMB is (gross rent/2) - PI = real world cash flow

8
The RULE OF THUMB is (gross rent/2) - PI = real world cash flow

Lansing REI is correct.

Mike

9

No wonder I can’t find any properties that cashflow!!! I passed on two rental properties that were breakeven when considering PITI, but they would of easily casflowed 100 bucks at PI, you learn something everyday thanks guys.

Chris