I know the equation you should use to figure out what you should bid on a property you are planning to flip. But what about a property you want to hold on to and rent out? For instance, there’s one offered on ebay for 37500. He says he rented it out for $675 recently. I’d need to put about $1000 into the place before renting it out. Thanks.

Howdy Plamberti:

No real formula to follow when buying rentals. You want to buy something under market at least 10 to 20 % below retail. The lower the better. In some markets you can buy and get good cash flow but perhaps lower appreciation. Other markets will not even break even but hopefully appreciate more. As an example I just bough a small duplex in Killeen, Texas for $12,900 and with a few thousand in rehab I will be able to rent for $600 per month total. Great cash flow with a $20,000 loan total but the appreciation will not be as good as Vegas or Ca or Fla. Because the comps are still low the ARV was only $24,000 but I feel the appraisal was way low because of a lot of Va and fannie mae and Hud foreclosures. It should be worth $30,000 IMHO any ways. It is still a good deal and I will do well. I bought it to keep for the cash flow as well as another 2br SFR for $16,500 that will rent for $495.