Reasonable Cash Flow?

[propertymanager]

Bexo,

Why not post the gross rents and expenses for one of your 1% deals. I’d love to see how it cash flows.

Mike

[Rich_in_CT]

@Bexo post:19

If they don’t apply in a particular area of the country then it does not mean one will lose money, I can attest to that personally. Around here if you can find gross rents at .01/purchase price you better get it because somebody else will if you don’t. Also lowest cash flow/unit is $230.

A) I’d guess all expenses are not included in those figures.
B) I’d also guess a sizeable downpayment was thrown into the mix to help the cashflow.

[propertymanager]

A) I'd guess all expenses are not included in those figures. B) I'd also guess a sizeable downpayment was thrown into the mix to help the cashflow.

Rich,

You’re absolutely right. I see people make wild claims all the time, but the rental business all boils down to simple math. If you pay too much, it doesn’t cash flow - UNLESS YOU’RE USING THAT NEW MATH, where 1 + 1 = whatever you want it to.

Mike

[REI4ROI]

Great post!

I figure there are 8 different ways to make money with rental real estate:

1. A dependable and growing flow of income
2. Mortage payoff (amortization)
3. Value Creation (property improvement)
4. Instant Gain (bargain price purchase)
5. Gov. Benefits (tax credits, deductions, etc.)
6. Strategic Management
7. Value Increases (Appreciation)
8. Inflation

Regards,

Scott Miller

@propertymanager post:10

Phil,

The numbers in your example are WAY OFF! If you buy at property for $80K with rents of $850, it will have a negative cash flow when you include the real world expenses. However, in answer to your question, the money is made in rentals with quantity. Assuming that you don’t use your own money, you might be able to get an average of $100 per unit per month positive cash flow. Therefore, if you want to make $10,000 per month, you need 100 rentals! If you do both the management and maintenance yourself, you will earn (save) at least another $100 per month. In this case, you could make $10,000 per month by owning 50 rentals.

I do not refi. I am allowing the mortgages to be paid down and my equity to increase.

With rentals, you make money at least 5 ways:

1. CASH FLOW (the king)
2. Equity at closing
3. Principal Paydown
4. Appreciation (icing on the cake)
5. Tax depreciation and other tax benefits

Contrast that to flipping, where you must continuously work to generate income. Then, when you do make a profit, uncle Sam takes a big bite.

That’s why I like rentals.

Mike

[Bexo1]

@propertymanager post:21

Bexo,
Why not post the gross rents and expenses for one of your 1% deals. I’d love to see how it cash flows.

Mike

I don’t think so. I understand what I have, It’s not so important to me that you do.

@Rich_in_CT post:22

A) I’d guess all expenses are not included in those figures.
B) I’d also guess a sizeable downpayment was thrown into the mix to help the cashflow.

Minimum 20% down on each, all are on 15 year mortgages. Yes all expenses included.

@Iron Range post:20

You can’t get $230 a unit profit with buying at .01. If .01 is a good deal in your area than your area’s market is wrong and will likely correct itself one day soon. I buy at close to .02 in my area and will not accept much less or like propertymanager said " You will lose money each and every month".

With tenants trashing your units, evictions, repairs, etc. you simply can not make it in this business paying 1%. I wonder if you don’t completely understand all the expenses in rentals.

@propertymanager post:23

A) I'd guess all expenses are not included in those figures. B) I'd also guess a sizeable downpayment was thrown into the mix to help the cashflow.

Rich,

You’re absolutely right. I see people make wild claims all the time, but the rental business all boils down to simple math. If you pay too much, it doesn’t cash flow - UNLESS YOU’RE USING THAT NEW MATH, where 1 + 1 = whatever you want it to.

Mike

I guess I’m just wrong then. You all would know better than I afterall.

[Iron_Range]

First Point:
You are definitely wrong if you are including your down pmt into your calculations. It doesn’t matter if you put zero down or 100% down, the cash flow is determined by the price you buy a property. The down pmt isn’t free, it costs you to pull money out of something (stocks or equity) in order to put it down on a property. That amount down has to be included in your cash flow.

Second Point:
I disagree all the time on issues with propertymanager and everyone else on this site, that’s fine. But on this issue there isn’t a theory or a particular market that would support your ideas. It is about Money in Vs. Money out, which only contains facts not opinions or theories. I believe where your numbers are false is in the fact that you include the down pmt in your calculations.

[Bexo1]

OK.

[donnawanna32]

I think that flipping and renting go hand in hand…
you can flip for fast money, or rent for long term gains.

[phatman5]

When you guys use your .02 equation you do .02 x gross rent less repairs and improvements, correct?

[propertymanager]

phatman,

Actually, the maximum purchase price for a rental property (rule of thumb) would be gross rents divided by .02, then subtract repairs and improvements.

Again, as a rule of thumb, you can multiply the purchase price by .02 to determine the rents you will need to make a reasonable profit. Remember that rents are set by the market.

Mike

[ArcAngele]

Back to the original topic…PNC you said your rehab and purchase cost were about $80k. Whats the property worth? ARV= ?

I’m not sure what everybody else is saying, but if your mortgage is only $80k why are you paying $850 a month. I’d say get a 7/1 I/O and you can get a much lower payment.

You said you don’t really want to hold onto rentals forever but you want the cashflow. I’d say look into some commercial properties or multi-units if its cashflow you’re after.

Also a strategy I’ve used in the past is this: Buy the house at a discount, fix it up and then refinance it. If you got a good deal you’ll be able to pull out a nice chunk of cash (tax-deffered) and you’ll still have equity in the property. Then you can rent it out, owner finance or whatever you wish. I think this is a great strategy for someone starting out as it gives you some cash to work with for your next deal as well as a rental. It’s like the best of both worlds. Some people are against refi’s but i love them, let your banker help make you rich :cool