What is the standard formula for minimum cash flow on a rental or multi unit house?
I’ve looked around and haven’t seen it anywhere, but I know there is a rule of thumb here.
Well, first of all, you’ve got to use the REAL expenses - not the guru nonsense. In the real world, actual operating expenses (including capital expenditures) run 45% to 50% of the gross rents throughout the United States. So, take your gross rents, subtract the real operating expenses, and then subtract your mortgage payment. What’s left is a REALISTIC cash flow.
The rules of thumb that I like (using these real numbers) are:
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positive cash flow at least 1/3 of the mortgage payment (1/2 is better)
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positive cash flow of $200 per unit per month (very difficult to achieve using these real expense numbers). Certainly no less than $100 per unit per month under any circumstances.
Good Luck,
Mike
Ok, thanks!
well in general your statement is correct, but not always. With taxes and everything else you can still make money in the end of each year if you are only covering all expenses.
Or in my situation, I dont have much of a choice. I could sell my condo for 15K less than what I paid for it, or take a $50 a month loss while renting it out. Seems like an easy decision for me
OUCH! I wouldn’t want too many investments like that!
Mike
Not much you can do with the property values in the Tri-County area of Michigan. Pretty much all condos under 200k are in the same situation. About 6-11% less than what they paid
Exactly why I never pay more than 70% of the market value for a property (and most of the time MUCH less).
Mike