REAL ESTATE How much positve cashflow is typical?

[Rawr]

A couple of friends told me today they are giving up their places for rent. One is renting out his house, another one each room in a 3 room condo.

They came up with these numbers = +150/mth for the house and +250 mnth for condo.

I have no idea if this is good/bad or ugly? How does one decide what he need to make in profit on a place? House/apartment/etc?


Additionally - it seems to me that apartment units is where the money is. having 10 identical cheap apartments that are easy to repair looks like a gravy train. Is this about right? whats the best way to go about it? Should I get 10-15 people in on a deal and buy bulk?

 

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[J P D]

Any cash flow is better than nothing. The two unit I just bought cash flows about 175 a month after all expenses, and that's at current rents. Also factor in my 3% down, which changes my monthly mtg payment thus changing my cash flow figure. If I had put 10% down, my cash flow would look different. So there are lots to consider when looking at cash flow figures. As long as the property is paying for itself it shouldn't be a bad investment, as long as everything else is in order. RE fortunes aren't made off of monthly rental cash flow though.

 

[andviv]

Additionally - it seems to me that apartment units is where the money is. having 10 identical cheap apartments that are easy to repair looks like a gravy train. Is this about right? whats the best way to go about it? Should I get 10-15 people in on a deal and buy bulk?

Read this review for the book: [ame="http://www.amazon.com/How-Buy-Sell-Apartment-Buildings/dp/0471653438/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1198679233&sr=8-1"]How to buy and sell apartment buildings[/ame] by Vollucci. In the review I made a post about chapter 3, you may be interested on that one, but I do recommend you read the whole book.

 

[JScott]

As andviv alluded to, information about cash flow by itself says very little about the investment. Pretty much any property will cash flow (with a big enough down payment). And very few properties (at least in the areas where I live/invest) will cash flow with no down payment.

In fact, a property that is losing money can *potentially* be a good investment. For example, let's say that you find a property that loses $100/month. Let's say that same property with 10% down would cash flow at $100/month. If you're not spreading yourself too thin (i.e., you can handle a market downturn in addition to your negative cash flow), you may find your total ROI on the investment is better with the 100% LTV and -$100 cash flow than with a 90% LTV and +$100 cash flow.

Not saying this is generally the case, but it certainly could be.

Likewise, if I pay $1M in cash for a $1M property, my cash flow would be much higher than if I put $100K down on that same property and financed the rest. But, just because my cash flow is higher doesn't mean I should be putting down $1M instead of $100K. The ROI is what I'm looking for, not the monthly cash flow (again, as andviv pointed out, you're not going to get rich on the month cash flow).

 

[Reisteve]

JScott is right....

You have to look at ALL the numbers...

As well as the condition of the property, and the market...

I have two breakeven properties... but both have a lot of equity because of where they are located.

I have a couple that flow, but the equity is not near as good.

You have to take in the whole picture.

Make Sense?

Steve

 

[Jakko]

RE fortunes aren't made off of monthly rental cash flow though.

I am assuming that usually real estate investors invest in the market because they want to retire off of the passive income that is generated by their properties.

I guess some start out with a SFR or a fourplex, and when they have some equity in the property, they upgrade and 1031 exchange into a better property. They often keep repeating this process untill they can get into a big apartment building with more than 200 units which would ultimately be able to create the passive income that is needed for them to retire. So if monthly cash flow isn't key in the long run, then what is?

Also, approximately how long do you guys think it would take for an average investor to start off with a SFR and turn it into an apartment building that can generate enough cash flow which would allow that person to retire? He would do it using 1031 exchange but this person has only one source income which is his job so he can only put limited amount of money into his investments. Do you think doing it this way would be slow? It would take at least 10 years probably?

 

[Bilgefisher]

I am assuming that usually real estate investors invest in the market because they want to retire off of the passive income that is generated by their properties.

I guess some start out with a SFR or a fourplex, and when they have some equity in the property, they upgrade and 1031 exchange into a better property. They often keep repeating this process untill they can get into a big apartment building with more than 200 units which would ultimately be able to create the passive income that is needed for them to retire. So if monthly cash flow isn't key in the long run, then what is?

Also, approximately how long do you guys think it would take for an average investor to start off with a SFR and turn it into an apartment building that can generate enough cash flow which would allow that person to retire? He would do it using 1031 exchange but this person has only one source income which is his job so he can only put limited amount of money into his investments. Do you think doing it this way would be slow? It would take at least 10 years probably?

I can't answer your questions, but I think if you read SteveO's success story many of them will be answered.

 

[Jakko]

I can't answer your questions, but I think if you read SteveO's success story many of them will be answered.

Ok, I will try to look it up. TY.

 

[venom]

I look at two things
is the rent 125% of the mortgage ?
Whats the cashflow as a % of the mortgage.
The Burley people call it the safety factor.
So mortgage / cashflow = safety factor
So if the mortgage is 500 and the cashflow is 100
You would need 5 houses to cashflow to pay the mortgage.

Didnt we already have the discussion that cashflow is not fastlane ?
You have to look at making money by
a- having a discount.
b- being able to increase value.

 

[tchandy]

Cashflow is great. But sometimes if you have a property that still does not cash flow you will still get a return based on depreciation especially if you are waiting for the property to appreciate in value or as a write off on your taxes. Antoher option would be if you believe the property is in a good and upcoming area and you believe the rents will increase over time.

Tom

 

[Adam]

To answer your question about the SFR and condo; when we used to finance a property at 100%, we looked for $250 in monthly cash flow PLUS some other value position. Cash-out on the front, significant equity, etc.

When putting cash into a deal, we figure out what we need for a cash return (if we are looking for a cash return.)

My latest deal, a strip mall, we are buying at a significant discount and this goal is to pay off in as little time as possible. We are financing it with a 240 month note and we are stashing the additional cash-flow in a money market account so that we can use it to pay down the additional principal balance when the call option arrives.

 

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[Corrado79]

I think it's okay to focus on CF, as long as everything else makes sense. If the rents are reliable and the property is in a growing area, a CF focus should be okay as the appreciation should eventually accrue. Again, in such a situation, you should look to put as little of your own money into the deal as possible. For my investment strategy, a property that reliably CF's with very little down and very little involvement by me is fantastic. I let the appreciation take care of itself.

 

[hakrjak]

I guess some start out with a SFR or a fourplex, and when they have some equity in the property, they upgrade and 1031 exchange into a better property. They often keep repeating this process untill they can get into a big apartment building with more than 200 units which would ultimately be able to create the passive income that is needed for them to retire. So if monthly cash flow isn't key in the long run, then what is?

A lot of your money in the SFR business is on the back end when you go to sell down the road, and each year when you get that huge tax refund.

I tell a lot of new investors, whether you figure on $100 a month cashflow or $175 or whatever -- it's always negative your first couple years anyway. There's always unforseen repairs to be made, ridiculous demands by tenants, dirtbag tenants who destroy your property beyond belief and skip town, the list goes on.... If you make positive cashflow after all of these "X" factors, then you have succeeded beyond some pretty long odds... but the place where you're almost guarenteed to make bucks is on your tax return each year (I haven't paid federal taxes since I bought my 3rd rental... and I have a near six figure day job), and when you go to sell after either appreciation has occured, or you've built equity by having your renters pay down that note.

Cheers,

- Hakrjak

 

[rcardin]

My property cash flows about 28.00 a month but it is on a 15 year note. I am down to about 10 years left so it is building equity fast. Cash flow is a nice concept but it would take alot of units for it to really show up. I would say if you can consistently flow 100.00 per property you are doing well in my area. The cookie cuter 3/2/2 brick home rents from 800-1200 depending on the neighborhood. It is difficult to cashflow but I am looking more towards retirement. I need 15 more years as a teacher to retire with a measly pension. This 1 house should put my daughter through college and help us live more comfortably during retirement.

 

[andviv]

rcardin, just an observation.... you have clearly defined that this property that breaks even (OK, cashflows $28 a month) is the "College Plan". Wonderful (actually, that was my plan as well, before I modified it to be a little bit more hmmm fastlane).

And that is the reason for my observation.... you are targeting retirement in 15 years so when you turn 46 yrs old you will get your 'measly pension', as you said. But what about you and your real life? I am sure I am not seeing the big picture here, but your comments here seem a little bit 'slowlane mentality'. Do you have other plan that goes a little bit faster? Is there a big goal you are pursuing and if so, what are you doing to reach it?

My main point is, you are capable of finding properties that cashflow (you are already doing it) so why not use that talent to make it big time money cash flowing every month?

PS: I don't want to sound too 'judgmental', it is that your comments made me remember the way I was thinking four years ago, before I realized I could get more from life and enjoy it now, instead of having to wait until 'retirement age' to meet my financial goals.

 

[rcardin]

Andviv,
Actually I would be 56 but doesn't really matter in your questioning.

Since finding this forum and reading everything I can get my hands on we have:

refinanced all credit card debt into a 5 year loan and destroyed the cards
Freed up about 500 a month by consolidating
Re-focused on my DJ business( I kinda got bored with it for the last year )
Spent the last 2 weeks trying to learn about domain parking and generating income that way
Signed up with Realtor for MLS listings in email everyday of target properties.

I guess we are just really developing our plan. Our rental was an accidental investment. We lived there for 4 years and the note was too good to sell it outright when we moved.
Since then we have looked at getting more properties but our credit card debt got out of control. Partly because of over spending and partly because our old house was in the middle of a rehab when we got the deal on our new house. We had less than a month to move and finish the old house. Financially we were screwed and it took about 2 years to adjust form the expense of a 1400 sq ft house to a 2400. Looked great on paper until we got the first $550 electric bill.

Now that we are finally under control we have tried to set some goals. 10 houses in the next 5 years is our major goal but I can't finance them without the down payment. I know creative financing exists but is getting harder to do thanks to sub prime lending. Guess I need to get off my a$$ and get some signs made for finding subject to properties.

I am all about enjoying life now rather than later. Could be why I continue teaching. I only work 187 days a year.

 

[andviv]

I'm ashamed.... I can't make a simple addition (go figure, I am now pulling Enron-style math, 41+15 = 46? )

Congratulations in your accomplishments and in starting working on your plan.

 

[rcardin]

Andviv
I teach kids all day that can't do that math and they are our future. :bgh: Boy do we have alot to look forward to in our retirement age.

Thanks for the congrats. I feel like I am finally in control of our future. Fastlane thinking is something we are relatively new to.