how much cash flow is acceptable? 9 posts by 6 users

Posted: 10/03/2008 at 04:19PM

Much have been discussed on this here. It is often referred to as the 2% rule or 50% rule (depending on how it is calculated)

Posted: 10/03/2008 at 06:54PM

Start by taking a look at your financial situation to see what you need to do. Based on that start setting some goals and a plan by which to reach them using real estate.

If after looking at your situation you see that you need to consistently raise $500 each month to cover the note on a new car and you want to pay for it via the income from real estate, then you'll need to create a buying and holding plan that will provide you with enough properties to make it work.

To figure out how much income you'll need each property to provide is subjective; everyone has a different magic number. Most investors want to have the expenses from each property be no more than 75% of their monthly income. So in the case of a house where the monthly expenses are 750, they'll want the rent to be at least $1,000 so that they can have 250 per month.

That being the case, in the situation where your goal is to raise $500 per month to pay the note and insurance on your new car, you would need at least two properties that net 250 per month.

Take the time to invest in a couple of good courses on real estate investing so that you'll know what you're looking at before you decide to buy.

Good luck

Hassan

Posted: 10/03/2008 at 10:28PM

It kind of depends on how much you want to earn for your work. At least one person here looks for $100/month, after really accounting for all expenses.

The risk really deals with expenses. If you truly account for all expenses, not just taxes and insurance, your risk will be greatly reduced.

Hassan, I'm not sure I understand your example. When you say "expenses" on a $1000 rent property are $750, what do you include? If that's just PITI, then you're missing some expenses. If thats vacancy, operating expenses, and capital expenses, then that's a lot of expenses for the rent. Once you add on the P&I, you're probably in the hole.

Brian, insurance and taxes are not your only expenses, as I think you're aware. Its really tough to estimate all those other expenses because many of them are spraodic. That's not the same as unlikely. Over enough time and enough properties, you'll have some hard knocks. If you plan for them, though, you risk is reduced.

Posted: 10/04/2008 at 11:00PM

I am well into old threads on the topic. I don't wan't everyone to rehash the topic here as it seems to stir everyones blood. To sum up what I have read and what I bought into; The 50% rule is a good rule of thumb for a beginner investor. But naturally many factors could make this rule more effective or less.

As a beginner who has a full time job already and not the kind of time or experience to find homes 30% under market value without a lot of luck, I will adhere to the 50% rule and be looking for at least $100 cash flow. I expect to learn more as my portfolio grows and perhaps gain enough confidence to stray from the rigidness of that rule. But for now i see it as minimizing risk.