BiggerPockets

Hoping for appreciation is a fool's game. If you don't have positive cash flow after expenses and debt service you shouldn't have bought the property because it was too expensive. Every one of my properties cash flow.

The formula you posted is a bunch of useless gibberish. Take your gross rent and assume 50% for expenses. The other 50% is for profit and debt service. Notice that I put profit first, we are in business to make money. If the amount remaining isn't enough to pay the mortgage you should be looking for another property.

Note: the 50% rule is an assumption not a given. You need to carefully evaluate the property to be sure that the expenses aren't much higher.

:cool:

A maintenance allowance is built in to the 50% expense ratio. When buying a property you need to take into account any repairs that need to be made in order for it to be in good enough condition to rent. You have to watch for deferred maintenance issues so that you don't get hit with a huge repair bill at the outset. Other than that it is simply a numbers game, you have to buy it at a price that will allow for positive cash flow.

:cool:

I would like to think I am in the Equity Business. Cash Flow is just the icing on the cake.

- Harrison

Thanks to all who answered. I imagine that any landlord not enjoying positive cash flow would not last too long. Do the rest of your reading this also have positive cash flow?

All this talk about eating is making me hungry. Time for a trip down the street to In and Out Burger! :lol:

Reed is basically right in what he says, particularly about the gurus! He is also right about the operating expenses. I believe that he is using 45% instead of the 50% I use, because he's not counting capital expenses. In other words, he's using the 50% rule, he's just adding it up differently than I do.

I would disagree with is his assertion that "owning rental property almost invariably has the exact opposite effect on your cash flow. It takes your current annual cash flow and confiscates part of it to feed the rental property." Obviously, you CAN receive significant positive cash flow from rentals if you do the work to find great deals.

I also think that he makes things WAY TOO COMPLICATED by talking about Cap Rate and Annual Loan Constant! UGH - that's making my brain hurt. Rental properties just aren't that difficult or complicated.

Other than those things, I do agree with the majority of what Reed says.

Mike

If the rental doesn't cash flow, then I wont touch it. It's either cash flow or buy to flip.