What is considered a good cash flow?

Question

Hi all, I’m very new to anything real estate and I’m looking for a first deal. As I think most beginners are, I’m interested mostly in cash flow. I know that’s not the only reason to invest in real estate but simply put it’s what I’m mainly looking at and In the markets I am currently looking at, it look like regardless of str, mtr, and ltr, I’ll be cash flowing around 150-300 a month. I know I won’t actually be getting that right away because it should be going to savings for emergency funds for the property. Basically, simply looking at cash flow, is 150-300/mo a good cash flowing deal or should it be higher. Obviously some cash flow is better than none but is that amount worth the work to acquire, manage, etc. on the property?

I appreciate anybody’s thoughts and can explain more if need be!
Thanks everyone

I appreciate anybody’s thoughts and can explain more if need be! Thanks everyone

Melanie P. · Answer

In my opinion a number that is positive at the end of the year is "good cash flow."

Real estate takes time and scale to produce reliable cash flow. Some of our units that lost money the first year or two of ownership, after 35 years produce more than their purchase price in positive cash flow every year. Even once you have a unit going well a huge repair or tenant default with inadequate CapEx reserves swiftly returns it to negative cash flow.

Nathan Gesner · Answer

Even when the market was great for investors (2012 - 2020), most investors would say good cash flow was $200+ per unit, per month. This is after covering all expenses and setting aside a certain amount for reserves to cover future expenses like capex or vacancy.

Here's a guide that describes what good cash flow looks like and how to analyze a property.https://www.biggerpockets.com/blog/rental-property-cash-flow...

Tim Ryan · Answer

The question should not be "is 150-300 a good cash flow".  What you want to ask is what is a good ROI or better yet, your Cash on Cash Return.

I know someone who has $3000 per month cash flow. Is that a good cash flow?  Their CoC Return is 1.4% as they put a ton of money in (all cash) and this is what they make on return.

That is not good. They'd be much better off being a Hard Money Lender and make 5 times that (and every repair to their "investment house" is paid by them...

So, if you put $10k down on a property and make $150/month net cash flow your Coc Return (annualized) is 18% which is Very Good.

If you followed that and understand it then keep looking for a deal. If not, then you are not ready and you need more education/mentoring.

Good Luck - You can do this!

Gregory Schwartz · Answer

Why? Cash flow is great when your houses are paid off and you're ready to retire. But what does $200 a month do for you? IMO cash flow provides a way to mitigate the risk of unexpected expenses and loss of income due to vacancies. Cash flow is the buffer between keeping my property long enough to get rich and losing the property in foreclosure. So no the question is how much buffer do you need? Well if you ran realistic conservative numbers for maintenance, capex, vacancy rates, rental income, etc then you don't really need cash flow do you? The buffer is built into the conservative analysis. So as @Melanie P. said, any positive cash flow is enough. Lastly, if you want cash flow so you can quit your job then you might want to consider strategies like flipping, Airbnb, property management, and being a real estate agent. Because if you need to live off the cash flow what you're really looking for is a business.

Andre Brock · Answer

For me I think it depends on how much money you have invested into the home and for how long?   if I have no money into the deal and bringing in $200 free and clear every money hell even $100 with no other expenses these usually come through creative deals or owning notes but I would do it.

Henry Clark · Answer

OP you will need to use numbers for this discussion. 1.  Cash flow- are you talking the same thing.   After taxes.  As mentioned above after capex set aside.

2.  Compared to what?  $100,000; $200,000; $300,000 deal?

3.  Cash on cash-  how much cash do you have in the deal?  The answer changes as you own the property.  Day 1 is just downpayment.   Years later versus equity buildup.  4.  Forget all of the above.   How much is your take home pay?   Say $60,000 net per year.  Is $200 per month or $2,400 per year good enough?   How many doors do you need to hit your target?  How will you scale as far as down payments?  5.  Your best investment will be your first one.  You will learn on it.   As mentioned above don’t get hung up on it.

6.  Your best first investment will always be your own living arrangement.

Bruce Woodruff · Answer

Depends on what you have in the deal and what it cost IMHO.

$200 mo on a $150k house is ok I guess....  but $200 mo on a $1mm property is really bad.

Basit Siddiqi · Answer

$150/mo - $300/mo is bad or good cash flow depending on how much cash you put into the deal.$150 x 12 months = $1,800If you put $45,000 into real estate as a down payment, you are looking at a 4% cash on cash return.I would consider this decent.If you put $20,000 into the deal, the cash on cash return is higher and its better.If you put $200,000 into the deal, the cash on cash return is lower and considered worse.However, cash on cash return is not the only return you should consider, you should also consider appreciation.My benchmark is trying to achieve atleast an 8% return between appreciation and cash flow.Best of luck!

Bryan Stengel · Answer

Hi Makani, I believe that staying positive is great cash flow in itself.  I will also emphasize the importance of keeping at least 5% of your gross rent income and allocate it toward emergency situations each month.  I'd deduct this before accounting for your total cash flow.  I am still a relatively new investor and wish somebody told me this when I first started.  Appliances do break and you need to be ready take care of the bill when that does come around.  Overall, the tax benefits and appreciation alone keep me interested in staying with it more than the cash flow itself.

Makani Donaldson · Answer

Thank you all to who replied! I appreciate everyone’s feed back and responses! Definitely a lot to think about!

What is considered a good cash flow?

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