How much cash flow is enough? Boston

Question

So I have a few questions.  Any help would be greatly appreciated.

I am looking at multi-families, putting for 20-25% to buy as an investment to rent out.  Doing the math on the mortgage compared to the rents, I would only be making a few 100 a month.  With a down payment of 25% at 100k, that would take far too long to recoup.

How much money is a good amount to make on a rental per month? I understand its a long-term process but I don't want to take years to pay off just my down payment.

How can you find a good deal to make that amount?  Obviously buy as low as possible, but everything is high around the West Rox, Rosi area.

Mike Hurney · Answer

@Chris Roche What exactly are they looking for?

5-10% is typical depending on the amount of management.

With all due respect why are these investors looking for you to find deals? (a lot of folks will spend a lot of time with "Investors" who are working three or four Brokers or Bird Dogs at once)

Ray Hurteau · Answer

How much do they want?  Is someone going to invest 100,000 to get $300 a month?  That's a 3.6% return and they can do better than that in real estate.  A property manager in Boston typically charges anywhere from 6-10% of the gross rents (and you can also charge flat per unit fees each month if vacant).  I do not believe you can charge a fee to rent the unit unless you are licensed.

Find out their specific criteria before buying something on their behalf.  Feel free to PM me with any questions - it sounds like you have some good people in your network!  I can also help with terms, etc if you want to use the money to flip a property.  Just need to ensure the numbers work and their money is protected.

Chris Roche · Answer

The investors want to create passive income.  They don't really want to do any work, other than just receive a check each month.  They are wealthy and have other investments, stocks, etc.  They are looking to diversify their portfolio with RE. I want to earn experience from the property to build my resume and to learn.  What could I charge as a manager 8%?

I was looking in the West Rox, Rozi area.

Ray Hurteau · Answer

Hey @Chris Roche, welcome!  Generally, speaking, if you have all units rents and it is not owner occupied, $250 a door would be a good start (after all expenses).  I wouldn't go below it.

What do your investors want as a return?  Do they want their investment back after X years?  How long do they want to invest in a specific property?  What do you want to earn from the property?  What could you do with the money if you didn't put it into a rental?

Personally, I look to ensure we have a maximum 5 year return on money invested.  Can we do better, absolutely.  Is it my only factor in the whole equation?  No.

Where are you looking?  Some areas are not going to work for cash flow because multi's are being converted to condos by developers like me (sorry).

Brandon Hartman · Answer

$200-300 a door is considering to be pretty strong by most, some will go down to $100, and obviously some will hit a homerun and get higher cashflow.  You must also consider that you are paying the mortgage off (with the tenants rent each month), so it's not like you are only paying the down payment back with the positive cashflow you're receiving...you are gaining equity each month too, and optimally a some appreciation on the property each year.

Take a look through this http://www.biggerpockets.com/real-estate-investing/financing and run the numbers to see what your returns would be.  Compare them to other investment avenues and make a decision on if REI is right for you or not.

Chris Roche · Answer

I should probably mention - I have investors willing to give me the down payment.  So, I would be purchasing and managing the property for them.