How are you making any money with Rentals?
Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes
How are you making any money with Rentals?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
11y@Anthony Newbold How much do you have into the property? If you put down 20%, then your cash on cash return is like 20% with that $145 a month. If you put down 25% your cash on cash is 17%. Ive got to say those are phenomenal returns. Yeah $145 a month may not be a large amount of money, but you did not invest a lot of money.
(I was not factoring in closing costs just to make the math easy)
What is investing? It is deploying capital to get a return on that capital. If I am deploying my capital to get a 20% cash on cash return, I would do that every day.
District Invest Group545 Reviews
38 Replies
- Port Huron, MI · Member since 2014 · 86 posts · 29 votes11y
Do the deals where the numbers work for you and don't do the deals that don't pay you enough. If you can't go through a house and see what will need to be fixed soon pay for an inspection. Most of mine I buy in decent shape and mainly do paint, clean, and flooring to rent it. In 5 years I try to have the rent buy the house and repairs. Others that need more work I just try to double the value of the house in 5 years. An average deal for me is paying 20-25k spending maybe 1k to fix it up right away and rent it for around $700. I have about $100 in interest that I pay (fully financed) $150 covers taxes and insurance, I manage them myself, so that leaves $450 a month ($5400 a year) for cash flow, paying it off faster, and to cover repairs as they come up. That can cover your major expenses which could also increase your rent, increase the value of the property and you should run out of major things to fix before having to replace them again. Most things aren't that expensive and those that are like a roof should last at least 30 years. Stuff like a toilet is $100 so that month I make $350 rather than $450 and don't worry about the toilet again for quite a few years.
- Investor · Boerne, TX · Member since 2015 · 139 posts · 71 votes11y
I agree. I have a specific minimum cash on cash return. If the deal does not deliver that number, I move on. Your case is not that bad though because the tenant is paying your debt and you still have money in your pocket. In there long run, you should be able to increase the rent and see appreciation in your property which will yield an even larger return.
For your next deal, find a deal that delivers a higher cash flow or don't do it. Use your network to help identify these properties because it is much easier than going at it alone.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes11y
@Anthony Newbold How much do you have into the property? If you put down 20%, then your cash on cash return is like 20% with that $145 a month. If you put down 25% your cash on cash is 17%. Ive got to say those are phenomenal returns. Yeah $145 a month may not be a large amount of money, but you did not invest a lot of money.
(I was not factoring in closing costs just to make the math easy)
What is investing? It is deploying capital to get a return on that capital. If I am deploying my capital to get a 20% cash on cash return, I would do that every day.
District Invest Group545 Reviews - Investor · Seattle, WA · Member since 2015 · 100 posts · 59 votes11y
Also remember that part of the goal should be to learn. For me the numbers are adequate if not spectacular but I am learning as I go. With two properties up and running I can really think through what my third should look like.
- Investor · Vancouver, WA · Member since 2013 · 315 posts · 63 votes11y
I hear you loud and clear. I would never buy a low end property for a net of a few hundred bucks. This is why I would rather loan the $40k that is secured by the property. You get the return without the fuss. Especially if there is little upside for appreciation.
To answer your question as to why I do it.... Return on investment, appreciation upside, and high rental demand.
High rental demand gives you higher quality tenant. Higher quality leads to low maintenance costs and they stay longer. I am from the school of thought that appreciation potential is one of the primary factor investment choice.
Also, if you have a property meeting those factors and you buy right (below retail) you are will always have a good exit route in an emergency (low risk). Hard to come by these days for me because I don't actively market for leads.
Those are my SFR commandments. Just my $0.02
You need to run the numbers before you purchase to determine if the return is going to be worth the time, investment and effort. There's not enough information here to determine how much you're making per month (assuming the $145 is before maintenance/capex), but if your cash-on-cash return is very small, it may not be worth the investment.
Find deals that ARE worth the investment. Run the numbers upfront. Make sure you factor in everything, long-term.
For example, I only do deals where long-term I'll generate 12%+ returns -- and that includes someone else doing the management for me so that I can be relatively hands-off. Here's an example of that type of deal:
- Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
FANTASTIC!
This is what I'm looking for. Several different folks with several different reasons, all of which whom make sense to them!
I personally understand the cash-on-cash basics, and ROI, and hassle factor. BUT I need to learn from all of you,,, and what works and what doesn't.
In this particular deal/ example that I just purchased, I have none of my own money in it. It is a Line Of Credit.... but it is still my obligation, and in the end $145 isn't worth my time (to some degree)... remember, I am learning... so I completely and totally appreciate EVERY reply and any input that I can receive that will steer me in the best direction.
Thank you and keep them coming!
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
How do I make money doing this? I don't buy deals that don't match all three of my buying/profiting criteria:
1 - I must get enough cash back within 3 months to invest immediately in the next deal.
2 - I must NCF at least $300/month...with the "small crisis" proactively covered...and not paid for by relying on part of the NCF
3 - I must get all of the cash I put into the deal back within a minimum of 12 months
- Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
Originally posted by @Joe Villeneuve:
How do I make money doing this? I don't buy deals that don't match all three of my buying/profiting criteria:
1 - I must get enough cash back within 3 months to invest immediately in the next deal.
2 - I must NCF at least $300/month...with the "small crisis" proactively covered...and not paid for by relying on part of the NCF
3 - I must get all of the cash I put into the deal back within a minimum of 12 months
Joe... GREAT RULES!........ a little challenging, but I like the basic 1-2-3 approach. ... ..
now... what is NCF? (I'm assuming CF is cash-flow....)
- Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
Originally posted by @Troy Young:
Do the deals where the numbers work for you and don't do the deals that don't pay you enough. If you can't go through a house and see what will need to be fixed soon pay for an inspection. Most of mine I buy in decent shape and mainly do paint, clean, and flooring to rent it. In 5 years I try to have the rent buy the house and repairs. Others that need more work I just try to double the value of the house in 5 years. An average deal for me is paying 20-25k spending maybe 1k to fix it up right away and rent it for around $700. I have about $100 in interest that I pay (fully financed) $150 covers taxes and insurance, I manage them myself, so that leaves $450 a month ($5400 a year) for cash flow, paying it off faster, and to cover repairs as they come up. That can cover your major expenses which could also increase your rent, increase the value of the property and you should run out of major things to fix before having to replace them again. Most things aren't that expensive and those that are like a roof should last at least 30 years. Stuff like a toilet is $100 so that month I make $350 rather than $450 and don't worry about the toilet again for quite a few years.
Excellent Information!......
- Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
Originally posted by @Account Closed:
I hear you loud and clear. I would never buy a low end property for a net of a few hundred bucks. This is why I would rather loan the $40k that is secured by the property. You get the return without the fuss. Especially if there is little upside for appreciation.
To answer your question as to why I do it.... Return on investment, appreciation upside, and high rental demand.
High rental demand gives you higher quality tenant. Higher quality leads to low maintenance costs and they stay longer. I am from the school of thought that appreciation potential is one of the primary factor investment choice.
Also, if you have a property meeting those factors and you buy right (below retail) you are will always have a good exit route in an emergency (low risk). Hard to come by these days for me because I don't actively market for leads.
Those are my SFR commandments. Just my $0.02
Thank you very much... what does SFR stand for? (sorry, just learning.)
- Investor · Vancouver, WA · Member since 2013 · 315 posts · 63 votes11y
Single Family Rental. My apologies for the poor grammar in my post. Not my strong suit. If I could in my preferred market I'd do @Joe Villeneuve strategy all day.
- Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
Thank you Joe.......
Learning everyday!
Learning Everyway......! SFR!
... Anthony
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Anthony Newbold:
Originally posted by @Joe Villeneuve:
How do I make money doing this? I don't buy deals that don't match all three of my buying/profiting criteria:
1 - I must get enough cash back within 3 months to invest immediately in the next deal.
2 - I must NCF at least $300/month...with the "small crisis" proactively covered...and not paid for by relying on part of the NCF
3 - I must get all of the cash I put into the deal back within a minimum of 12 months
Joe... GREAT RULES!........ a little challenging, but I like the basic 1-2-3 approach. ... ..
now... what is NCF? (I'm assuming CF is cash-flow....)
Net Cash Flow
- Investor · Edwardsville, IL · Member since 2015 · 432 posts · 481 votes11y
Anthony,
Here's another angle to look at. Why are you investing can make a big difference on the returns expected. I am fortunate that I have a business that I have built up that gives me a nice income. So with my REI I am not looking for a large cash flow at this point. In fact I put my properties on 10 year amoortization to a maximum of 15 years. I am looking for income from the paid off properties when I retire versus income now. So when I retire in a few years, I will have free and clear properties that will then provide the cash flow that I need at that point.
Jim
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes11y
If you purchased a home for $40k, that rents for $650/month, and you are spending $500/mo on expenses, you have chosen poorly.
$42k into 30 year loan @ 5% = $225 expenses
Insurance & taxes @ $100/mo = $100 expenses
That right there is $325/month for expenses. Yes, you can start calculating 10% for vacancy, 10% for capital expense, 10% for maintenance, but those numbers are only realized when something actually happens. In other words, your cash flow in this scenario should be $325/month, and if you have a $2k capital expense hitting every year, you should have selected a different house. There are very few things in a house that are going to cost you $2k every year - you might need a new roof, OK that costs money - OK, you need a foundation repair - OK, you need a new water or sewer service line. Yeah, those things happen, but they don't happen every year.
This scenario illustrated above is why I believe it is difficult for buy and hold'ers to do well if they don't have any capital of their own for deals. Even having just $10k in this deal drops your payment by $50 every month.
My rentals are all in that price range that you talk about, and they all make me plenty of money. It helps that I do my own maintenance and repairs, but I also selected houses that had minimal monumental expenditures, like roofs and foundations, OR factored that into the deal when I made the deal.
Skyline Properties - Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
Originally posted by @JD Martin:
If you purchased a home for $40k, that rents for $650/month, and you are spending $500/mo on expenses, you have chosen poorly.
Thank you so much for your input..... as well as all of those that have helped me with this discussion.! I appreciate it so much that I want to share with all of you my thought process.... so here it is:
Pick up a home for only 40K that will rent for $650. (my thoughts = good deal)
Checking my expenses include, insurance, taxes, loan payments, modest vacancy rate, modest mainainence rate= $500 expenses...... which means only $150 profit (which I think poorly of and the reason for the original post.)
NOW!..... since I agree with Jd Martin, (except that I chose poorly). PLEASE prove it to me......
I appreciate all of everyone here. I am here to learn. Please share with me where 40K purchases rent for over $650 with less expenses, etc..... or point me in a different direction.
Again. I certainly appreciate all........ am simply needing direction.
Thank you.
Originally posted by @Anthony Newbold:
I appreciate all of everyone here. I am here to learn. Please share with me where 40K purchases rent for over $650 with less expenses, etc..... or point me in a different direction.
Are you asking what specific locations can you get these numbers?
Lots of them, if you work hard finding deals. I've found deals much better than that in all three of the states where I've purchased rentals. Here's a recent deal I did in Maryland, with all the details:
https://www.biggerpockets.com/forums/522/topics/11...
All in for under $80K, rented for $1450/month.
I did a deal in Atlanta where I purchased for $30K and rented for $900/month -- and that was in a great neighborhood where I'd be happy to live with my family (got it for that price as a short sale -- bank did a really bad job of getting a BPO :-).
I bought several more in Atlanta with numbers like this:
http://www.biggerpockets.com/renewsblog/2010/9/15/...
And I'm in the process of purchasing a duplex in upstate New York for $78K that will rent for $2000/month, after about $20K of repairs.
As for what's a good deal, here's a primer for evaluating deals:
- Hartsdale, NY · Member since 2015 · 874 posts · 218 votes11y
A first property is a learning process You aren't losing money you are making that $145.00 a month or $2,350 a year. You are getting a large tax loss that is saving you money every year. You are paying down your principal every year and your property should be appreciating 2% or 3% every year. You are getting ON The Job Training. Manage it your self and make another 10%.
It's not the worst senario in the world and you have your start in Real Estate
Sounds OK to me.
- 11yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Originally posted by @Barbara G.:
A first property is a learning process You aren't losing money you are making that $145.00 a month or $2,350 a year. You are getting a large tax loss that is saving you money every year. You are paying down your principal every year and your property should be appreciating 2% or 3% every year. You are getting ON The Job Training. Manage it your self and make another 10%.
It's not the worst senario in the world and you have your start in Real Estate
Sounds OK to me.
That's too expensive an education. I can wholesale you a deal just like this one if you'd like it. Just think how smart you can be if you lost money on your first 3 or 4 properties. Negative cash flow is never a good thing.
- Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes11y
to answer your questions:
1. yes
2. because the cash flow adds up after you buy multiple properties (particularly ones youre in under 20k paying 1000 a month) and I enjoy A. working for myself and not some corporation trying to kill me while paying me as little as possible B. being able to determine my own income C. telling anyone not liking what I do/how I do it to go straight to hell without passing go or collecting 200 dollars.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes11y
I am going to go against the grain a bit here, and not try to convince you that is an acceptable return. I wouldn't have bought that house.
Your profile says Indiana. So I am going to assume we are talking about a no-appreciation area, in the North. In such a case, being in a property that cheap with rent that low can murder you. Cash on cash or IRR calculations aside, big ticket maintenance items will eat years of cash flow overnight.
You need to scale up somehow. Either with more properties like Seth says, or with more expensive/higher rent properties.
I will take a $100k house that rents for $1000 over a $40k house that rents for $650 every time, regardless of CoC. Especially is there is a reasonable prospect of appreciation. The roof on the $100k house will not usually cost 2 1/2 times what the roof on a $40k house does.
Grow or die.
- Hartsdale, NY · Member since 2015 · 874 posts · 218 votes11y
This Investor already bought this property and it's a done deal. He needs to know what to do from this point on. There is no point to saying he should not have purchased this property. That part is Over. He has learned what is wrong with this buy. Now it could be worse. It could be a complete loss. Let him talk to his accountant and see what he can retrieve in Taxes plus Principal pay down, plus appreciation. He could have invested the same amount in a Geru course and gotten sick behind that. Instead there are some positive things he can focus on and one of them is his education in Real estate. He has done his first deal and the second one will be better. I wonder how much money he put down here?
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes11y
Originally posted by @Anthony Newbold:
Originally posted by @JD Martin:
If you purchased a home for $40k, that rents for $650/month, and you are spending $500/mo on expenses, you have chosen poorly.
Thank you so much for your input..... as well as all of those that have helped me with this discussion.! I appreciate it so much that I want to share with all of you my thought process.... so here it is:
Pick up a home for only 40K that will rent for $650. (my thoughts = good deal)
Checking my expenses include, insurance, taxes, loan payments, modest vacancy rate, modest mainainence rate= $500 expenses...... which means only $150 profit (which I think poorly of and the reason for the original post.)
NOW!..... since I agree with Jd Martin, (except that I chose poorly). PLEASE prove it to me......
I appreciate all of everyone here. I am here to learn. Please share with me where 40K purchases rent for over $650 with less expenses, etc..... or point me in a different direction.
Again. I certainly appreciate all........ am simply needing direction.
Thank you.
When you are dealing with houses at that price range you need to do extra due diligence before buying. In that price range, for example, I either only buy houses that have new/nearly new major systems (roof, HVAC, kitchen, bath, flooring), or I factor those into my offer. I don't like to discuss my specifics, because I don't want anyone knowing my business, but here is an example: earlier this year I bought a 1000 SF house near the college for $37k. The house had a brand new HVAC system, new water heater, and serviceable laminate floors in most of the rooms, and new electrical wiring & plumbing, but needed new kitchen cabinets, a dishwasher, a new bathroom and had a 90 year old tin shingle roof. With all systems good the house should appraise for $60-70k easily. I spent 8k on a new roof, new kitchen, new bathroom, and replacement flooring in the bedrooms (I do my own work except for roofing, I don't like heights!). That puts me all in at $45k. I rent the house for $600 (what a coincidence), which is rented to a great tenant with a good income, and wherein I will raise the rent slowly beginning next year to market (~650-700). I paid cash for the house, but probably this winter I will cash out refinance at 75% of appraised value:
75% of 60k, let's say = $45k. I get all of my actual cash spent back through the increased equity in the house. Payment = $228. Insurance ($500) and taxes ($480) = $82.
228 + 82 = $310 on a house that now has all brand-new systems AND gives me all my cash back to either buy another house (yes) or just bankroll to cover anything that might go wrong. Rent = $650, so clear is $340. Capital expenses are likely to be minimal, and because rent is already below market and house is in a hot area, vacancies are likely to be no more than 1/12 (8.3%). Thus, my monthly clear = about $300 AND I have enough cash to buy another property free and clear.
Remember, just because you budget for vacancies and capital expenses doesn't mean they will happen. Also, I first accumulated my own pool of cash before buying anything. If you are buying with no money of your own, you are going to have tight margins for the first few years, but it is still possible. Look for houses that someone lost in foreclosure, or got in over their head and replaced important parts but ran out of money, or need to sell in a hurry so are willing to let it go in a fire sale.
Skyline Properties - Investor · Bedford, IN · Member since 2015 · 69 posts · 29 votes11y
thank you........ Thank you!... and THANK YOU!........
You folks are so much the most fantastic source of information........
It is SO much appreciated.!
I will be here for a long time...... so let's get to know each other. I will help all others with everything I learn as well......
In the meantime.
Thank you........
(please keep posting on this question that I have. I will have many more.)
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