Trying to figure out how these rental numbers can work

6 Replies

I'm new to this and have been trying to analyze a few properties just to get the hang of things. I was looking at a few properties that cost around $230k and the mortgage would be more than the rental income ($1300). That clearly will get me no profit and all debt. I really have no idea how to identify properties and price ranges where any profit can be made. Total newbie question I know but well, here I am, trying to learn. Thanks :)

A good place to start is to look at properties that will rent for at least 1% of the purchase price. 100k home should rent for at least 1k.

That really doesn't guarantee anything until you break it down expense by expense, but its a really good way to eyeball it and filter out potential properties. The closer you get to 2% the better it'll likely be. They call these the 1% and 2% "rules" which is just a rule of thumb.

What that tells you is to not buy the property.

The numbers don't lie, so don't argue with them...you'll lose every time.

There is never a good reason for negative cash flow.

Heather,

When first getting started it takes a lot of research to understand all of the numbers and how to know what a good deal is. Know this, ANY property can cash flow if you put a big enough down payment.

Early on I read in one of Robert K's books that you should look at and analyze 100 properties before you make any offers. I did this on hundreds of homes and can now know if a deal makes sense within a minute. I made a spreadsheet to help with the down and dirty evaluation. Think through the expenses you have on your home and then add in, property management fee's, maintenance, and vacancy. This will give you a more accurate number.

Originally posted by Adam B.:

Heather,

When first getting started it takes a lot of research to understand all of the numbers and how to know what a good deal is. Know this, ANY property can cash flow if you put a big enough down payment.

Early on I read in one of Robert K's books that you should look at and analyze 100 properties before you make any offers. I did this on hundreds of homes and can now know if a deal makes sense within a minute. I made a spreadsheet to help with the down and dirty evaluation. Think through the expenses you have on your home and then add in, property management fee's, maintenance, and vacancy. This will give you a more accurate number.

 ...however, the bigger the down payment, the further behind you start from.

20,000            down pmt
330/month     NCF (about 4k/year)
5 years           length of time before you break even and actually start to show a profit.

                          or   

0                     down pmt
330/month      NCF (about 4k/year)
0 years            length of time before you break even & actually start to show a profit.

Thanks for sharing your thoughts everyone!

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