how much cash flow is acceptable?

Question

in using the property analysis tool, how much cash flow do you look for. Does 100 per month make you salivate? will $1 per month be acceptable. I am assuming you are figuring the more conservative of 50% of rent for expenses. Do you and should I even be using this as the major stat in deciding a good deal (obviously you want it positive). Is there another or better stat that is a better predictor of a good deal?

What is the first thing you look at after inputting data? The second thing? I'm trying to get an idea of what forms you deem most important and useful and how you use them.

What is the first thing you look at after inputting data?  The second thing?  I'm trying to get an idea of what forms you deem most important and useful and how you use them.

Jon Holdman · Answer

It kind of depends on how much you want to earn for your work.  At least one person here looks for $100/month, after really accounting for all expenses.

The risk really deals with expenses.  If you truly account for all expenses, not just taxes and insurance, your risk will be greatly reduced.

Hassan, I'm not sure I understand your example.  When you say "expenses" on a $1000 rent property are $750, what do you include?  If that's just PITI, then you're missing some expenses.  If thats vacancy, operating expenses, and capital expenses, then that's a lot of expenses for the rent. Once you add on the P&I, you're probably in the hole.

Brian, insurance and taxes are not your only expenses, as I think you're aware.  Its really tough to estimate all those other expenses because many of them are spraodic. That's not the same as unlikely.  Over enough time and enough properties, you'll have some hard knocks.  If you plan for them, though, you risk is reduced.

Christian Malesic · Answer

Much have been discussed on this here.  It is often referred to as the 2% rule or 50% rule (depending on how it is calculated)

Tom C · Answer

Brian,

As an example.. 3 properties are generating 1750.00 per month gross. PTI is 780.00. Supposedly leaving me with a $970.00 per month. On paper this looks good, of course until you add in all the little expenses that are required to keep these properties functioning.

Brian Campbell · Answer

Hassan I understand your point.  I have looked at my situation.

I was just looking for a general answer because the vibe I get in here as guys are analyzing others deals is that 100 dollars cash flow is a good deal.  Quite honestly I would like to know if anyone is getting more than 100.....200....300.  with a traditional 20% down.

I'm looking at my deals where I would be getting 50 dollars  cash flow and wondering, is this good enough, is it too risky?  what is everyone else looking at?

I am going to go read on what was advised above.  Perhaps the answers are in there.

Brian Campbell · Answer

I am well into old threads on the topic.  I don't wan't everyone to rehash the topic here as it seems to stir everyones blood.  To sum up what I have read and what I bought into;  The 50% rule is a good rule of thumb for a beginner investor.  But naturally many factors could make this rule more effective or less.

As a beginner who has a full time job already and not the kind of time or experience to find homes 30% under market value without a lot of luck, I will adhere to the 50% rule and be looking for at least $100 cash flow.  I expect to learn more as my portfolio grows and perhaps gain enough confidence to stray from the rigidness of that rule.  But for now i see it as minimizing risk.

Michael Rossi · Answer

Look at it like this.  If your goal is to make $10,000 in positive cash flow each month, how many rentals are you willing to deal with to reach that goal?  At $100/unit/month, you woud need 100 units to meet your goal.  At $1/unit/month, you would need 10,000 units.  It's up to you to decide what is acceptable.  TEN THOUSAND UNITS to make $10,000 per month is NOT acceptable to me.

Mike

Hassan Omar · Answer

Start by taking a look at your financial situation to see what you need to do. Based on that start setting some goals and a plan by which to reach them using real estate.

If after looking at your situation you see that you need to consistently raise $500 each month to cover the note on a new car and you want to pay for it via the income from real estate, then you'll need to create a buying and holding plan that will provide you with enough properties to make it work.

To figure out how much income you'll need each property to provide is subjective; everyone has a different magic number. Most investors want to have the expenses from each property be no more than 75% of their monthly income. So in the case of a house where the monthly expenses are 750, they'll want the rent to be at least $1,000 so that they can have 250 per month.

That being the case, in the situation where your goal is to raise $500 per month to pay the note and insurance on your new car, you would need at least two properties that net 250 per month.

Take the time to invest in a couple of good courses on real estate investing so that you'll know what you're looking at before you decide to buy.

Good luck

Hassan

Christian Malesic · Answer

Go to the top right hand corner.  Type "50% rules" in the search block and hit the search button.  That should get you along pretty well for a few hours.  (There has been much discussion and debate over numerous threads)

how much cash flow is acceptable?

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