How to make a living on low cash flow?
Currently, I have three single family rental properties (one I just purchased and rehabbing). These, like most of the deals that I work on, tend to cash flow only around $100 per month after the mortgage, taxes, insurance and some extra holdings for repairs are held. Is this normal? I would need a 20 or 30 rentals just to begin making a living doing this. Am I missing something? I've tried to find other properties, even foreclosures, and after running the numbers after repairs, I still only see $100 - $200 maximum profit per month.
I would love to make a living off the rentals but until they are paid off I don't see how others are doing this. Any help from more experienced investors would be much appreciated!
It takes a while to be able to make a living off rental properties. It's a get-rick-slow scheme and really builds wealth for the future. The two ways to survive off the initially low cash flow up front is, in my opinion, to either save and hold (work a job and buy rental property simultaneously until you can afford to focus on real estate full time) or flip and hold (flip one and use the money to live off, flip one to afford down payment on house to hold, by hold, then repeat).
The selection of the properties makes the difference. You may need to be more selective if your goal is cash flow. All this is easier said than done. In my local market, Indianapolis, it is fairly easy to find properties that generate a decent cash flow. Good luck.
Instead of single family why don't you look into multifamily. You could have 4 units with a single mortgage and if you were to cash flow $100-200 per door that would put you at 800 per month! Just an idea
Which is why many people in the RE business have numerous streams of income and/or move up to larger units. Other streams such as wholesaling and flipping can be natural revenue generators if you are in the market day in and day out.
Also, it does add up. If you make $150 a door a month that is probably about 35 - 50 units before you have some really nice cash flow. May seem like a lot today but over time it can be done.
@Galen Brickersounds like where I was at too. I had 4 single family homes and realized it would take a ton more to reach my goals so I went up to multifamily and haven't looked back. I'd start checking out larger properties
#2 Contractors Contributor
- Severna Park, MD
If I were only making between $ 100 to $ 200 a door with a rental , I wouldnt bother . Just 1 mid size repair and you are negative a year or two. If a unit doesnt bring me more than $ 500 a month clear ,its not worth the time or headache to deal with .
our clients are clearing 250-300 per month here in Indy.
@Galen Bricker, I agree with the other posters in this thread, not much you can do with single families that clear only about $100 a month, which is very common.
One thing @Andrew Syrios doesn't mention in his get rich slowly scheme is to calculate your equity capture, which you can use to help justify the lower initial cash flow. If you don't need the money now (i.e. have a job), then SFH can be a great way to build wealth slowly.
We've got a mix of SFH and multi-family - and continue to move up the number of units - primarily because of the cash flow we'll get. But, to realize our long term wealth goals, I think that SFH can be a valuable part of your portfolio.
I'm sorry to say it, but stories about turning these types of properties into a winning portfolio are largely pipe dreams. If you were to carefully account for every single expense associated with those properties you are probably overall negative cash flow - you put in more money and time than you take out.
It's actually an OK place to start out though. Your focus now needs to be getting your loans paid down with cash from your primary occupation. Once you have actual cash flow on the properties and respectable LTVs consider adding a single very carefully planned "perfect" acquisition to your portfolio. You'll have a very clear idea of what you are and aren't looking for after getting these 3 back on track.
I would agree with Jr T. with this one. At only ~100 a month cash flow, the slightest mistake sets you back substantially. Any form of inoccupancy, tax increases, a major repair, its one step away from a disaster.
If you have a large sum of equity into the property already, id say cash out refi, use that money as down payments on a handful of positive net cash flow properties (<300 month net), and let them pay off the notes as a portfolio.
Otherwise, the house honestly doesnt really have a real value to you for decades, and hurts your DTI badly in the mean time.
Thank you for your responses! I'll have to look more seriously at multi-family properties.
I was at your point, as well. Check out my first few posts. That was only a few years ago.
However, as you add more you are able to scale quicker. And what looked impossible(accumulating 20-30 properties) becomes easier to see. Thought still difficult.
Also you may need to adjust the properties you are purchasing. For a SFH, I would be looking for 200+ with property management(50 percent operating expenses) and 280-300 per property with me managing(40 percent operating expenses) I continue to keep my job, until I accumulate enough(as having w2 job is imperative on getting favorable loans) then maybe we can talk about living off the cash flow as I live very modestly here in Indiana. Depends on your goals. I currently have my 9th property on contract, and after that is rented, I expect my cash flow to be around 2500 a month(enough for me to live on). However, I plan to continue to expand, until i have confidence my market is stabilized to do so. So basically the answer is look for higher cash flow properties, keep your day job, and plow your cash flow and excess w2 income, into scaling your rental business. Then look at where you are 3-4 years down the line. Good luck
Originally posted by @Galen Bricker:
Currently, I have three single family rental properties (one I just purchased and rehabbing). These, like most of the deals that I work on, tend to cash flow only around $100 per month after the mortgage, taxes, insurance and some extra holdings for repairs are held. Is this normal? I would need a 20 or 30 rentals just to begin making a living doing this. Am I missing something? I've tried to find other properties, even foreclosures, and after running the numbers after repairs, I still only see $100 - $200 maximum profit per month.
I would love to make a living off the rentals but until they are paid off I don't see how others are doing this. Any help from more experienced investors would be much appreciated!
Unless you're making a living off of real estate only, many people use real estate as a way to leverage themselves toward retirement and it's a get rich slowly but surely enterprise.
1) Larger down payments
2) Uglier properties where more sweat equity is possible
3) Do as much of the rehab work as possible yourself
4) Manage units themselves instead of a property manager
5) Rents increase over time, mortgage payments stay the same, cash flow increases over time.
6) Appreciation is more important than cash flow