Hi! I have been busy reading and listening, just attended the webinar and wanted to try out the rental property calculator. Every property I have tried has been negative cash flow via the calculator. What am I doing wrong? Please help!
Included some links, hope you can view it.
The links don't work for me @Helen C. but I willing to bet your not doing anything wrong. A quick napkin test I use to pre-qualify opportunities before fully analyzing them or running them through any calculator is the 1% rule. By that I mean, for a property that is listed for $100,000, I need to see rents to be 1% of that $100,000. So monthly rents have to equal $1,000 or more before I go any further in my analysis. Helps me efficiently kick over a lot of rocks to find that jewel!
7614 French Springs St, Las vegas, Nevada 89139
MLS number: 1962206.
Edit Report Other actions$1,300.00MONTHLY INCOME
3.65%PRO FORMA CAP
$59,500.00TOTAL CASH NEEDED
-6.78%CASH ON CASH ROI
3.69%PURCHASE CAP RATEExpensesIncome50% Rule
|Total operating expenses:||Mortgage expenses:|
|Purchase Closing Costs||$2,500.00|
|Total Project Cost||$279,500.00|
|After Repair Value||$278,000.00|
|Amortized Over||30 years|
|Loan Interest Rate||5.000%|
|Total Cash Needed||$59,500.00|
Financial Info0.47%2% RULE $58,000.00TOTAL INITIAL EQUITY
17.63GROSS RENT MULTIPLIER
0.72DEBT COVERAGE RATIO
Analysis Over Time
1% /yearEXPENSE INCREASE
2% /yearINCOME INCREASE
3% /yearPROPERTY VALUE INCREASE
|Year 1||Year 2||Year 5||Year 10||Year 15||Year 20||Year 30|
|Total Annual Income||$15,600.00||$15,912.00||$16,885.94||$18,643.44||$20,583.87||$22,726.25||$27,703.18|
|Total Annual Expenses|
|Total Annual Cashflow||-$4,032.09||-$3,774.69||-$2,967.85||-$1,500.17||$135.65||$1,957.89||$6,244.70|
|Cash on Cash ROI||-6.78%||-6.34%||-4.99%||-2.52%||0.23%||3.29%||10.50%|
|Total Profit if Sold *||-$19,716.89||-$12,262.63||$14,221.03||$73,502.48||$154,596.89||$261,436.42||$572,322.66|
|Annualized Total Return||-33.14%||-10.90%||4.38%||8.38%||8.91%||8.79%||8.19%|
* Property value minus net cash expenditures and sales costs
Thanks Jay for the tip! I just wanted to make sure I wasn't inputting the wrong numbers in.
@Helen C. So I'm guessing that you're using the calculator correctly. Here's where you're going "wrong" (and it's not really "wrong")...
1.) You picked one of the hottest markets in the U.S. to look at a property, Las Vegas.
2.) It's built in 2004, just listed (so no time for a price reduction), looks to in really good condition, and is an SFR.
Because of 1 and 2 you're competing with homeowners that want to live there, send their kids to school there, etc. They're not trying to rent it out for cash-flow. It's the same where I live in Encinitas, the Bay Area, Seattle, and tons of other markets that are desirable.
It's why people constantly talk about "cash-flow markets" on BP. You see just about any city in Ohio, Memphis, etc. brought up on a daily basis. Why? Because they actually do cash-flow out there. You could analyze every single SFR in Encinitas (where I live) that's listed and I can (all but gaurentee) tell you that none of them will cash-flow. Appreciation has just outpaced rents.
Thanks Andrew for your insight!
Vegas is not a good market for B&H as an investment imo
it's not your fault ;)
@Helen C. I think Andrew summed it up really well. I am also a newbie REI from CA and looked at Vegas as one of the starting markets because I go there often and locals tell me how its heated up over the past 4 years. However, the numbers really didnt work for me as I am looking for cash flow.
Now I have set my sights on the midwest primarily - Memphis, Little Rock, Kansas City and Indianapolis.
@Helen C. The problem isn't the calculator. It's the markets that you're looking at. Las Vegas was a good market at the bottom of the crash when you could probably have bought this same property for around $100K. There's no way you're going to have positive cash flow on a $279,500 with rents of only $1300/mth. Not every market is a good cash flow market. If you're going to invest out of state, you can do so much closer to home in the Midwest. You can get $1300 rent in much nicer A class neighborhoods in markets like Indianapolis and Kansas City on properties in the $130K price range and have a much better asset. I've been active in both these markets for several years and know them well. I'd be happy to talk to you and share some insight if you'd like.
I agree. Positive cashflow is achievable in some markets and not others.
Little rock is / central Arkansas is steady market.
what sort of returns are you expectations?