Hey, I have recently turned 20, and am still completely broke, unfortunately, but am slowly but surely putting myself in a position to invest in residential real estate. I have run over 100 practice deal analyses here using the BP tools, and have a simple question about my monthly cash flow expectations, so here goes:
Is expecting $500 a month per unit realistic in your experience?
Obviously, every market is different, and this is just a very general question, but I know Brandon Turner talks a lot about expecting $100 cash flow per unit a month, and I want to know if my analyses have been too ambitious.
I suppose a good follow-up question to this would be:
What are the largest UNEXPECTED costs you have dealt with as a landlord, property manager, etc.?
IMO $500/mo net is very unrealistic unless you are talking paying hundreds and hundreds of thousands per door
$500/mo net cashflow is very unrealistic unless you're buying properties with very large down payments or with cash.
Largest unexpected costs usually revolve around tenant move-out repairs/cleaning above and beyond the security deposit. Everything else can and should be accounted for, barring catastrophic incidents.
Is $500 after taking into account mortgage payment, property taxes, insurance, HOA, PM fee, vacancy factor, repair & maintenance, CapEx, and utilities (if any)?
>$100 cash flow per unit a month
That's conservative imo. However $500 unless you pay it down or have a huge down payment, or are buying something worth hundreds of thousands a unit, is unrealistic. I'd say $150-300/unit is doable if you get a good deal, $100/unit is alright though too, although a little low for my tastes it's still perfectly acceptable so long as that factors in Property management's cut. I wouldn't go much below that though.
I may be a bit different but our market the avg price point is around 130k. If I was to have 30 year amortizations we would be $400/ month all day on my SFR. Let me share the particulars:
30 SFR - avg appraised value 110k - avg LTV 65% - avg rent $1140 - avg monthly cash flow +304 -8 loans ( elite 8 ) are fully amortized over 7 years currently have 6 years 6 months remaining - Other 22 are 15 year amortizations with 11 doors / 13 years remaining and 11 with 14 remaining. All my props are B except maybe 2/3 C+. I purchase stressed props only, fix them up recapture all my money thru forced equity and repeat . I say this to tell you my avg maintenance / door is $47/ month - very low because we rehab them to the 9's. Been investing since I was 21 and am now 58. Started the SFR in 2015 - only way to go IMHO.
Sidebar - purchase the Book and wear it out "Richest man in Babylon" by George S. Clason written in 1921 . Far and away best business book I have ever read and i've read 100's. I read it every year to remind me of the fundamentals.