My first rental property

10 Replies

Hello! 
As that im new to the game and this is my first post on BiggerPockets i whould like to aske some questions about Rental properties.

What are you looking for in a rental? everyone is looking for ''that'' property that gives you cash-flow, but how do you know if the property have good cash-flow?

Is it a good idea starting of with a property that have  2 or more units and use one of them myself? (House hacking)

When should i ''evolve'' to buy a second property?

I know this is alot of questions at ones, but im trying to building a educational fundation for my investing future =) 
Best regards

Hi Nikolai, welcome to BP! I want ~$1,000/month per door in cash flow, with each door costing <$100k. 

To determine cash flow I always subtract the following from my Gross monthly income: Insurance, vacancy, maintenance, mortgage, management, taxes, utilities, capex.  

As for your other questions- identify your long term goals and adjust your investment strategy to push you towards that end. 

Best of luck!

Hey Nikolai,

 I always recommend to people looking to start in real estate to buy a small multi-family (2-4) units first. Especially if you’re planning on moving into one. You can get away with putting 3.5% down and still possibly cash flow. 

If you're looking for your first single family (SFR) buy and hold property I like to use the 1% rule. If the property will rent for 1% of the purchase price or more you're usually going to cash flow. There are exceptions so run your numbers.

  Hope this helps and good luck!

Mike

Thanks Victor! 

So when you say $1,000/month per door cash flow. Is this after you subtract all the expenses?

Can i then estimate the cash flow of  a property before i buy it, by simply estimate the monthly income per door and subtract the expenses? 
If so this whould be a great tool to use! 

Im currently reading a book about rental properties (rental property investing by. Brandon Turner) and the ''rental tradeup'' strategy realy interest me. 

Thanks again for helping me out!

Thanks Mike!

Yes im currently living in Norway, but i want to start my investing in the states! So as you say the better option is most likely to buy a multi-family home to start of with. I need to learn more about running the numbers in this case to insure that i dont make a horrible first deal.. I guess its like Victor said above.

I looked in to Singal family (SFR) but there is more competition from home buyer and its harder to get a great deal cus they realy want that spesific home and will overpay just to get it...

From my understanding there is more investors involved in a multie-family property and they all want a great deal. So they wont overpay.

Just learn about the 1%, 2% Rule/test today =) 

Thanks again for your great tips!

So "running the numbers" for me looks like this:

123 Main Street is a Triplex that pulls in $5,000 per month in total income. Total Expenses per month equal 3915. 5000-3915 = $1085 per month in cash flow. This "deal" is clearly cash flow positive and will be a nice addition to the portfolio.

Insurance= 250

Vacancy= 415

Maintenance= 250

Mortgage= 1500

Management= 350

Taxes= 800

Utilities= 100

Capital Expenditures= 250

@Victor Steffen quick question - above u mentioned $1000 CF per door but in the example, it feels like 1000$ CF over the three units... does the example # of $1000 over 3 units suffice for enough of a return? or do you look at it as, $1000 CF (margin)/month over either total ASSET price or EQUITY? Like how does this map back against invested capital or cost, etc?

thanks!

@Jason Chan I look for 1000/ door in my market for my personal portfolio, the purpose of the example was to illustrate to the OP how I "run numbers" and calculate "cash flow". 

Does $1000 over 3 units suffice for enough of a return? The answer to your question is subjective. For some people this is absolutely enough of a return. For others, an extra 1,000 per month is not worth the headaches associated with being a landlord.

Answering your second question will take us slightly off of the OP's original topic, but here goes: I certainly look at my cash on cash return. Annual Cash Flow / total cash into the deal. In the above example let's say you bought the place for $300k, using conventional financing (20% down). $13,020 / $60,000 = 21% Cash on Cash return. 21%. 

I use both cash flow, and cash on cash return to decide if I want to pursue a deal. The raw dollars coming in need to be attractive, and the % return needs to outpace the general market at such a rate that the deal is worth the additional effort. 

Originally posted by @Victor Steffen :

So "running the numbers" for me looks like this:

123 Main Street is a Triplex that pulls in $5,000 per month in total income. Total Expenses per month equal 3915. 5000-3915 = $1085 per month in cash flow. This "deal" is clearly cash flow positive and will be a nice addition to the portfolio.

Insurance= 250

Vacancy= 415

Maintenance= 250

Mortgage= 1500

Management= 350

Taxes= 800

Utilities= 100

Capital Expenditures= 250

Thanks for showing me how you are doing it! I will go online and find out the cash flow of properies just to practise =) 

BiggerPockets do have the propper calculator  for this but i have to be ''pro'' to use it... 

Thanks again!