Only $100 monthly cash return

16 Replies

Hello all! I'm a newbie to this world, but want to get my feet wet and get an investment property from a turnkey investing property management company. I've been talking to one in the Memphis area, and essentially I would get a $100 monthly cash return.. this seems very low to me and too thin of a profit margin to risk any potential damage/repairs/ vacancy on top of this.

The down payment would roughly be $25-$28k on a $120k home, and I'm being told that returns would be 15% including cash return, appreciation and mortgage being paid off. Am I wrong to be concerned? Is this typical for a property of this price? The turnkey company would take their 10% cut, and this $100 is after accounting for 5% vacancy and 5% repairs.

there's plenty of markets were 120k would get you 12-1300 ... I could go on redfin and probably pull up at least 5 that'd hit 1% in probably less time it'd take me to make a new post..

First, STOP analyzing with %'s.  Have you ever bought anything paying a "%"?  No...you pay in $$$$$.  5% for Vacancy and Repairs means N  O  T  H  I  N  G.

The specifics here, in $$$$$, is this:  $100/month =>> $1200/year

5% of $800 is $40/month, which ends up being $480/year.  Seriously.  What is that going to cover in the real world of Dollars and Cents?

If you had one month of vacancy, would $480 cover your expenses/month?  How many months?

If you had to replace the roof, at a conservative $3000, will your $480/year cover that?

Let's run a minor "oooops" that happens often:

1 - Tenant leaves (let's max this out and say at the end of the year).

2 - One full year of vacancy and repairs and cash flow equals $2160.

3 - You have to replace the roof, paint, minor repairs and cleanup.  Total cost to you = $3300.

4 - It takes one month to fix roof and fill vacancy, so you have one month of expenses to cover = $700.

5 - Total needed in month 13 = $4000...and you have accumulated only $2160, and show a loss of $1840.  This means, that you have to have no vacancies, and no other expenses, for the next year and a half, just to break even.

Forget the use of "%" when you analyze.  They only lead down the road to an illusion of security...and the reality of doom.

@Louis Phlips , the metrics are off from the start. One handy guide many investors use to decide if a property is worth pursuing is the 1% or 2% rule. So If you're purchasing a property for $120,000, it should rent for $1,200/month using the 1% rule. Based on that alone, I would not pursue this property further.

I completely agree with @Courtney M. . The deal doesn't make sense and like @Joe Villeneuve said if you have a major capital expense you're quickly in the negatives. You could play the appreciation game but the market is near the top already. Bad idea.  

Turnkey providers usually estimate returns for only 1 scenario.  Its usually best case.

When you start out, think of 3 different scenarios for each place you analyze:

1) What is the BEST case scenario (rents for top dollar, minimal repairs, all is fine)

2) What is the WORST case scenario (Big things go wrong, how long will it take to recover it all and be profitable again, etc.)

3) What's an AVERAGE case scenario (somewhere in the middle)

Run these %'s and you'll quickly get a sense of what's comfortable and what's not. With only $100 a month positive cashflow you can slip into negative territory pretty quickly.

Good luck! The duplex idea sounds better and I don't even know those numbers! Ha ha.

Turnkey rental sales are car salesmen , they sell the sizzle , not the steak .  If it were that good of a deal it would be sold 

Originally posted by @Louis Phlips :

Hello all! I'm a newbie to this world, but want to get my feet wet and get an investment property from a turnkey investing property management company. I've been talking to one in the Memphis area, and essentially I would get a $100 monthly cash return.. this seems very low to me and too thin of a profit margin to risk any potential damage/repairs/ vacancy on top of this.

The down payment would roughly be $25-$28k on a $120k home, and I'm being told that returns would be 15% including cash return, appreciation and mortgage being paid off. Am I wrong to be concerned? Is this typical for a property of this price? The turnkey company would take their 10% cut, and this $100 is after accounting for 5% vacancy and 5% repairs.

 You are missing the bigger picture.

For starters a profit of $100/mo with a completely passive real estate investment is actually very good. On top of that though remember that you are essentially quadrupling your money. You are buying a $120,000 home but only using $28,000 of your own money. The tenant, on top of putting that $1,200/year in your pocket is buying 3/4's of that home for you without you needing to spend any of your time working the investment.

Beyond the cash flow and loan down payment you also have tax advantages and appreciation potential. Long story short investing in real estate is one of the most common ways to create a huge net worth in America. Don't over analysis it or you'll miss the boat.

Yo Louis! I agree that people that are selling turn key properties are "car salesman" they are making more than $10,000. I guarantee it..most of these guys are trying to take advantage of new people in the investment arena. I know several of these guys who buy the house and just add paint/new carpet and sell to investors. Just because they are turn key doesnt mean you arent going to have maintenance. I'd actually factor in my numbers for 10% maintenance just to make sure that you are in a good place if their is something major that is going to need to be repaired. I also tend to always factor my numbers with 10% vacancies. I know everyone is a little different but at $120,000 you should be getting a minimum of $1200 for rent. This is just my opinion. Also, be careful with your tax calculations. I purchased two properties last year and the taxes almost doubled this year. Good luck my friend!