Negative ROI!?! Are my calculations off???

46 Replies

Hey Guys I am a rookie investor (Still have not purchased my first investment property.) I have had some issues calculating ROIs. I am in the Los Angeles area however I have been looking into investing in the Memphis area.These SFDs seem super affordable (150k) and under but it seems like when I find a home on the market the ROI calculations always end up upside down, becoming negative. My question is, am I simply looking in the wrong market? Or is there something im not looking into as far as having positive cash flow. I hope Im making sense in my questions.

Thank You in Advance!

Hi Spencer,

Yea, I have turnkey rentals in Memphis, which means i probably overpaid for the house and yet still get decent cashflow.  what kind of assumptions are you running?

@Spencer Gracia I recommend that you check your sources of information for your rental and cost comps. It is possible to get a negative ROI if your property costs more to maintain that your can get in rents. It may be that your method of calculating ROI is including bad information. We can't help you without the numbers.


Example: I ran numbers for a140k home with 20% down($28,000)

Avg. rent in that area went for $950

TOTAL Expenses including: $1051

-Mortgage $668 

-Utilities (Water/Trash) $40

-Vacancy $48

-Cap expenses/Repairs $200

-Property Managment $95

Am I way off on my numbers in regards to rent or expenses???

You are getting a negative ROI because your monthly expenses are higher than your monthly rent. Are you buying a property that requires some work? Or is the house in a perfect condition and "ready-to-be-rented"? If that's the case, you are paying a premium to purchase that home. For numbers to make sense, you would want to look for a home that needs some work, that way you are adding value and thus increasing the market value of the house. Once it's renovated, you can raise rents and hopefully get a positive IRR. Let me know if you need any further help with your analysis!

@Spencer Gracia You have positive cash flow, because your vacancy and capex/maintenance are not monthly cash flows.  However, you are correct in adding them to anticipate future costs.  You are estimating your maintenance/capex at 21% of rents.  Why is this estimate so high?  Also, why are you paying for water and trash.  Typically, tenants are responsible for those costs.

Are you using average home prices and average rents for the Memphis area?  Or did you check prices and rents for a specific neighborhood?  You should be able to find a good rental neighborhood where the numbers work.

@Bob Norton thank you for that info, I was just told from a (California investor) to sock away 100 dollars each for repairs and capital expenses and to add that into your ROI calculations.

I have crunched the numbers with the avg rent prices for the specific neighborhoods the properties were in. Now, I’m not a real estate agent nor have access to other programs than the generic real estate apps like (Zillow or RedFin etc).

Are there other deals I'm not seeing in front of me that others might find on listings like the MLS.