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

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

Spencer Gracia
Rental Property Investor · Orange County, CA · Member since 2021 · 9 posts · 9 votes

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!

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Clifton R.
USA · Member since 2019 · 7 posts · 9 votes
5y

@Spencer Gracia

If you provide details on the property (price, taxes, assumptions for vacancy and maintenance), we could provide insights.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Langston Carr:

    @Jay Hinrichs my apologies, I meant 1,000 employees.

    YUP great news the exact type of jobs you want for work for C class housing  or blue collar housing !!  They built one like that in Troutdale Oregon .. that did not do much for my new construction as we are at 500k plus.. but it sure helped the apartment owners.. not nearly as many SFRs are rentals in the Portland metro area as you see out in your area.. apartments account for about 80 to 90% of all rentals.. 

    Housing stock is just too expensive in most cases to make them rentals. 

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    0Reply
  • C-Dell J.
    Rental Property Investor · Atlanta, GA · Member since 2019 · 90 posts · 14 votes
    5y

    @Andrew Watson Good morning. How well do you know Macon neighborhood to neighborhood?

    0Reply
  • Langston Carr
    Realtor · Little Rock, AR · Member since 2019 · 17 posts · 6 votes
    5y

    @Jay Hinrichs definitely understandable. I’m excited about the RE market as both an investor and a realtor. I made my first few purchases last year.

    1Reply
  • Tanya Ansari
    Rental Property Investor · San Diego, CA · Member since 2019 · 20 posts · 7 votes
    5y

    @Kevin Purvis what turnkey company did you use if you dont mind sharing?

    Thank you!

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    Hi Spencer, You don't buy a house with 0.67 rental value in Memphis. I bet that's class A property. That's California number. For Memphis your target is 1.0 or 0.9

    0Reply
  • Andrew Watson
    Rental Property Investor · Atlanta, GA · Member since 2015 · 42 posts · 44 votes
    5y
    Originally posted by @C-Dell J.:

    @Andrew Watson Good morning. How well do you know Macon neighborhood to neighborhood?

     I don’t know Macon as a whole very well, but I know the areas we want to invest in. Unfortunately, Macon nor any of the other towns we invest in, are very consistent across an entire neighborhood. We tend to pick streets

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    5y
    Originally posted by @Spencer Gracia:

    Kevin,

    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???

    A $140k home that rents for $950 will be negative.  I don't even need to run all the numbers.   Just like when I buy an apartment building if I was to pay $140k/door for $950/rents I'd be dead.   I just paid $150k/door for an apartment building with $1,700 rents.  That's where the $ is.  Or I paid $50k/door for a building that has $700 rents. 

    If you're investing OOS, you should be doing so to target a 1% property.  i.e. a $140k property should lease for $1,400 or close to it.    If you can't get closed to that 1%, no need troubling yourself on figure out what the trash bill will be -- it aint going to work out. 

    3Reply
  • C-Dell J.
    Rental Property Investor · Atlanta, GA · Member since 2019 · 90 posts · 14 votes
    5y

    @Andrew Watson. Street to street is more what I meant. But understood. I recently started buying there. It’s tough from a distance.

    0Reply
  • Tiffani T.
    Investor · Renton, WA · Member since 2017 · 56 posts · 31 votes
    5y

    I'm from WA state and without looking at the condition of your unit, I'd say..$950 is not bad for landlord.  However, I agree with many folks on this thread.  You have petty expenses that are way too high, adding to out-of-pocket costs.  Hmm..I think 1) you should either renovate the home in some shape or form to add more value to the home so you can increase the monthly rate (start with kitchen area first). 2) change your landlord policy so tenants pay for W/S/G/E- yes all utilities. 3) self-manage to reduce $95/month then you can use the amount in the end as well for your tax deduction.

    Numbers don't lie nor changed.  But you can change your strategies to bring higher monetary value. 

    T

    0Reply
  • Andrew Watson
    Rental Property Investor · Atlanta, GA · Member since 2015 · 42 posts · 44 votes
    5y
    Originally posted by @C-Dell J.:

    @Andrew Watson. Street to street is more what I meant. But understood. I recently started buying there. It’s tough from a distance.

    I couldn’t agree more. I live in Atlanta but I / we are in Macon weekly when we aren’t renovating, and more often when we are. We’re selling one of our Macon homes to someone who lives out of state and plans to use a PM to manage it.  She said she can’t get the cash flow and broad pool of renters anywhere closer.  

    1Reply
  • C-Dell J.
    Rental Property Investor · Atlanta, GA · Member since 2019 · 90 posts · 14 votes
    5y

    @Andrew Watson I’m just trying continue meeting more people familiar. The wholesaler deals I see seem to come from people who don’t know Macon. Good luck with your goals!

    0Reply
  • Edwin Epperson
    Lender · Tampa, FL · Member since 2020 · 202 posts · 116 votes
    5y

    @Spencer Gracia you are getting a lot of great information from the group. I have read most if not all posts, so maybe someone else mentions this... the 1st and PRIMARY reason these numbers won't work is that it is an MLS deal. If you think you have "found a deal" on a public open-source platform... you may want to consider why no one else has purchased it. In this case, you are paying a premium, which I believe another contributor commented on. I'm not going to beat a dead horse I think you get it. Best wishes and believe me there are PLENTY of deals to be had. If you have the capital, maybe you should consider finding someone to JV with? Just a thought.

    0Reply
  • Curtis J De Leon
    Rental Property Investor · Macon, GA · Member since 2019 · 17 posts · 19 votes
    5y

    @C-Dell J. I live and invest in Macon. I love the market here, I am currently finishing a BRRRR 3/2 and will rent for $900-1000. I also have a property in Warner Robins close to the base. This whole area is just dripping with potential. Hit me up sometime if you have any questions about a specific area.

    1Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 819 posts · 641 votes
    5y

    If it is a single family house, customarily the tenant will pay for the utilities fully and be responsible for repairs. 

    Moreover, single family properties should not need $2,400 per year every year unless you are buying something that's terribly distressed. 

    Lastly, a 10% mgmt fee is steep. And you should be able to self manage a single family. 

    You might also be paying a bit too much for this house. Don't be afraid to renegotiate! 

    0Reply
  • Zachary Metler
    Rental Property Investor · Ann Arbor, MI · Member since 2017 · 50 posts · 17 votes
    5y

    @Spencer Gracia don’t forget to include property insurance in your calculation.

    0Reply
  • Zachary Metler
    Rental Property Investor · Ann Arbor, MI · Member since 2017 · 50 posts · 17 votes
    5y

    @Spencer Gracia if 950 is actually the market rent then $140k is too much to pay for a rental property. Your mortgage payment is 72% of your rent. This will never cash flow.

    0Reply
  • Sedric Ballenger
    Rental Property Investor · Chicago, IL · Member since 2019 · 3 posts · 0 votes
    5y

    Does anyone have some rcommendations for two things. Good solid contractors doing work in Chicago land area, one property in Douglas Park and another property in Dolton, IL. Also, a solid property management company for each.

    0Reply
  • Sedric Ballenger
    Rental Property Investor · Chicago, IL · Member since 2019 · 3 posts · 0 votes
    5y

    @Sedric Ballenger I apologize. I meant to start a new post not interject on this one. I'm learning from the input and discussion.

    0Reply
  • Aigo Pyles
    Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
    5y

    Try to look for a property at a lower price with the same rental fee. There are are still good deals you can find. 

    0Reply
  • Shun Riggins
    Macon, GA · Member since 2017 · 41 posts · 2 votes
    5y

    @C-Dell J. @Andrew Watson, good day I do deals in the Macon area and I'm very familiar with number running here locally. I typically do this for a lot of "out of town investors." I see a ton of individuals not from this area attempt to wholesale or buy cash and totally have the numbers wrong. If you need assistance in this area please contact me. 478-239-5044. 

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