Cash Flowing Rental Property Still Exists!!!
Matt McCurdyBusiness Member
Real Estate Broker · Cedar Rapids, IA · Member since 2019 · 143 posts · 56 votesI'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
@Matt McCurdy I’m still seeing cash flow but it’s harder to come by. The markets I invest in have tightened up and there is a lot less inventory to choose from.
In previous years there would always be 2-3 multi family properties available in my areas and I’ve only seen 1 new listing for 5 months now. (It is overpriced and the Seller mistakenly believes an owner occupant will be willing to pay a premium price for it). It’s now sat on the market just shy of 160 days because the seller is being unreasonable and unrealistic.
If you can get creative in sourcing deals I think you can still find some good ones. The great ones are few and far between right now.
Recently had a mindset shift here in CA when a successful investor told me about how he gets good cashflow in CA. He buys nice homes (700k range and adds ADUs to them for around 100-120k) All in he's at 800k and he will generate between 6-7k/month in gross rent which usually nets him around 1k/month in true cash flow. He also gets to enjoy California's low property taxes and high appreciation which has worked well for him. But I work with investors all over the country that are still getting great cash flow in many markets, they are just getting creative! Personally, I get great cashflow in my NC markets that I invest in, and have gotten to enjoy a lot of the appreciation there as well.
Recently had a mindset shift here in CA when a successful investor told me about how he gets good cashflow in CA. He buys nice homes (700k range and adds ADUs to them for around 100-120k) All in he's at 800k and he will generate between 6-7k/month in gross rent which usually nets him around 1k/month in true cash flow. He also gets to enjoy California's low property taxes and high appreciation which has worked well for him. But I work with investors all over the country that are still getting great cash flow in many markets, they are just getting creative! Personally, I get great cashflow in my NC markets that I invest in, and have gotten to enjoy a lot of the appreciation there as well.
Would you mind sharing more details around how he gets adu build cost that low? I haven't seen anything under 200-250k all in cost
Recently had a mindset shift here in CA when a successful investor told me about how he gets good cashflow in CA. He buys nice homes (700k range and adds ADUs to them for around 100-120k) All in he's at 800k and he will generate between 6-7k/month in gross rent which usually nets him around 1k/month in true cash flow. He also gets to enjoy California's low property taxes and high appreciation which has worked well for him. But I work with investors all over the country that are still getting great cash flow in many markets, they are just getting creative! Personally, I get great cashflow in my NC markets that I invest in, and have gotten to enjoy a lot of the appreciation there as well.
Would you mind sharing more details around how he gets adu build cost that low? I haven't seen anything under 200-250k all in cost
Part of it is detached garage and using existing structure + existing electrical. For me to build an ADU in central California at my current house would cost only about $80k and would rent for $1500/month which is almost 2% rule. You can't find 2% anywhere on long term rent but to get that in CA with CA appreciation is massive.
Recently had a mindset shift here in CA when a successful investor told me about how he gets good cashflow in CA. He buys nice homes (700k range and adds ADUs to them for around 100-120k) All in he's at 800k and he will generate between 6-7k/month in gross rent which usually nets him around 1k/month in true cash flow. He also gets to enjoy California's low property taxes and high appreciation which has worked well for him. But I work with investors all over the country that are still getting great cash flow in many markets, they are just getting creative! Personally, I get great cashflow in my NC markets that I invest in, and have gotten to enjoy a lot of the appreciation there as well.
Would you mind sharing more details around how he gets adu build cost that low? I haven't seen anything under 200-250k all in cost
Part of it is detached garage and using existing structure + existing electrical. For me to build an ADU in central California at my current house would cost only about $80k and would rent for $1500/month which is almost 2% rule. You can't find 2% anywhere on long term rent but to get that in CA with CA appreciation is massive.
I have not heard of someone completing a hands off garage conversion STR for as low as $80k in at least 5 years. I suspect you off on the price by about 50%. Then the added value for that ~$120k ADU addition as set by an appraiser will likely be in the $50k range. The investor will start with a large negative position that will consume the initial cash flow.
Small units in small quantities are expensive to build. If you are going to do the effort and risk of development, you can build units cheaper and obtain a better return.
Good luck
@Matt McCurdy I’m still seeing cash flow but it’s harder to come by. The markets I invest in have tightened up and there is a lot less inventory to choose from.
In previous years there would always be 2-3 multi family properties available in my areas and I’ve only seen 1 new listing for 5 months now. (It is overpriced and the Seller mistakenly believes an owner occupant will be willing to pay a premium price for it). It’s now sat on the market just shy of 160 days because the seller is being unreasonable and unrealistic.
If you can get creative in sourcing deals I think you can still find some good ones. The great ones are few and far between right now.
I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.
Cash flow projection using 50% rule:
1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14). You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral.
Now the issues:
- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses
- that rent point, $725/unit, reflects poor historical rent grow. The implication is cash flow is unlikely to improve significantly better than inflation. If so, this property is going to be very slow to provide decent cash flow
- at that price, $125k, it shows poor historical appreciation. This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.
- residential RE even with the use of a PM is not passive. It must make money to justify the effort. The goal is not to own property, the goal is to make money.
I do believe by taking an active role, you can make money on this purchase. Self manage, save ~10%. Do your own maintenance items and reduce maintenance/cap ex costs. It will be difficult to scale to life changing with the active role, but you can learn a lot.
I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.
good luck and learn as much as you can with this purchase
I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.
Cash flow projection using 50% rule:
1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14). You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral.
Now the issues:
- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses
- that rent point, $725/unit, reflects poor historical rent grow. The implication is cash flow is unlikely to improve significantly better than inflation. If so, this property is going to be very slow to provide decent cash flow
- at that price, $125k, it shows poor historical appreciation. This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.
- residential RE even with the use of a PM is not passive. It must make money to justify the effort. The goal is not to own property, the goal is to make money.
I do believe by taking an active role, you can make money on this purchase. Self manage, save ~10%. Do your own maintenance items and reduce maintenance/cap ex costs. It will be difficult to scale to life changing with the active role, but you can learn a lot.
I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.
good luck and learn as much as you can with this purchase
Full disclosure, I have enough rental properties that I've pivoted from buying and I'm helping other investors over the next couple of years via my Brokerage and 1-4 unit coaching.
I don't take offense to your challenge, but one thing is certain broad stokes via percentages can get you in trouble very fast. The devil is in the details and mostly all of your quick math assumptions are incorrect. $125k property is actually showing better appreciation than the properties that are $300k+. Real estate is hyperlocal. Rent and price appreciation has been keeping up with inflation (most of the time reaching higher than inflation). The properties PITI, Property taxes, and insurance would be ~$1k per month. Even if you included $100 per month in maintenance/repairs and $100 in property management (I know a PM that will do 7%) you'd still be cashflowing ~$250 per month. 12% CoC return based on 20% down. Not great, but the main point I was trying to illustrate is many think they need to buy property earning a 0% CoC return to "get their foot in the door" to real estate. This is simply not true, at least in my market.
I purchased a multi-unit in Los Angeles this past May 2023 and I am definitely cash flowing on that property. It was an REO purchase and I'm cash flowing net, approximately $1800. I purchased another property in the Palm Springs area that I converted into an STR which is also cash flowing.
Yes, there are absolutely cash=flowing properties out there but they are not low-hanging fruit. You won't find these properties every time you go into Zillow. One has to look and dig and search for these properties.
I purchased a multi-unit in Los Angeles this past May 2023 and I am definitely cash flowing on that property. It was an REO purchase and I'm cash flowing net, approximately $1800. I purchased another property in the Palm Springs area that I converted into an STR which is also cash flowing.
Yes, there are absolutely cash=flowing properties out there but they are not low-hanging fruit. You won't find these properties every time you go into Zillow. One has to look and dig and search for these properties.
Agreed! Those who are using generic calculations aren't going to find the opportunities that present themselves.
I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.
Cash flow projection using 50% rule:
1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14). You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral.
Now the issues:
- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses
- that rent point, $725/unit, reflects poor historical rent grow. The implication is cash flow is unlikely to improve significantly better than inflation. If so, this property is going to be very slow to provide decent cash flow
- at that price, $125k, it shows poor historical appreciation. This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.
- residential RE even with the use of a PM is not passive. It must make money to justify the effort. The goal is not to own property, the goal is to make money.
I do believe by taking an active role, you can make money on this purchase. Self manage, save ~10%. Do your own maintenance items and reduce maintenance/cap ex costs. It will be difficult to scale to life changing with the active role, but you can learn a lot.
I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.
good luck and learn as much as you can with this purchase
Full disclosure, I have enough rental properties that I've pivoted from buying and I'm helping other investors over the next couple of years via my Brokerage and 1-4 unit coaching.
I don't take offense to your challenge, but one thing is certain broad stokes via percentages can get you in trouble very fast. The devil is in the details and mostly all of your quick math assumptions are incorrect. $125k property is actually showing better appreciation than the properties that are $300k+. Real estate is hyperlocal. Rent and price appreciation has been keeping up with inflation (most of the time reaching higher than inflation). The properties PITI, Property taxes, and insurance would be ~$1k per month. Even if you included $100 per month in maintenance/repairs and $100 in property management (I know a PM that will do 7%) you'd still be cashflowing ~$250 per month. 12% CoC return based on 20% down. Not great, but the main point I was trying to illustrate is many think they need to buy property earning a 0% CoC return to "get their foot in the door" to real estate. This is simply not true, at least in my market.
I can tell you have never filled out a maintenance/cap ex cost spreadsheet because “Even if you included $100 per month in maintenance/repairs” is no where close for 2 units. It may no cover just the two kitchens. The apartment complex (large unit counts with own maintenance staff) cannot even achieve that maintenance/cap ex.
“I know a PM that will do 7%”. Is this all inclusive. Does it cover placing a new tenant, lease renewals, at least property inspections per year? I would be shocked if you can get a competent Pm to manage those units at $50.75/month ($750 * 0.07) per unit.
“$125k property is actually showing better appreciation than the properties that are $300k+”. Numbers do not lie. The $300k+ property has experienced the better historical LONG TERM appreciation as evidenced by it being higher priced. However I thought I would look deeper so I looked up the appreciation of Cedar Rapids on NeighborhhodScout. It showed 1 out of 10 nationally for last 5 years, 10 years, and since 2000. That is a rare trifecta of poor long term appreciation. Since 2000, 2.36% annual appreciation. Its average residential property value has fallen in inflation adjusted dollars. Being an investor you may be doing better than average appreciation but my point still applies.
As I indicated, the 50% rule is typically aggressive at that rent point. You may make some modest return but residential RE even with use of PM is not passive. The return needs to justify the effort. The return needs to have ability to noticeably improve life. Does this property meet that criteria for you?
I wish you the best.
I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.
Cash flow projection using 50% rule:
1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14). You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral.
Now the issues:
- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses
- that rent point, $725/unit, reflects poor historical rent grow. The implication is cash flow is unlikely to improve significantly better than inflation. If so, this property is going to be very slow to provide decent cash flow
- at that price, $125k, it shows poor historical appreciation. This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.
- residential RE even with the use of a PM is not passive. It must make money to justify the effort. The goal is not to own property, the goal is to make money.
I do believe by taking an active role, you can make money on this purchase. Self manage, save ~10%. Do your own maintenance items and reduce maintenance/cap ex costs. It will be difficult to scale to life changing with the active role, but you can learn a lot.
I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.
good luck and learn as much as you can with this purchase
Full disclosure, I have enough rental properties that I've pivoted from buying and I'm helping other investors over the next couple of years via my Brokerage and 1-4 unit coaching.
I don't take offense to your challenge, but one thing is certain broad stokes via percentages can get you in trouble very fast. The devil is in the details and mostly all of your quick math assumptions are incorrect. $125k property is actually showing better appreciation than the properties that are $300k+. Real estate is hyperlocal. Rent and price appreciation has been keeping up with inflation (most of the time reaching higher than inflation). The properties PITI, Property taxes, and insurance would be ~$1k per month. Even if you included $100 per month in maintenance/repairs and $100 in property management (I know a PM that will do 7%) you'd still be cashflowing ~$250 per month. 12% CoC return based on 20% down. Not great, but the main point I was trying to illustrate is many think they need to buy property earning a 0% CoC return to "get their foot in the door" to real estate. This is simply not true, at least in my market.
I can tell you have never filled out a maintenance/cap ex cost spreadsheet because “Even if you included $100 per month in maintenance/repairs” is no where close for 2 units. It may no cover just the two kitchens. The apartment complex (large unit counts with own maintenance staff) cannot even achieve that maintenance/cap ex.
“I know a PM that will do 7%”. Is this all inclusive. Does it cover placing a new tenant, lease renewals, at least property inspections per year? I would be shocked if you can get a competent Pm to manage those units at $50.75/month ($750 * 0.07) per unit.
“$125k property is actually showing better appreciation than the properties that are $300k+”. Numbers do not lie. The $300k+ property has experienced the better historical LONG TERM appreciation as evidenced by it being higher priced. However I thought I would look deeper so I looked up the appreciation of Cedar Rapids on NeighborhhodScout. It showed 1 out of 10 nationally for last 5 years, 10 years, and since 2000. That is a rare trifecta of poor long term appreciation. Since 2000, 2.36% annual appreciation. Its average residential property value has fallen in inflation adjusted dollars. Being an investor you may be doing better than average appreciation but my point still applies.
As I indicated, the 50% rule is typically aggressive at that rent point. You may make some modest return but residential RE even with use of PM is not passive. The return needs to justify the effort. The return needs to have ability to noticeably improve life. Does this property meet that criteria for you?
I wish you the best.
"Lead with questions, answers will follow."
This duplex was flooded in the 2008 flood, so much of it was gutted with new mechanicals. We had a derecho in 2020, so the roof, siding, and windows are all new from 2020. I'm not sure what you mean by covering kitchens. Both are in good condition and should be serviceable for plenty of years to come.
Yes, 7% is legit. I just met with the guy last month.
California may be your cup of tea. I for one, appreciate (no pun intended) Iowa and all it has to offer. My net worth does too!
As I said prior, I'm not investing for the next couple of years to help other investors in my market.
I'm constantly reading on BiggerPockets investors saying you need to buy rental property, break even, and hope for appreciation and/or lower rates in the future to cashflow. WRONG!!!
I'm here to tell you I'm still finding cash flowing deals in my market.
Here's an example:
Up/Down Duplex
Each Unit 2 beds 1 bath (all utilities split out & paid by tenants)
Total Rent: $1,450/mo.
$125k purchase price (20% down) @ 7.5% over 25 year term: $739
Property Taxes: $125/mo
Insurance: $175/mo (in 500 year floodplain)
Net Cashflow: $411/mo*
Obviously, I didn't include property management fees, vacancy, nor repairs/maintenance. I've found every investor treats those costs differently in their pro forma, but this gives you the idea. Is anyone seeing better cash flow in their markets?
I agree that there is no standard on estimating expenses but the closest thing to a standard is the 50% rule. I find in low rent markets (Midwest) or high HOA markets (Florida condos) that the 50% rule is aggressive and expenses are likely to exceed 50%.
Cash flow projection using 50% rule:
1450 - 725 (expenses at 50%) - $739 (mortgage) = ($14). You could have reduced mortgage slightly with 30 year term and likely would reflect some small amount of positive cash flow but still I would refer to both cases as being cash neutral.
Now the issues:
- at that rent point, $725 unit, the 50% rule likely is not enough to cover actual expenses
- that rent point, $725/unit, reflects poor historical rent grow. The implication is cash flow is unlikely to improve significantly better than inflation. If so, this property is going to be very slow to provide decent cash flow
- at that price, $125k, it shows poor historical appreciation. This property likely will not appreciate faster than inflation which implies in inflation adjusted dollars there is no appreciation.
- residential RE even with the use of a PM is not passive. It must make money to justify the effort. The goal is not to own property, the goal is to make money.
I do believe by taking an active role, you can make money on this purchase. Self manage, save ~10%. Do your own maintenance items and reduce maintenance/cap ex costs. It will be difficult to scale to life changing with the active role, but you can learn a lot.
I do not post to beat you up. I post to give you and other readers something to ponder. I believe everyone needs to start and I commend you for that. I also think it is important to educate on the journey. I hope pondering my points provides items to consider and that they are at least evaluated for likely validity for future acquisitions.
good luck and learn as much as you can with this purchase
Full disclosure, I have enough rental properties that I've pivoted from buying and I'm helping other investors over the next couple of years via my Brokerage and 1-4 unit coaching.
I don't take offense to your challenge, but one thing is certain broad stokes via percentages can get you in trouble very fast. The devil is in the details and mostly all of your quick math assumptions are incorrect. $125k property is actually showing better appreciation than the properties that are $300k+. Real estate is hyperlocal. Rent and price appreciation has been keeping up with inflation (most of the time reaching higher than inflation). The properties PITI, Property taxes, and insurance would be ~$1k per month. Even if you included $100 per month in maintenance/repairs and $100 in property management (I know a PM that will do 7%) you'd still be cashflowing ~$250 per month. 12% CoC return based on 20% down. Not great, but the main point I was trying to illustrate is many think they need to buy property earning a 0% CoC return to "get their foot in the door" to real estate. This is simply not true, at least in my market.
I can tell you have never filled out a maintenance/cap ex cost spreadsheet because “Even if you included $100 per month in maintenance/repairs” is no where close for 2 units. It may no cover just the two kitchens. The apartment complex (large unit counts with own maintenance staff) cannot even achieve that maintenance/cap ex.
“I know a PM that will do 7%”. Is this all inclusive. Does it cover placing a new tenant, lease renewals, at least property inspections per year? I would be shocked if you can get a competent Pm to manage those units at $50.75/month ($750 * 0.07) per unit.
“$125k property is actually showing better appreciation than the properties that are $300k+”. Numbers do not lie. The $300k+ property has experienced the better historical LONG TERM appreciation as evidenced by it being higher priced. However I thought I would look deeper so I looked up the appreciation of Cedar Rapids on NeighborhhodScout. It showed 1 out of 10 nationally for last 5 years, 10 years, and since 2000. That is a rare trifecta of poor long term appreciation. Since 2000, 2.36% annual appreciation. Its average residential property value has fallen in inflation adjusted dollars. Being an investor you may be doing better than average appreciation but my point still applies.
As I indicated, the 50% rule is typically aggressive at that rent point. You may make some modest return but residential RE even with use of PM is not passive. The return needs to justify the effort. The return needs to have ability to noticeably improve life. Does this property meet that criteria for you?
I wish you the best.
"Lead with questions, answers will follow."
This duplex was flooded in the 2008 flood, so much of it was gutted with new mechanicals. We had a derecho in 2020, so the roof, siding, and windows are all new from 2020. I'm not sure what you mean by covering kitchens. Both are in good condition and should be serviceable for plenty of years to come.
Yes, 7% is legit. I just met with the guy last month.
California may be your cup of tea. I for one, appreciate (no pun intended) Iowa and all it has to offer. My net worth does too!
As I said prior, I'm not investing for the next couple of years to help other investors in my market.
As soon as an item is put into service, its lifetime has started. This implies it should be allocated a maintenance/cap ex cost.
For example let’s say in your market a water heater replacement costs $1k (my market is ~$1500 if using license plumber but our water heaters are different and more costly) and last an average of 12 years (our actual data going back almost 50 years places average lifespan just under that for gas water heaters). The monthly cost would be 1000 / 12 / 12 or almost $7/month. For a duplex almost $14/month. $100/month maintenance/cap ex for 2 units does not cover the interior of one unit. It is lower than what apartment association states and they have their own maintenance staff. The apartment stats are available, but these costs are less than what can be achieved with small unit count properties.
What does a roof cost for one of these units? I will estimate low at $5k. 20 year life. 2 units. Is $41 month or 40% of your maintenance/cap ex for the property.
We have invested OOS. we had both expensive (gulf shores) and cheap Alabama properties. We sold because we were doing better in Ca. I sometime have sellers remorse on the gulf shore duplex, but I never have sellers remorse on the cheap Alabama property. The low rent point resulted in too much of the rent being consumed by expenses. The low appreciation and rent growth meant return was not increasing in inflation adjusted dollars. It was not producing a return that justified the effort and this was a purchase made prior to the recent rate hikes and the crazy appreciation from 2012 to 2022 (so its return was better than if the property was purchased today).
I do believe a local investor should do better than an OOS investor, but it starts with accurate/realistic under writing.
Good luck
My question would be, what is the condition of the property? $125K is a low asking price to make cash flowing more possible, especially with two units. That being said, if it is an older property that cash flow can all be washed away quickly with continual maintenance and repairs. We have a 5-plex we bought for $125K in 2019 and it cash flows like a boss, but it was built in 1900 and we have had some repairs to deal with. It is still profitable, but just another consideration for people who get heart eyes when seeing the cash flow but don't realize the maintenance they are getting into.