Analyzing Rental Property Deals SFH

Analyzing Rental Property Deals SFH

Member since 2024 · 7 posts · 3 votes

Hello everyone, less than a month new to BP and to RE investment in general. I know there are many variables that might prevent a true constructive feedback but I was hoping to get some insights and guidance from this platform. I'm analyzing a first potential SFH deal on a conventional loan with 20-25% down. After expenses and mortgage, I end up with a net cash flow of anywhere b/w $150-$250 which I find rather small, and I wonder if this could even get eaten up by tax filing time. If I apply the 1% rule, the current rental value is below by about $500, however, cap rate is calculated at 6% and CoC at 3%. (neither cap rate or CoC were calculated using NOI after mortgage costs). I'm hoping I didnt make a mistake with these numbers but assuming proper assessment of the local market, jobs/population growth, property condition, rental demand, future appreciation etc., is this something that sounds within acceptable ranges or am I missing a piece of the puzzle here?

Thanks in advance!

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  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 668 votes
    2y

    Hello @Marcos A Miranda

    This sounds about right. A lot of new investors think they would be making a lot of money. It is almost the same mentality of the renters, they think that all landlords are rich lol

    You are building equity when doing this. 

    Yes, it can get eaten up but only year-end you will truly know if those will get eaten up.

    It is important to make sure your books are accurate so when it's time for tax filing, you won't be surprised if you owe or not.

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  • Bradley BuxtonBusiness Member
    Real Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
    2y

    @Marcos A Miranda

    If you're net is $150-$200 per month and you have a property that is over 500k and you bought in a high appreciation area your will likely gain more in appreciation than cash flow in the next 2-5 years. If your property appreciates 12,000 per year you are making $1000 per month plus your cash flow. You won't get that money until you sell but you are getting the tax benefits and the cash flow.  The 1% rule was invented during the early 2010's when you could scoop properties up cheap and now it's not a strategy or rule that applies in many places.  It's like saying if you can't bench press 250lbs you're not fit or strong.  Sounds like you have a good deal and if your goal is $1000 a month in cash flow then you can sell the property and roll that money into a property you can buy in cash and cash flow that fits more inline with your goals. 

  • Marcos A MirandaPro Member
    OP
    Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Bradley Buxton:

    @Marcos A Miranda

    If you're net is $150-$200 per month and you have a property that is over 500k and you bought in a high appreciation area your will likely gain more in appreciation than cash flow in the next 2-5 years. If your property appreciates 12,000 per year you are making $1000 per month plus your cash flow. You won't get that money until you sell but you are getting the tax benefits and the cash flow.  The 1% rule was invented during the early 2010's when you could scoop properties up cheap and now it's not a strategy or rule that applies in many places.  It's like saying if you can't bench press 250lbs you're not fit or strong.  Sounds like you have a good deal and if your goal is $1000 a month in cash flow then you can sell the property and roll that money into a property you can buy in cash and cash flow that fits more inline with your goals. 

     I appreciate the feedback and clarification on the 1% rule! Property is more in the $200k range. I will do some further due diligence and hopefully add a first to investment portfolio.

  • Marcos A MirandaPro Member
    OP
    Member since 2024 · 7 posts · 3 votes
    2y
    Quote from @Simon W.:

    Hello @Marcos A Miranda

    This sounds about right. A lot of new investors think they would be making a lot of money. It is almost the same mentality of the renters, they think that all landlords are rich lol

    You are building equity when doing this. 

    Yes, it can get eaten up but only year-end you will truly know if those will get eaten up.

    It is important to make sure your books are accurate so when it's time for tax filing, you won't be surprised if you owe or not.


     Thank you for your reply and advise Simon!

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