What does it take for you to cash flow $1K/month?

40 Replies

Hello,

I’d like to get an idea of what it takes for you to cash flow $1K/month. I am a newbie and in the midst of ironing out my short and long term plan/goals. I believe that if I can cash flow $3K/month I can quit my job and get by (barely). That is assuming I am living off my cash flow.  I will have reserves already lined up for my properties if I quit my job.

While I understand there are so many variables in real estate, I just want to get real world examples of what $1K/month cash flow looks like. Is it from SFH, multi-family, commercial? I would appreciate if you could follow the template below. It will give me and I'm sure many others a benchmark in which to start.


Location:
Type of property:
Monthly rent:
Expenses:
Mortgage:

PS - I understand you might have to combine several properties to get $1K/month cash flow, please write that down too!

For me, it looks like about $2000 per month in gross rents.  So, one house that generates $2000/month, two houses that each generate $1000/month, three houses that each generate about $650/month, etc.

I have 4 properties that cash flow about $200/mo each. Could be more but I'm using a property manager.

Keep in mind that with depreciation allowance, that $1K/month may be un-taxed in the current period. That means that your $1K/month would translate into a higher than $1K/month (taxed) salary from a W-2 type job, since your employer will take out taxes. Just something to think about.

As @J Scott points out there are an infinite # of was to achieve that.  

With financed deals figure about 200 min per unit per month for SFHs or very small multi units. (2-4) Every investor is different but that is a reasonable and common criteria. Any less cash flow than that and you are probably taking too much risk.

I suspect @Paul Timmins was referring to larger multi unit properties for that $100 a unit. Keep in mind this is NET Positive Cash Flow including all expenses like vacancy, repairs, reserves for capital expenses etc. If you just look at monthly rent minus PITI you will get burned by the expenses you didn't account for.

If you can get $500/month cash flow from a single family home, then you need 6 of them to get to your $3,000 a month goal.

You may also decide that rather than just quit your full time job, you instead go only to part-time and spend part of the time managing your properties.

@Ned Carey  Are you suggesting the $200/unit/month is what you should cash flow or what your net income should be EBITDA? An example to illustrate (fourplex):

Income after vacancy: $26,275/yr

OP Expenses: $12,394/yr

Net Op Income: $13,882/yr

Mortgage Payments: $6,798/yr

Cash Flow: $7,084/yr

Net Operating Income Per Unit Per Month: $289

Cash Flow Per Unit Per Month: $147

Deal or No Deal?

Originally posted by @Ronald Perich:
Cash Flow Per Unit Per Month: $147

Deal or No Deal?

Nobody can tell you whether this deal meets your goals or not...only you can decide that.

But, I think you need to do more analysis to make that determination.  Specifically, how that cash flow translates into returns.  

For example, if you have to invest $700K to get that $7K in cash flow, that's a 1% return -- you can stick your money in a savings account and do better than that with no risk.  But, as another example, if you're only investing $35K to make that $7K in cash flow, that's a 20% annual return -- in my mind, that's a no-brainer deal.

That's the very least analysis you should be doing before deciding to move forward or not. You can also do an NPV analysis, IRR analysis or any other number of analyses of return to determine if the property meets your goals and the opportunity cost. At that point, it really depends on YOUR specific situation and goals.

@Mark K.  There are 1001 ways to get there.  From buy and hold, I generally look at $150/month per door after all expenses.  I am sure that will vary from area to area.  

If you have the inclination for rehab's, I am sure that you could hit $1000/month pretty easy.  That would be a rehab with an upside of $24k once every two years.  I only dabble in flips from arm's length, so I'm not really an expert in that area.

Lots of good ideas above, but it really doesn't take a whole lot to get to $1000/month.

Best of luck.

@Ronald Perich   I am simply saying many investors use $100-200 a month per unit as a criteria. The more units in a building or complex the lower that number can be. SFHs I believe should be at least $200 because that is only $2400 a year and one big expense can wipe that out.

As @J Scott there are many factors that go into evaluating a deal, including your own preferences, risk tolerance and goals. To me that cash flow is decent for a financed 4 unit bldg, but what is the price, debt coverage ratio, and amount invested? 

Thank you everyone for your responses.

@ncarey
@jmwaters1

Assuming $200/monthly net positive cash flow that would mean I would need 5 SFH to get to $1K and 15 to quit my job. To me as a newbie, that is an incredibly daunting task with a lot of risk involved.

I guess it is what it is but the reality of those numbers is a little discouraging. I was thinking more along the lines of $500 per SFH but what do I know.

Originally posted by @Mark K. :

I guess it is what it is but the reality of those numbers is a little discouraging. I was thinking more along the lines of $500 per SFH but what do I know.

The $100-200/month is assuming you're leveraging these properties.  If you're purchasing all-cash, $500/month is completely reasonable.

It's really all just basic math, and here's another way to think about it:

-  You want $1000/month in cash flow

-  That's equivalent to $12,000/year in cash flow

-  The typical single family rental will generate 10-15% annual cash-on-cash return (my experience)

Using the above information, it should be clear that you'll need to invest between $80,000 (at 15% annualized return) and $120,000 (at 10% annualized return) to generate your $1000/month goal.

Do you have $80-120K in cash to invest?  If so, you should be able to achieve that goal.  

If you have less than $80-120K in cash, you'll either have to find deals that generate higher returns or you'll have to save more cash.

Btw, for $3000/month, just triple the numbers -- you'll need $240-360K in cash to generate your desired returns (assuming 10-15% CoC).

How do I "@" people in a reply?

Yes, I have $80-120K, but I will be leveraging and putting 20% down w/traditional 30-year loan.  

@jscott I'm a little confused w/what I should be doing with that $80-120K.  Buying all cash (as you know in MD you can't get much for that) or putting money down for deposit.

Originally posted by @Mark K. :Yes, I have $80-120K, but I will be leveraging and putting 20% down w/traditional 30-year loan.  

@jscott I'm a little confused w/what I should be doing with that $80-120K.  Buying all cash (as you know in MD you can't get much for that) or putting money down for deposit.

The 10-15% returns I'm discussing are leveraged returns.  So, the $80-120K would be used as downpayments to leverage the properties.  You'd probably expect to control about $400-600K in property with that $80-120K (assuming 20% down).

I'm not saying that you can't find better returns than 10-15%, but they are harder to come by and are riskier.  If you're not skilled at finding deals, you probably won't do much better short-term.

So again, that $80-120K should yield about $1000/month...

At $200/door, I would need two more duplexes similar to the one I recently purchased to put me above $1000 at the $1200/month mark.  

Type @ and start typing the name you want to tag, it will appear at the bottom of your post.  Select it and they are tagged.

Around here (SE Michigan) we have been able to achieve those numbers ($1k cash flow monthly) with that size investment buying small multifamily, but you still need reserves to get the loans- 2-6 months PITI depending on the lender. With multifamily (2-4 units) you will likely need to put 25% down.

I buy these little houses 3/2/2 1200sqft+ for 85-90k.  They are typically in ok condition and always rent ready.  I am a broker so I take the real estate commissions and just hold them as a reserve for CAPX.  These will rent for 1000-1200 in the market I am buying them in.  That usually gets me 400-500/month per door.

I don't hold back extra for capital expenditures because I start with a nice pot of money. I also typically buy out of the MLS and get the property inspected and have the sellers make all repairs and bring the property to average condition for the neighborhood. If they don't want to then I just walk away.

As rent increases, 4% per year in the market my properties are in, I can take some of the extra money and put it in the pot for capX.

My goal is the same as your except I want 5k/month with I think will take 12-15 homes.  

Originally posted by @J Scott:
Originally posted by @Mark K.:Yes, I have $80-120K, but I will be leveraging and putting 20% down w/traditional 30-year loan.  

@jscott I'm a little confused w/what I should be doing with that $80-120K.  Buying all cash (as you know in MD you can't get much for that) or putting money down for deposit.

The 10-15% returns I'm discussing are leveraged returns.  So, the $80-120K would be used as downpayments to leverage the properties.  You'd probably expect to control about $400-600K in property with that $80-120K (assuming 20% down).

I'm not saying that you can't find better returns than 10-15%, but they are harder to come by and are riskier.  If you're not skilled at finding deals, you probably won't do much better short-term.

So again, that $80-120K should yield about $1000/month...

Thanks, so you are saying, it makes more sense to buy a more expensive property with $80-120K down so I could cash flow $1K/month on one property?  As opposed to buying smaller properties with lower down payments and therefore smaller cash flow?

I don't have enough saved up for reserves to put down $80-120K right now. =(

Originally posted by @Mark K. :

Thanks, so you are saying, it makes more sense to buy a more expensive property with $80-120K down so I could cash flow $1K/month on one property?  As opposed to buying smaller properties with lower down payments and therefore smaller cash flow?

You can make arguments both ways...

The argument for doing that is that you'll have less work to do -- you only have to find and manage (or oversee the manager of) one house.  Certainly easier than finding and managing several properties.

The arguments against are:

-  You have higher risk with one unit than with multiple units, as you can't average out your income and expenses.  If you have one 3-month vacancy and you only own a single unit, that's $0 income for three months.  If you own 4 units and one has a 3-month vacancy, you're still getting 75% of your income during that three months (from the other units).

-  It's harder to find higher-priced deals that return the same as lower priced deals.  You can probably find rentals that will return 10-15% in the $100K range in many parts of the country, but you're unlikely to find $500K rentals that will return 10-15%.  Rent doesn't generally scale linearly with market values.

@Mark K. I'm not sure if my opinion is valid since I still haven't done a deal but recently I was in the process of purchasing my first home a 2 family with a finished basement using a FHA loan in Jersey City NJ the price is for 187k and all in monthly would of been 1,300 a month the upside is each floor rents for 1,200 i'm super smart but 2400(Rent)-1300(Mortgage)=1,100 cash flow again this is Jersey city It can be a bit hard to find something in the city but it's possible I believe the but the cherry on top for this is the city is giving me a grant to use. I know there's a lot of programs for first time buyers feel free to reach out to me so I could go into details if you like.

Also I would live in the basement and rent out both floors BTW

@Jeiby V.  Sounds interesting.  What part of JC is this?  A few things to keep in mind is that your expenses aren't just limited to a mortgage.  Don't forget property tax, sewer/water, insurance, maintenance, utilities (heat and hot water are the big ones if not separated), etc.  Another thing to keep in mind...the city has been cracking down on illegal basement apartments.  As part of a resale, the city may do a CO inspection (can't remember if JC does it or not).  Standard contracts usually say seller is responsible for CO and if the city does do a physical inspection on re-sale, sees that it's a legal 2-family with an illegal 3rd basement apartment, then city may force seller to remove the 3rd unit.

Shoot me a message on the grants you're talking about...are they for owner occupy or investors?

Cheers.

-Kevin

I would like to add that I would try to get WAY past the $3k a month goal.  You mention that you could quit your job and make it "barely".  "Barely" will bite you in the *** sooner or later.  A new roof here, a pipe burst there, some kind of emergency will need to be addressed and you WILL have to come out of pocket for it.  I'd say try to get your goal to say $6k a month, and put the additional $3k a month in a savings account until you hit say $25k, so you're prepared for any emergency that may come up.

When you do get hit with it, pay for it out of that $25k pot, then put the money back until you reach that $25k level.  

Of course, your numbers may vary compared to mine.  My comfort level is $50k in savings for emergencies.

Hope that helps!

Travis

Originally posted by @Mark K. :

Thank you everyone for your responses.

@ncarey
@jmwaters1

Assuming $200/monthly net positive cash flow that would mean I would need 5 SFH to get to $1K and 15 to quit my job. To me as a newbie, that is an incredibly daunting task with a lot of risk involved.

I guess it is what it is but the reality of those numbers is a little discouraging. I was thinking more along the lines of $500 per SFH but what do I know.

@Mark K.

I'm not trying to tell you how you should feel, but I would recommend spending some more time reading on BP. Listen to podcasts. Learn from others. CONNECT with people in your area.

There is so much possibility out there it is ridiculous. I'm not saying it will be easy, but what is? I have this saying that there is no such thing as a quick, easy buck, but a quick hard buck is possible. What I mean is that you can make money in ways you never imagined, but it will likely take knowledge, effort, risk, and some support.

You will also encounter many, many people who will not understand what you are trying to accomplish. They will point out every thing that can go wrong. They usually only have a cursory understanding of the topic at best. Try not to spend too much time thinking about them, unless they are open to being educated. You should heed the advise of experienced investors here and elsewhere.

Keep your head clear and focus. Learn the fundamentals. If you do, it is more likely that you will succeed than fail over time. This is one thing I have learned about life from experience.

Good luck to you. If you ever have a question about a remodel, repair, code issue, or design, feel free to ask me.

Robert

Originally posted by @J Scott:

For me, it looks like about $2000 per month in gross rents.  So, one house that generates $2000/month, two houses that each generate $1000/month, three houses that each generate about $650/month, etc.

 Hey J.  In your $2K rent/$1K CF scenario, is that with no debt service?

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