Hello all, I have been looking at Staten Island Homes, multi family to be exact at a max price of $299.999. I would feel most comfortable buying around 250,000 or less because I was thinking the less I go and still putting down anywhere from 20-30% down I will have a higher cash flow. The thing is there really is nothing out in my price range right now except for a bunch of short sales which my RE agent says not to get into. Anyway, I was thinking of increasing my max search price to 350,000 and there are more options to chose from and the homes are a bit nicer as well. If I still do the 20-30% down this will pretty minimize my cash flow greatly, but I believe maybe it will/can work out if I have 2 tenants paying there rent which would balance everything out. Also I could negotiate the price of a multi family listed at 349,000, not sure how much lower I would be able to get it for though. Not sure exactly what to do or how much I can afford. I have about 70k in savings. Any tips/advice much appreciated.
Take a look at the rental calculator here on BP. It will tell you exactly how the numbers should work out. It will give you a way to compare any number of places, no matter the price tag.
More importantly you need to set your investment minimums. You need 2 things here, an ROI (cash on cash return) AND a minimum cash flow per month. On MFH I want to see 15% Cash on Cash and $125/month/door.
First of all, congrats on having $70k in savings, @Eric DeVito . Not many can say that! A couple of my thoughts are 1) Find an agent willing to do the work a short sale takes so those are an option for you, 2) Find a larger property and do a Master Lease Option on it with some of your money as the option consideration. I am involved with one of those. A 4-unit on .8 acre lot that has room to build more, plus three other SFH on adjacent lots owned by the same guy. I will be able to receive rents and control $520k worth of property for 3 years with $30k in consideration. That's more than I have ever coughed up without ownership, but the benefits appear to outweigh the risks. Just an idea! Seriously - don't just dismiss the short sale idea because your realtor said to. Find one that's hungrier!
You can. I recommend figuring out all of that information before relying on the calculator solely. Google has all the answers :)
I have an Excel spreadsheet that I use. It does most of what the BP calculator does, but without the long term growth section. Plus mine is faster to modify.
Net Income / Total Investment
4/2 SFH purchased for 55k
5k more in closing costs
Total Investment 60k
Net Income 2014: $5000
ROI = 5000/60000 = ~8.33%
Thank you for the example Aaron. Now with the example you just gave is that a buy and hold rental property? If so would the net Income be the total profits you receive after all the other expenses are paid off. I.E. Taxes/Monthly Payment/Vacancy.
Yes, that is a Buy and Hold example.
Net Income/Loss is final total for a time period, generally a year, after all expenses are subtracted from income. Net Income is a bit more complicated for big corporations, but much of that doesn't apply to smaller operations like a rental property.
Take a look at Investopia. They have most of these terms defined.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.