How much Cashflow do you really see?

19 Replies

What are you seeing as CASHFLOW on your properties and what was the purchase price of that or those rentals?

I'm talking about cashflow after all expenses. $100 per door? $1000 per door? What are you seeing in the different price ranges?

Matt,

My first multifamily was a duplex purchased for 165k. After all expenses I'm cashflowing 250 total. This was an FHA, so I had a low downpayment and I am paying PMI.

I just purchased my second multifamily, 115k, which was a better purchase (I learned). If I wasn't living in it, I'd cashflow about $600 total.

Awesome! @Alex Brookbank

 Trying to figure out what most people are achieving while I write out my plan for acquiring rental properties. Clearly I'll will have my own numbers on each individual property I acquire however I'd like to see real world examples of what people are achieving. 

This is one of the best questions that I have seen asked on this forum.  I personally feel that many investors are going about this in the wrong fashion.

I make over 100K per year in cashflow.  That is set to go up in the next few months.  A refinance, another storefront lease, and perhaps one more purchase, the flow could be up around 170K.  That does not include one of the deals that is still in rehab mode and is not cashflowing yet.

There are so many concerned with a house here, a house there, perhaps a fourplex thrown in.  This will get you cashflow over time but there are faster ways to approach this.

BUILD CAPITAL FIRST!!!

It does not matter how you do this, just make money the best way that you know how.  If that means working hard on your high paying job, flipping houses, whatever.  I personally use value add apartment deals to make chunks of money.

Once you have enough to matter, say $250K, then you can leverage into something worth 1M.  Buy a strip center or other commercial building.  Or, buy an apartment building that has cashflow.  Better yet, buy some undervalued asset and make it cashflow even more!

@Steve Olafson But what do you have into that set of properties (I'm assuming it's more than just one sfr :D ) to see that type of return and how long did it take you to get to that point. Did you start out only seeing 30k a year and over time you've paid them down to realize more? 

@Steve Olafson , I like your strategy.  How long have you been investing, and do you only deal in commercial now?

To answer @Matt Cramer 's question, we are cash flowing between 300 and 450 per property currently. I keep a spreadsheet for each property to keep tabs on the cash flow and always account for vacancy even though our vacancy expenses have been virtually non existent thus far. So our real cash flows are probably a little bit higher.

you talking true cashflow from an operating standpoint, cash accounting average over a year or so?  or with projected withholdings like a proforma, accrual model?  

I purchased my condo in 2009, for 105,000 and am cash flowing $1,200 a month.  Creating a very nice return on my money. 

I'm talking net cashflow before appreciation in a $ amount not %. @Chris Simmons

Ie: purchasing a property for $45k renting for $825 a month after all expenses netting $125 or whatever for cashflow? I think that answers your question.

@Matt Cramer @Jarred Sleeth

I have been investing for about 18 years now.  Never did single family homes.  I rapidly built up to 1000 apartment units during the 2000's and subsequently lost them in the downturn. 

Started over from scratch a few years ago and just focused on value add deals.  Now I have about 50 units in two apartment buildings and a retail strip center.  Hopefully another retail center in the near future.

Minimum of 325/month for 55k range cost to 1000/month for the cost in the 125k range

I have two SFR rentals that I bought for a measly 23k a pop. I cashflow 300-350 a door.

What you need to look at is the area. You can get more cashflow where you won't appreciate at all.

I have an older 3/1/1 built in the fifties with original electric, galvanized plumbing and windows.  I bought it for $35,000, put $21,000 into it, put it on a 4 year lease at $825/month.

With my monthly proforma budget, I calculate cash flow to be  $174/month.

With my actuals, considering I have not had a repair expense in 14 months, it is just insurance, taxes and debt service for a cashflow somewhere over $400.

Add in the fact that the tenants routinely pay late, generating an additional $35/month in late fee revenue.

That's what I was referring to in terms of actuals vs proforma.  Actuals are more valuable and consistent with volume from multiple properties but still relevant obviously come tax time.

That's why people dismiss, or at least should, dismiss prop forma numbers provided by commercial brokers and insist on seeing last 3 years actuals as well.  As you get a portfolio of single family properties, you will want to look at actuals to compare what is happening with what you planned for.

Not sure how you calculate appreciation into your cashflow.  That's a new one to me.

i have a rental in Baltimore. = 290 mortgage, taxes=75, maint=50, misc=25. rent 1000 = 560 net per month.

ive done this many, many times over.

better is that the lona is a 10 yr note. So the 290 will disappear in the not too distant future as well.

@Chris Simmons , he is probably factoring appreciation into a total ROI, not into actual cash flow. What you're saying about seeing actuals before purchasing is great advice.

I have an add-on question. On the non-recurring expenses such as vacancy, repairs, appliance/AC replacement, how much do you budget when figuring for cash flow purposes.  Or do you have formula or process for coming up with this.  I am new, but can already see many new people excited about a positive monthly operating cashflow, then get hit with an AC replacement or other major expense that turns them negative.  So I am looking for a way to start this in my planning process.

Account Closed What neighborhood and zip code is that rental in? Was that a recent purchase?

@Tom Cooper

For larger capital expenditures, you try to forecast when they need to be done.  Some are ok waiting til the ac dies on them in the middle of august and bite the bullet then buying a system and getting it installed.  I prefer to replace it proactively while vacant or in spring or fall where it isn't an issue to be without heat or air for a few days.  

Regarding budgeting, if you have ample capital and can absorb the large cost, then you can have a slightly increased capex to replenish the near term expenditure.  If you are tapped out on your first rental, you better save every penny you get and hope nothing major needs repaired before you get that system in.  

That's why when I get new properties, I go ahead replace questionable systems, even if there might be 3 or 4 years left.  I've seen water heaters that were 30 years old work fine and others that rust out in 5 years.  With hvac, if my vendor gives it a clean bill of health, I'm good.  If they tell me to replace it, I do.  If the tell me I am on borrowed time, theni have the money set aside ready to go for that big purxhase and igetnit scheduled for the next year or so during temperate weather, hoping it does not go out during a heat wave.

Once the big things are handled, or at least budgeted for,you can have lower, more predictable capex budgets. 

I am probably not typical of the RE investor but I really really hate the term cashflow. It really tells you nothing about how good the investment is. Cashflow for the same property can be dramatically different based on down payment, loan term and interest rate. It can also vary dramatically month to month and even year to year depending on vacancy, maintenance and large capex items. It also has no definition. Do you count capex reserves? Vacancy reserves? Most people do not. Unless you have a 100 properties over 20 years, you really dont know what your cash flow average really is. However, ROI has a standard definition. As does IRR. And they make more sense. Really the only way I will know the ROI on my portfolio is when I sell it. Then I will know my purchase price, ongoing cash (positive or negative) and final sale price after expenses. I take all of that over the time period held and get an ROI. Thats the only real number that matters. If that number exceeds my goal, I am happy.

@Anish Tolia

I agree completely.  Cash flow is not a good item to compare investments due to the reasons you mentioned.  

The main concern about cash flow is for those with debt.  You need to ensure you are generating enough cash flow to service debt, maintain the property and fulfill your duties as landlord, etc.  

You can use it loosely to compare to investment options, but without valid, realistic projections before the purchase, you investment will not have a chance to perform anywhere near what you projected it to.

My property that I described above is not a good investment because it has cash flowed so well on actual numbers anymore than it will turn into a bad investment if I get hit with a $2500 repair bill one month due to a sewer line replacement, or an insurance claim on the roof, or a new ac condenser.  My property has had such strong cash flow because I have not had a repair expense in over a year.  Lucky me.  Considering the age of the house and it's original plumbing, i am due.  That is why my projected cash flow is so much less than my actual.  I am setting aside reserves so that when it happens, I am not in a pinch.

Even though most landlords use cash accounting vs accrual, it would be a good exercise for every one to brush up on their accounting.  Understand your chart of accounts, the p&l statement, how proforma income statements follow more along with accrual accounting while your actual accounting method is cash accounting.  Understand why your p&l statement does not make any sense compared to your statement of cashflows....especially after factoring in depreciation.  

If you keep it simple with thinking you made a good buy and you will always clear $250/month per door, you will soon be terribly mistaken and potentially not able to recover from the mistake.  

Rental properties are highly ill liquid, long term savings accounts....if managed right.  If you want to get to the point where you can consistently draw an income from them, unless you have significant reserves set aside, I would recommend no more than $50/month with the rest going to reserves until you have a minimum of $10,000/per door set aside.  It does not sound fun or exciting, but it will go a long way towards keeping you positioned so that you are buying foreclosures and not facing foreclosure.  Once you have sufficient reserves, or no longer have to service debt, then you can pull more money out.  Personally, I am reinvesting every dollar.  I haven't taken a dollar out yet and instead, I have grown from 3 to 9 doors in the last 12 months.  I have used up almost all reserves and taken on debt to do so.  That is why I still have my boring W2.  I will continue to live off that while I replenish my reserves, pay down or restructure some debt.  Then in a year or so, I might start taking some distributions.....as little as possible.

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