Single Family Rentals and Cash Flow

5 Replies

What is the best method for finding single family rentals that cash flow? And, what is an acceptable cash flow for a SFH? $100/mo? $200/mo?

@Lisa Henrich

Some people will say a minimum of $100 per month.  It can depend on what your market is like.  If you can hardly get any rent for a very expensive home, then you might not cash flow as much as someone in another market.

It completely depends on the market and the type of property. Different markets have different standards for what a typical cash flow would be (and you'll want to know that so you know if you are buying well!). Also, for me an acceptable cash flow depends on the risk trade-off of what I'm getting into. If I'm going for a higher-risk property, there better be some higher cash flow projected on it to make up for that risk I'm taking on. I won't buy a high-risk property with minimal cash flow. If I'm buying a low risk property, like a nice one in a nice location with quality tenants and good potential for appreciation, then I'll go down possibly to $100-200/month cash flow. Otherwise, I want no less than $200/month if not more. So it all depends, and varies.

As far as how to find a property, it depends on what kind of property you are trying to find. If you want a fixer-upper, wholesalers are good to work through. If you want a turnkey, you can go through agents who can show you ready houses or turnkey providers.

Ali Boone, Real Estate Agent in CA (#01911993)
310-957-2101

Assuming you've already taken into account all of the expenses and losses that can happen (e.g. vacancy, repairs, capex) and that you've conservatively estimated them, I like to see over $200/month. Though rather than just focusing on the monthly cash flow, it's crucial to take into account your actual return on investment. You have to take the extra step to calculate your cash on cash (COC) return to get a more complete picture.

For example, consider 2 properties where one property returns a cash flow of $200/month, while the other returns $100/month. From strictly a cash flow perspective, it may seem you have a clear winner. Though what if property #1 required a total investment of $50,000 ($30k down + $20k rehab), which results in a COC return of just under 5% (200 * 12 / 50,000). Whereas if property 2 only needed an investment of 12k, then your COC return would be double the other investment generating a 10% return.

In a general sense, if I'm achieving $200/month and a 10% COC return, then it's meeting my criteria as a buy and hold property. Though as some of the other comments have alluded to, these aren't hard lines and sort of depends on what your goal is for that property. If I get a nicer property that is in a much better neighborhood and has better potential for appreciation, I may be okay to settle for less cash flow.

Acceptable? That is your decision. I am up to 10 units. Not all of these were purchased at bargain prices. Would I buy all of them again? Probably not. IMO, it is very important to make money when you buy the property. Cash flow is only part of the equation. Find a bargain. They are out there and it may take some effort. If you can make 5K, 10K, or more when you buy it, that will greatly increase your returns when you sell. Plug in the numbers (and be conservative). Plan for vacancies, repairs, CapEx, management, etc. Once you have these numbers, then see what your estimated cash flow will be. If you are planning to self manage, ask yourself if you are willing to do that job for x per month.

John Thedford, Real Estate Agent in FL (#BK3098153)

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