Only $85 in Cash Flow?

Question

This is a hypothetical example, but I'd love to hear everybody's advice. Imagine the following scenario:

Suppose you bought a SFR at a good price (20% below retail) and made very conservative estimates for water, garbage, vacancy, property management, capex, and repairs.

The unit is fully occupied receiving at-market rents.

But after all that and debt service, the cash flow is on $85.

How would you justify this situation to someone who is skeptical about entering the real estate rental market?

Edited: Current location is a cash flow market, low appreciation.

Hai Loc · Answer

It depends on the ratio.. like what Bill asked is it 2%?.. $85 in cash flow can be good.. the property could be $50k and you put $10k down.. and make $1k+ a year which = 10% coc with principal equity on top..

On the flip side it can be horrendous.. it depends on the numbers..

Lee Ripma · Answer

@Pete Abilla

Well what’s the equity in it worth? Is the 85 taking into account all the capex? What’s the person who is buying it’s goal? Why did you come up with a hypothetical example that doesn’t exist? Go buy a real deal!

Account Closed · Answer

@Pete Abilla

$85 on $100k is different than $85 on $400k.

What is the deferred maintenance? How conservative is this proforma? Has each of the following been accounted for?

Insurance, realistic vacancy, cap ex, maintenance, management, hoa fees (x1.3), taxes (x1.2), expense inflation, decrease in noi if market gets saturated etc etc?

Bill B. · Answer

But it’s not a high cashflow market. You say you’re getting 20% off market price and it still isn’t good cashflow.

Sounds like low appreciation low cashflow market. (What percent of price are you getting per month? More than 2%?)

I don’t mind low cashflow in a high appreciation market or because of a short term loan but you already said this is low appreciation and didn’t specify a 15 year or shorter loan.

I have a property that cashflows negative $800/mo but it still generates $800/mo income (the loan is paid down $2000/mo and there’s a $400/mo Hoa.) because of depreciation the income is tax free, once it’s paid off it will cashflow $2200/mo. But I didn’t buy it for cashflow. I bought it because I may want to retire there someday and I paid $200k less than the current value, 4 years ago. I knew if I didn’t buy then I wouldn’t buy it in the future.

Pete Abilla · Answer

It's a low appreciation, high cashflow market.

Only $85 in Cash Flow?

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