Is my calculation right houston/greater Houston?

Question

I am looking at property and all my calculation requires me to ask for 40% less then asking price.

I am currently using 10% property manager, 5% maintenance, 10% capex, 5% vacancy, $125 monthly insurance.

Am I being to conservative with my numbers?

Andrea Weule · Answer

Yes, probably.  In markets with retail prices averaging $200k and more it's quite difficult to get the cashflow you may want without putting a fair amount of money down.  Many people still do it, but they are often focused on appreciation of the property in addition to cash flow instead of ROI.

So you have to consider what your goal is with the property.  Appreciation or do you want more Return on your Money. I live in Denver and have done both.  I've received excellent gains with the values of my properties here, but not much ROI or cash flow.  I do a lot of rentals in the midwest as the numbers are much better for return on my money and do not require me offering 1/2 of the ask.

So evaluate your goals/resources and go from there!

Joel Lopez · Answer

More then likely yes, you have to find a good deal to make it cash flow right now. Especially in the market over 150k. The 1% rule should help you find a house that makes sense. But I would ask around to make sure these are the numbers in your specific area. Side not houston is around 9% vacancy. And conservative people normal do 10% maintenance, 10% cap. If this house is newer or your remodeling you can lower these numbers. Also I’d recommend you manage your property’s to start but it’s a good  idea to calculate for it anyway. Have you considered how much equity your going to put into the property. Use the monthly payment for the actual loan amount.

Andrea Weule · Answer

@James Carlson

Yes our rentals in Denver we bought between 2009 and 2014 so we've enjoyed the appreciation and due to the low prices we bought at they cashflow.  Agreed appreciation is good, but worthless unless you sell (even refinancing, we wouldn't cashflow).  So since 2012 we started buying in the Midwest and have been very happy with our deals there.  We plan to enjoy our properties in Denver, but probably won't buy more and continue to buy in the mid-west.

Thomas Cummings · Answer

Appreciation and mortgage principal paydown while not part of the cash flow equation, absolutely should both be part of your ROI calculation.

Cody L. · Answer

MLS deals still exist that’ll cash flow for homes.

I bought 30 galleria townhomes for $250k. Leases for 2300. Not quite the “1%” or bette ratio that I like to see but seeing as they’re detached 2010 build it’s good enough.  And most importantly debt is SOOOO cheap that deals that were “meh” before look good with 10 year sub 4% money

I just refinanced an apartment deal I bought using a local bank. They gave me 4.75% on my purchase. Not bad for local bank $. But I just refinanced a few months after buying with agency $ at 3.5%. Insane

Kevin Wood · Answer

@Dan Tran always throw an offer in the ring even if it's below asking. I got 250k off asking (30%) because I was the only one that offered on the property. Then ruthlessly follow up. Same deal took me 13 months to get under contract.

James Carlson · Answer

@Andrea Weule

Interesting to hear about someone with rentals in Denver and the midwest. Do you have a preference? We have buyers and investors in Denver who worry about cash flow, and the struggle is real here. You're not going to kill it cash flow wise. (Unless, you're doing a house hack, rent-by-the-room, but that's not really scalable.)

But appreciation? Since 1975, Denver's averaged 6% home price increases every year, even accounting for two downturns. That 6% appreciation is a much bigger bump than any cash flow you get each year. Just as an example, if you had a $400,000 last year, you have a $424,000 this year. You're not getting $24,000 in cash flow each year.

Is my calculation right houston/greater Houston?

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