Investing for Cash Flow $120k to $160k range.

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Investing for Cash Flow $120k to $160k range.

Chai Jonn
Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes

Hello!

I am looking to invest in the range of $100 to $150k in SFH/house /any type with good cash flow in mind. ($400 to $600 cash flow or more after all expenses per month). I am open to any market in USA. Will hire a PM to do the work. Please let me know if anyone has any suggestions on what market to focus to achieve my goals. I am not that worried about appreciation. Good to have. But cash flow is important especially with how the job market is now

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Erik W.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
6y

@Chai Jonn.  Depending on where you go, this could work.  It comes down to ratios.

Basically, better properties cost more to buy and produce fewer dollars of profit per dollar invested vs. less good properties.  I'll give an example from my market, a mid-western town of about 160,000 people in a metro area of about 250,000.

A "class B", 3 bed, 2 bath, 2 car garage "starter" home will cost you about $110 - $150K and will rent between $800 - $1,300 / month.

A "class C", 2 bed, 1-2 bath bungalo that might have a garage or not will cost around $30K - $60K and will rent between $500 - $800 / month.

Right away you should notice the price disparity.  The bottom of the Class B rents match the top of the Class C rents, but look at how much LESS you spend to purchase the Class C.  It's almost 50% off.

Now there are tons of variables such as location, appreciation, class of tenant, etc.  But the bottom line is in most markets, cheaper properties yield more rent dollars per dollar invested.  So if CASH FLOW is your goal, and it sounds like it is, I recommend you look for Class C to B- properties in the Mid-West.

Keep in mind that properties will have operating expenses around 30-50% of gross potential rent.  If you hire a PM, expect it to be no less than 40% unless the properties are brand new and require almost no maintenance.

With that model in mind, let's look at the Class B property above.  Let's shoot middle of the road: $130K "all in cost" and $1,100 rent.  

Operating expenses - maintenance, insurance, taxes, etc (30%) = $330

Property manager (10%) = $110 + half months rent for any turn overs

Vacancy (5%) = $55

CapEx reserves (5%) = $55

Net Operating Income = $550.

Any debt service? On a 30 year note at 4.5%, 80% LTV your payment is $526.

Cash flow = $24/month on $26,000 invested (20% down) or 1.2% ROI.

I'm not saying your scenario CAN'T be done, but you really have to know your numbers and the market you're getting into.  People don't just give that kind of info away for free online, most times because they don't actually have it to give.  Market knowledge involves intimate dealings in an area over time.  Someone who flies in 3x per year as a long-distance land lord is not in a position to give you everything you need to know to invest successfully in a market you know nothing about.

All that said, good luck!

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  • Marlen Weber
    Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    I stumbled on this article a few days ago. Check it out: https://www.marketwatch.com/st...

    0Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Chai Jonn.  Depending on where you go, this could work.  It comes down to ratios.

    Basically, better properties cost more to buy and produce fewer dollars of profit per dollar invested vs. less good properties.  I'll give an example from my market, a mid-western town of about 160,000 people in a metro area of about 250,000.

    A "class B", 3 bed, 2 bath, 2 car garage "starter" home will cost you about $110 - $150K and will rent between $800 - $1,300 / month.

    A "class C", 2 bed, 1-2 bath bungalo that might have a garage or not will cost around $30K - $60K and will rent between $500 - $800 / month.

    Right away you should notice the price disparity.  The bottom of the Class B rents match the top of the Class C rents, but look at how much LESS you spend to purchase the Class C.  It's almost 50% off.

    Now there are tons of variables such as location, appreciation, class of tenant, etc.  But the bottom line is in most markets, cheaper properties yield more rent dollars per dollar invested.  So if CASH FLOW is your goal, and it sounds like it is, I recommend you look for Class C to B- properties in the Mid-West.

    Keep in mind that properties will have operating expenses around 30-50% of gross potential rent.  If you hire a PM, expect it to be no less than 40% unless the properties are brand new and require almost no maintenance.

    With that model in mind, let's look at the Class B property above.  Let's shoot middle of the road: $130K "all in cost" and $1,100 rent.  

    Operating expenses - maintenance, insurance, taxes, etc (30%) = $330

    Property manager (10%) = $110 + half months rent for any turn overs

    Vacancy (5%) = $55

    CapEx reserves (5%) = $55

    Net Operating Income = $550.

    Any debt service? On a 30 year note at 4.5%, 80% LTV your payment is $526.

    Cash flow = $24/month on $26,000 invested (20% down) or 1.2% ROI.

    I'm not saying your scenario CAN'T be done, but you really have to know your numbers and the market you're getting into.  People don't just give that kind of info away for free online, most times because they don't actually have it to give.  Market knowledge involves intimate dealings in an area over time.  Someone who flies in 3x per year as a long-distance land lord is not in a position to give you everything you need to know to invest successfully in a market you know nothing about.

    All that said, good luck!

    5Reply
  • Chai Jonn
    OP
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    6y

    @Marlen Weber

    Thanks Marlen! Good insight on future potential markets.

    1Reply
  • Chai Jonn
    OP
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    6y

    @Erik Whitin

    Erik.

    Thanks for detailed explanation. It looks like C type properties are the best for cash flow. With low purhase point, it's faster to aquire more properties. It is true that without understanding the local market , it's tough to make wise decisions. But got to just find a good trustworthy team for far distant investing. I was thinking Ohio mostly for Cash flow. But was wondering what other markets are out there.

    Thanks

    Chai

    1Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    6y
    Originally posted by @Chai Jonn:

    @Erik Whitin

    Erik.

    Thanks for detailed explanation. It looks like C type properties are the best for cash flow. With low purhase point, it's faster to aquire more properties. It is true that without understanding the local market , it's tough to make wise decisions. But got to just find a good trustworthy team for far distant investing. I was thinking Ohio mostly for Cash flow. But was wondering what other markets are out there.

    Thanks

    Chai

     Have you looked into Columbus, Ohio? Our C neighborhoods have great cashflow

    [email protected]614-541-8475Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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    3Reply
  • Zeke Liston
    Real Estate Agent · Columbus, OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    I echo @Remington Lyman, Columbus, OH would be a great market to consider. 

    0Reply
  • Chai Jonn
    OP
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    6y

    @Remington Lyman

    Yes. I am considering Ohio. Cincinnati, Cleveland, Columbus.

    2Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    6y

    Pick Columbus

    Originally posted by @Chai Jonn:

    @Remington Lyman

    Yes. I am considering Ohio. Cincinnati, Cleveland, Columbus.

    [email protected]614-541-8475Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
    Reafco512 Reviews
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    1Reply
  • Chai Jonn
    OP
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    6y

    @Remington Lyman

    Thanks for the info. I picked up Ohio for sure as my cash flow investment area. Just wondering multifamily vs SFH. Like to mix it up. So far, I got a condo, townhouse and a SFH.

    Chai

    2Reply
  • Molly Thoms
    Cincinnati & N. Kentucky · Member since 2020 · 9 posts · 8 votes
    6y

    Happy to connect with you in Cincinnati! 

    0Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    6y
    Originally posted by @Chai Jonn:

    @Remington Lyman

    Thanks for the info. I picked up Ohio for sure as my cash flow investment area. Just wondering multifamily vs SFH. Like to mix it up. So far, I got a condo, townhouse and a SFH.

    Chai

     Multifamily if you want cashflow

    [email protected]614-541-8475Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
    Reafco512 Reviews
    WebsiteView Page
    0Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Chai Jonn, yes...if you can find a trustworthy team.  Not to bust your bubble....just making sure you realize this isn't a cake walk.  If finding good properties proves challenging, do you see there being many challenges to find a trustworthy, highly skilled team in Ohio and keep them motivated when you live 2,000 miles away in Phoenix?

    There's a story about a man who travels the world searching for diamonds and spends his entire family fortune following leads to far distant lands that are supposedly bursting with wealth.  But each time he finds that others have already beat him to the punch and he moves elsewhere.  Many decades later, broke and desperate, he sells his last asset: his family home, to have enough money to eek out a meager existence for the rest of his days in a rented shack.  A month later he hears that the new owner of his family's former home found a diamond mine in the field behind the house.  Moral of the story: start digging for diamonds in your own back yard.  For all the trouble, effort, and funds you propose spending to invest 2000 miles away, are you sure you've turned over EVERY rock in Phoenix and found nothing?

    Food for thought.  Happy investing.

    2Reply
  • Robert Martinez
    Investor · Houston TX · Member since 2020 · 27 posts · 16 votes
    6y

    I will keep it simple... Find a great owner operator and invest in multifamily apartments. 100 units or more with on site management. These deals have great cashflow and amazing tax benefits. 

    1Reply
  • Matt Leber
    Rental Property Investor · Orlando, FL · Member since 2015 · 353 posts · 269 votes
    6y

    @Chai Jonn cash flowing SFHs in that price range are pretty much our wheelhouse here in Central Florida. Specifically Brevard County is where we’ve had some success.

    0Reply
  • Victor Vella
    Flipper/Rehabber · Cleveland, OH · Member since 2014 · 173 posts · 121 votes
    6y

    @Chai Jonn

    Hi Chai I do a decent volume of properties in what I would consider “starter homes” in high demand neighborhoods in Cleveland.

    Lakewood, Shaker, etc

    I see too many rental investors that are not overly concerned about the exit just be somewhat mindful of the exit.

    Also if your interested in cash flow - have you considered partnering with a flipper in the form of a hard money lender. That market has fallen out so you might have a market looking for deals and more passive income. Not financial advise just a thought

    0Reply
  • Paul MoorePro Member
    Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Hi @Chai Jonn.  It turns out that you are in one of the hot spots to succeed in your quest. I agree with @Robert Martinez that you should consider trying to go the MF route. But if you want to do SFRs, listen to @Erik W. above. The sand states of AZ, NV, CA and FL typically have the wildest swings in property values and that is where you can make the largest profits if you buy near the bottom. Patience is a virtue in this situation.  

    The attached graphic does not tell the whole story. In the trough, there were many distressed deals from banks and owners that were far below this curve. Maybe even half.  And note that the bottom wasn't hit until for about 5 years from the peak... 3 years after the stock market first dropped. This could look like 2022-2023 in this upcoming recession. Good luck! 

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    1Reply
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