Is anybody cashflowing right now???

Atlanta, GA · Member since 2021 · 163 posts · 57 votes

With home prices still very high and interest rates now high too, is anyone actually cashflowing on newly acquired property? Even the 1% rule doesn’t seem to work anymore

Example: assuming 20% down

Purchase price: 250k

Rent: 2500/mo

Expenses: 1375/mo (45% expenses)

Debt service: 1350/mo (200k at 7% fixed 30 am)

Cashflow: -$225

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Steven Barr
This is why cash is king. It’s also why transactions are crashing. If no one is buying homes (because they are not affordable) what do you think will happen to prices?
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Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y
All the houses in my area sell very quick, in cash. Miami. Different markets all over the US. We cannot generalize.
7 Reply
Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y
Quote from @Steven Barr:

With home prices still very high and interest rates now high too, is anyone actually cashflowing on newly acquired property? Even the 1% rule doesn’t seem to work anymore
Example: assuming 20% down
Purchase price: 250k
Rent: 2500/mo
Expenses: 1375/mo (45% expenses)
Debt service: 1350/mo (200k at 7% fixed 30 am)
Cashflow: -$225

Do the numbers the other way around, and adjust the purchase price accordingly. Then you will cashflow.
5 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Fernando Figueroa:

All the houses in my area sell very quick, in cash. Miami. Different markets all over the US. We cannot generalize.

Agreed on generalizing. Miami is an insane market. I have open cash offers on my unit way, way, way over what I bought in Feb 2020.
3 Reply
Steven Barr
OP
Atlanta, GA · Member since 2021 · 163 posts · 57 votes
3y
Quote from @Fernando Figueroa:

Quote from @Steven Barr:

With home prices still very high and interest rates now high too, is anyone actually cashflowing on newly acquired property? Even the 1% rule doesn’t seem to work anymore
Example: assuming 20% down
Purchase price: 250k
Rent: 2500/mo
Expenses: 1375/mo (45% expenses)
Debt service: 1350/mo (200k at 7% fixed 30 am)
Cashflow: -$225

Do the numbers the other way around, and adjust the purchase price accordingly. Then you will cashflow.

@Fernando Figueroa what do you mean by “do the numbers the other way around”?

0 Reply
Caroline Widjaja
Rental Property Investor · Los Angeles, CA · Member since 2018 · 84 posts · 54 votes
3y
In your case, don't buy. Mine is still cash flowing on my newly acquired property. I used BRRRR method.
1 Reply
Jonathan Taylor
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
3y
@Steven Barr this market is harder than it was a year ago. Just because this property isn't cash flowing off the bat doesn't mean they all wont. Be creative. Its unlikely a cash flowing, fully operational property is just sitting on the MLS. Most cash flow deals are made not found.
6 Reply
Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y

I meant you should start by adding your monthly cost/total expenses and then see what the number is, if less than the monthly rent then reduce the purchase price to find the right price point at purchase. The 1% rule does not work anymore.
1 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3y
Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!
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10 Reply
Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y
Quote from @Russell Brazil:

Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!
Prop taxes, mortgage, cap reserve….it adds up he’s basing it on a $200j loan at 7% interest that alone is $1,166/mo
2 Reply
Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y
Quote from @Fernando Figueroa:

Quote from @Russell Brazil:

Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!
Prop taxes, mortgage, cap reserve….it adds up he’s basing it on a $200j loan at 7% interest that alone is $1,166/mo
Oh, I see, he has a separate expense category yes what the hell, seems super high
0 Reply
Nate Sanow
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
Yes but C class and after a project it is still possible. 20% down and on the market is harder. Off market is usually where it is at.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3y
Quote from @Fernando Figueroa:

Quote from @Russell Brazil:

Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!
Prop taxes, mortgage, cap reserve….it adds up he’s basing it on a $200j loan at 7% interest that alone is $1,166/mo

He has expenses and debt service listed separately. He stating his debt service is $1350 and his additional expenses are $1375...on a $250k property. My average unit is more than double that price and my expenses are a fraction of what he estimates.
[email protected]301-893-4635 Podcast Guest on Show #192
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2 Reply
Fernando Figueroa
Investor · Miami, FL · Member since 2016 · 47 posts · 47 votes
3y
Quote from @Russell Brazil:

Quote from @Fernando Figueroa:

Quote from @Russell Brazil:

Why would you have $1375 a month in expenses on a $2500 a month rental? That is $16,500 per year. That would be like replacing the roof, waterheater, hvac, and some other repairs, every single year!
Prop taxes, mortgage, cap reserve….it adds up he’s basing it on a $200j loan at 7% interest that alone is $1,166/mo

He has expenses and debt service listed separately. He stating his debt service is $1350 and his additional expenses are $1375...on a $250k property. My average unit is more than double that price and my expenses are a fraction of what he estimates.

Yes saw that after I posted, my mistake. You're right, looks very sus.
0 Reply
Dom Radcliffe
Investor · Newton, MA · Member since 2016 · 30 posts · 27 votes
3y
Quote from @Steven Barr:

With home prices still very high and interest rates now high too, is anyone actually cashflowing on newly acquired property? Even the 1% rule doesn’t seem to work anymore
Example: assuming 20% down
Purchase price: 250k
Rent: 2500/mo
Expenses: 1375/mo (45% expenses)
Debt service: 1350/mo (200k at 7% fixed 30 am)
Cashflow: -$225

In your example above,
- Expenses of $1375 per month does not make sense. Are you buying expensive gifts for your tenants every month?
- Even when we keep your calculations as it is, 5% rent increase every year will turn your cashflow positive beginning year 3. Imagine what it will do to your cashflow 10 years down the road. Also add equity buildup via debt payment (by tenants) and appreciation of property price.

1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Rationalization = Losing money
The actual cost of the property is the amount of cash you put into the deal. Taking out percentages of rent trying to cover potential expenses down the road, that in reality can never be covered by these percentage holdbacks when/if they occur anyway, is what is screwing up your cash flow...not the sale price of the interest rates. Now, I didn't say the sale price and interest rates didn't impact the cash flow, I said they didn't screw it up like it was described here. Those "hold backs" is part of the positive CF.
OK, so am I saying don't do the holdbacks? Yes. they don't really work anyway. Now before someone blows a gasket, I didn't say they didn't need to be covered, I said holdbacks aren't the way to do it.
Read my first line.
The best way I have found to actually cover it is out of a business or personal LOC,,,NOT one tied to any one (or more) property. If you tie it to a property, you can't sell that property without losing the LOC. It has to be neutral, hence the business or personal LOC. You can even do this with a zero interest credit card. You don't get charged interest until you use it, so don't use it unless you need it for one or more of those "holdbacks".
It's (always) in the math.
Read my first line, again.
Holding cash flow back is a lot like having to leave $5000 in your checking account to get "free" checking. That ain't free checking,..it costs you $5k. That's an awful lot of "free" checks you just paid for upfront.
Read my first line,....again.
2 Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
3y
@Steven Barr

@Fernando Figueroa
Steven, as Fernando said work it backwards.
Identify the purchase price that works for you, then make the offer. Do a 3-day offer, subject to home inspection within one week (you will have to be comfortable doing that yourself to fit that timeline). Put down a $3,000 refundable deposit.
On one of your posts, you say you're in Georgia and your partner, I believe was NC. In the last three months, how many offers have you made? You don't know the situation of each owner. Keep throwing out offers until you get a deal. You might have 3 offers out at once.
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @V.G Jason:

Quote from @Fernando Figueroa:

All the houses in my area sell very quick, in cash. Miami. Different markets all over the US. We cannot generalize.

Agreed on generalizing. Miami is an insane market. I have open cash offers on my unit way, way, way over what I bought in Feb 2020.

Miami, same like Hawaii, is a very special market, they should not be used as comparison because of their unique status.
2 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Steven Barr:

With home prices still very high and interest rates now high too, is anyone actually cashflowing on newly acquired property? Even the 1% rule doesn’t seem to work anymore
Example: assuming 20% down
Purchase price: 250k
Rent: 2500/mo
Expenses: 1375/mo (45% expenses)
Debt service: 1350/mo (200k at 7% fixed 30 am)
Cashflow: -$225

even indiana would not cash flow with 20% down, it's just impossible. To CF you need to have at least 1:3 leverage ; 1:5 leverage would not work, you have to control financing cost.
1 Reply
Ben Zimmerman
Rental Property Investor · Raleigh, NC · Member since 2016 · 393 posts · 995 votes
3y
You can think about adjustable rate loans instead of fixed. I've seen recent 3/1 ARMS at 4.75% which shaves about $300 per month off your payment and would put you back into the positive cashflow.

While adjustable rates come with their own risks, I doubt there are many people that think rates will still be this high 3 years from now. The notion that 6-8% mortgage loans is 'historically average' ended decades ago when the US debt began to skyrocket. A mere 1% interest rate change on 31 trillion dollar debt is 310 billion annually. The US is already a top 10 most indebted country and the government will bankrupt itself if it is forced to pay higher interest rates for a prolonged period.

Prior to this year, interest rates had been steadily declining since the 1980s financial crash, this is not a coincidence since that is the same timeframe that our national debt levels began to spike.

US debt to GDP:  https://fred.stlouisfed.org/se...

30yr mortgage rates:  https://fred.stlouisfed.org/se...

2 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Ben Zimmerman:

You can think about adjustable rate loans instead of fixed. I've seen recent 3/1 ARMS at 4.75% which shaves about $300 per month off your payment and would put you back into the positive cashflow.

which bank has 3/1 ARM for 4.75 ? I guess this is for conventional.
0 Reply
Ben Zimmerman
Rental Property Investor · Raleigh, NC · Member since 2016 · 393 posts · 995 votes
3y
Quote from @Carlos Ptriawan:
which bank has 3/1 ARM for 4.75 ? I guess this is for conventional.

That's what Bankrate.com is currently quoting for Third Federal Savings and Loan, I'm assuming its accurate.
0 Reply
Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
On old stuff, yes. In fact, we're cash flowing as well as we ever had.
On new stuff, it's really tough if you use any debt whatsoever.
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3 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
I am, in Killeen Texas. Few hundred bucks off my BRRRR's
1 Reply
John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
The numbers aren’t great in my area too (Dallas). So I’m renting the last two purchases out by the room to make a buck. It’s more work, but twice the cash flow.
2 Reply

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