Breaking Even - Is this good?

9 Replies

Hi All!

I have a few potential deals in the works and with the way the numbers work - after mortgage payment, taxes and insurance, I'm pretty much breaking even.

The thing I'm banking on is somebody paying down my mortgage (so equity growth is happening regardless of appreciation), appreciation (5-10%/yr) AND cashback at closing (approx 15K).

Thoughts???

What about vacancies? You can factor in an estimate, but what if it's higher than that? What if it sits vacant for two months and you are forced to lower the rent to get a tenant?

Also, that appreciation rate may be a little high, especially if any of the deals are multi-units. I always like to be very conservative with my appreciation estimates. In the first couple of years the appreciation is pretty meaningless anyway.

Originally posted by "TN-Apprentice":
What about vacancies? You can factor in an estimate, but what if it's higher than that? What if it sits vacant for two months and you are forced to lower the rent to get a tenant?

Also, that appreciation rate may be a little high, especially if any of the deals are multi-units. I always like to be very conservative with my appreciation estimates. In the first couple of years the appreciation is pretty meaningless anyway.

Good points. I figured it could take 2 months to find a tenant (at worst).

The properties are SFR, but yeah the apprecation could be more like 4-7% (Houston and Austin).

So what I'm hearing is, unless you're cash flowing, buying and renting properties is a waste of time and doesn't fit the mold of the "buy and hold"strategy??

If all you have factored is PITI (principal, interest, taxes, and insurance) and you are breaking even then you will actually have a negative cash flow. Vacancy and maintenance are guarantee's. If you are not factoring those into the equation then you are not factoring the whole equation.

Unless the property is in a strong appreciating area (30% minimum in my opinion) and/or you are buying with a lot of equity (30% minimum in my opinion), purchasing a property with no cash flow or negative cash flow is not the best investment decision. You will pretty much create a 20 or 30 year savings account that you will have to work for and possibly pay for out of your own pocket. And I guess that isn't all that bad in the perspective of everything, but the problem is that you can have the savings account and CASH FLOW all at the same time.

Loanofficer wrote;

yeah the apprecation could be more like 4-7% (Houston and Austin).

Overly optimistic for Houston, maybe for Austin, maybe! And please don't quote me the "higher numbers" in the Business Week article about how good appreciation is in TX. Much of that is caused by a statistical fluke.

If you have a market of 30 houses, to use an extreme example, 15 resales and 15 new. The resales all sell at (the last 2 years average) $150K and the new homes with all the bells and whistles, countertops etc, sell for $200K you'll show an average of $175K, despite the fact that the RESALES did not appreciate.

Anytime you see real high numbers in TX it's (almost) always a case of lots of growth of new construction.

Good luck with it.

I've been investing in TX for almost 30 years, and I won't do any deal that doesn't give me at least 12%, cash on cash!

all cash

as long as you don't go negative...i say congrads!!

however, try finding properties that cash flow monthly...over time this will make you more money.

this investment isn't bad...over time as inflation of rent increase...you will see positive cash flow...

great job...
thanks

sunsmicro

doesn't cashback at closing meaning you are just spending your own borrowed money.
i see alot of people screaming i got cash back at closing.
aren't they spending their own borrowed money?
like taking a loan for 110k for a house paid for 100k, they got 10k back at closing.
its not like the money was free and clear, you have to pay that money back.
i currently have 2 properties with a mortgage on each, every spare dollar i can find goes to paying down those mortgages.

LoanOfficer650: I do suggest that you look at Quicken Rent Manager to help you keep up with every expense when managing your property. Without some tool to keep up with costs (eg. tools, supplies, mileage, smoke detectors, yardmen etc) you will never know what the total number is. After loading everything in for a year, it's a lot less I would have imagined. I'm sure there are other software that's just as good, but this one is reasonable and easy to use.

Appreciation in my area is more like 5-7% over the past five years. That 20-30% appreciation just isn't up for consideration here.

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