How much cash flow makes for a good deal?

[Nate Bell]

I’ve got a property under contract for $161k in a strong rental market. It’s a ranch, with a full/ partially finished basement. I’m going to turn the basement into a second unit. The house was built in the 50’s and has a lot of deferred maintenance, interior and exterior. I’m looking at about $130k remodel, upstairs and downstairs, plus contingency. Mortgage would be about $2k/month, and full rental rate would be about $2400/month. Would you feel good about this? It’s in a booming/ appreciating market. I feel good, but checking in...

[Adam Detig]

@Nate Bell No absolutely not. The $400 profit only after mortgage payment is no where near enough. You also have to take into account vacancy, repairs, property management costs, possible pest/landscaping costs.

The general rules you will find on BP is that 50% if your rent will go to expenses (what I listed above), and then the mortgage payment comes out of the other 50% and any left over is true profit (typically aiming at $100 per door).

Hope it helps.