Real Estate Agent · Fairfax, VA · Member since 2019 · 79 posts · 68 votes
Hello guys,
I made a mistake a few years back when I bought my first rental property at $420k with 20% down. Rent is currently at $2300/month and mortgage at $2550/month. Which results in negative cash flow. I am still learning on how to build a rental portfolio, and it will be great if you could share with me some good info that I need to know before buying rentals. I am thinking about selling this rental property and start all over again.
NOTE: Cash-on-cash return means cash flow/total money invested right? it doesn't count the appreciation, tax benefit, or principal pays down right?
So my questions are:
What is a good cash-on-cash return?
Is investing out-of-state a good idea if my current market doesn't have a good cash-on-cash return rate?
What is a good way to buy a property under market value?
Do you take home appreciation into your consideration? For example, if a property goes up 4% each year with negative cash flow, is that still a good investment?
@Jason Nguyen, sell that property and redeploy your capital through a 1031 exchange. To answer your questions:
I like to see at least $150/month/unit and a CoC ROI in the mid-teens or better.
Correct, just cash flow. Not appreciation, depreciation, or mortgage pay down.
Yes, considering OOS is a good idea, as long as it aligns with your investing goals.
Do the work to find off-market properties with value-add opportunity.
Yes, of course you take appreciation into consideration. If a property gets past your initial screening, you should calculate annualized return, IRR, and Net Present Value.
It depends, I would not buy something that doesn't cash flow. My view is that every property is a business and has to support itself. If years down the line, I have a few thousand doors, then maybe I'll take the risk on a pure appreciation play. Even in that case, I would probably increase my initial equity to force cash flow. Again, I think properties should be self-sufficient.