$400/mo. - Good cash flow for newbie?

21 Replies

I'm looking at various properties for my first buy & hold rental--decent, middle-of-the road neighborhood, REOs, short sales & HUDs that are in fair condition.  

Is $400/mo. after expenses a decent cash flow for one's first property? This is a 2/1 HUD going for $52k, w/ $2100 in annual taxes, potentially getting $1200/mo in rent, factoring in 10% each for monthly maintenance & capital expenses, and 8% for monthly vacancy expense.

It doesn't seem like a whole lot of cash flow, but I'd like to know what you guys think.  (I've calculated would-be properties with higher return numbers, but they tend to be in worse neighborhoods.)  Thanks!  

Yes $400 a month is decent cash flow for a $52 property. I would say jump on it but make sure that your # are accurate. Are you getting a loan or paying cash?

@Vonetta Booker  

If that's in Connecticut, then it's very good by my read. I can't make those numbers work in Memphis, and that's a pretty good market for cash flow. Assuming your numbers are good, very excellent. 

Are these properties in Stamford? If so, interested to hear about your experiences there.

I am sure like most HUD's that you will have on average $10,000 minimum in renovations. Are you purchasing all cash or bank financing? If the deal is as good as you say I would also think that there would be many people bidding on this property making the actual sale price much higher then the listed $52k.

If you can get it for that price go for it. 

Good luck

$400 per month is excellent.  If this is your first property would double your maintenance expenses, and double check those property taxes.

Go for it!

@Trevor Ewen

I looked up your property you have here and they company you purchased from does the best renovations for lower income area homes.  

Hope things are still going well for you though its only been 3 months. 

Take care

Thanks @Curt Davis  

It has been going well. I am definitely a fan of Memphis for the near term.

$1200 monthly rent for a $52k is a good deal, thats over the 2 % rule. I have not seen a deal like this in a single unit! go for it and good luck.

Thanks for your feedback & the votes of encouragement, everyone. :-)

Good point, @Curt Davis . It very well may go over the asking price; but I noticed it's not listed on the MLS, so perhaps some may have missed out on it (I hope ;)

@Peter MacKercher  I'd be leveraging things for this property w/ a loan. 

@Trevor Ewen  --Stamford--I wish, lol!  I couldn't buy a shack for 52k here. ;-)  It's up towards the Bridgeport/Stratford area, about 30 minutes north of me--things are much cheaper up that way.  

Thanks @Vonetta Booker  

If you have a good network up in the Bridgeport/Stratford area, I would love to talk with your people. Whether it be agents, partners, contractors, or otherwise. 

The only other market we are currently looking at in the NYC metro is Paterson, NJ. We have a very good reason to be over there (my brother-in-law is able to manage), but Connecticut is still a bit of a mystery to me.

I didn't see it posted (I am blind so may have missed it) but are you the PM or will you hire one? I'm still in the learning phase, so I can give an opinion. But if you are the LL and PM, and it's a max of $400 per month, do you factor in your cost of time of dealing with tenants emails or issues that need to be addressed at the house? 

well 52 will not be the end # that's for sure.  Closing fee's and it will for sure need some work.  Have you had an inspection or gave it a close look.

As a newbie just try to make sure the mechanicals are not old as dirt.  Water heaters

Agents get annoyed with me when I look at properties.  I always look under all the sinks.  Pull the access panels and look at the plumbing. 

Always look at the ceilings.  Don't get caught up looking at all the bling.  Look for any rotten wood on the outside. 

Many HUDS and short sale properties have been neglected for years.

If it's in Memphis and it's turnkey for 52K it has to be a bad area.  Or it will need a lot of work done on the turn. be careful!

No one in their right mind would sell a $1200 a month property for 52K so something doesn't add up to me.

Originally posted by @Dean Letfus :

If it's in Memphis and it's turnkey for 52K it has to be a bad area.  Or it will need a lot of work done on the turn. be careful!

No one in their right mind would sell a $1200 a month property for 52K so something doesn't add up to me.

I agree and would think the bigger issue may be the $`1200 rent.  That is a strong rental range, top of the market for average rents in Memphis, so it would have to be in an area that is commanding that rate.  Or....it could be an inflated rent expectation.   Good luck, @Vonetta, this would be a great deal for you if all of the numbers work out to be correct.

Sounds like a good deal and I agree that you should pursue it. As someone wise once told me "One dolla is better than no dolla" and in your case $400 is better than $0 in cash flow.

In my one and only rental deal I learned a lot about the rental market and what the supply/demand is out there only once I posted it. Everyone here wisely focuses on costs and selling price, but don't forget to do a lot of research on this side of the coin as well.

Originally posted by @Vonetta Booker :

I'm looking at various properties for my first buy & hold rental--decent, middle-of-the road neighborhood, REOs, short sales & HUDs that are in fair condition.  

Is $400/mo. after expenses a decent cash flow for one's first property? This is a 2/1 HUD going for $52k, w/ $2100 in annual taxes, potentially getting $1200/mo in rent, factoring in 10% each for monthly maintenance & capital expenses, and 8% for monthly vacancy expense.

It doesn't seem like a whole lot of cash flow, but I'd like to know what you guys think.  (I've calculated would-be properties with higher return numbers, but they tend to be in worse neighborhoods.)  Thanks!  

Is 10% per month for maintenance & capex and 8% vacancy enough for a SFH?

Account Closed , yes--I factored in those vacancy numbers. 

Hi Vonetta:

Hard to get accurate answers as the markets vary so much across the country! Best to ask locally what other investors are getting. I agree with others in the thread that you want to be really solid on the values and rental amounts you're quoting.

Here in North Carolina, we consider $200/mo cash flow just break even. You always have more expenses for a hold than you expect.

In our market, $400 is good and certainly what we always try to get so, hopefully, the property pays for itself.

Best to you and let us know how this all works out!

Vonetta Booker- I am in CT as well, ready to put an offer in on my first rental property. I am 30 more minutes up the Shoreline towards Old Saybrook. Your post helped me as I am looking to do an $85k purchase with a median $1400 area rental comp. I was concerned a bit, but am jumping in right beside you ;)
I wish you much success!

Those are outstanding numbers. Here in Indiana , I shoot for 200+ with someone else managing(50 percent operating expenses), and around 280 to 300, with me managing(40 percent operating expenses) As long as their no surprises, If I could get 400 in cash flow per SFH, I would be jumping up and down:)

@Vonetta Booker Did you end up putting in an offer for this property?

- Tom

@vonettabooker Great post.  I hope things worked out well for you.  Please give an update if you can.  Thanks.
 

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