Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Never say never, but it does depend on the price points.
In many cases, you can cash flow with a lower ratio such as 1.6 for example.
With homes priced at $50k or less, you need to get much closer to the 2% rule in order to have the proper cash flow.
Cant you almost cash flow that at the right couple months time in summer,,,when your towns population swells to gynormous??
I always thought about owning some property up there,,but sure its priced in already.
heard there is a hardware store that cleans everything out for 2 weeks and converts itself to a bar and makes more in that short time than the whole rest of the year as a hardware store. LOTS of carrying and moving to pull THAT off!!!
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
17y
I am looking at a house for 129000. It rents for 750.00 a month plus there is a mobile home on the property that rents for 150.00 lot rent. That is nowhere near 2000.00
As far as The Bike Rally ya there is a lot of fun **** that goes on. You can rent a house for 2000 for a week. All of the businesses on main have to move out and let vendors come in etc. Fun stuff.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
$600 monthly with a $69,000 acquisition = negative cash flow.
As MikeOH suggested, you should read a bit more in the landlording threads and deal analysis so you have a basic understanding of what you should be looking for.
$600 rent = max pay of $30,000 based on the 2% rule.
I don't put a ton of stock in these rules but they are good guidelines, particularly for a newbie to keep you out of trouble. As I stated before, you can pay more than the 2% if the property values are higher.
So, in this case the 2% Rule worked perfectly. However, as Will correctly said, you can buy at a little less that 2% as the rents get higher.
The 2% Rule is a guideline you can use to see if a deal is in the ballpark. In your original example, $600 rents for a $69K purchase price is less than 1% and you don't need to do ANY more analysis to know that isn't close to 2% and it certainly won't cash flow.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
I think you made a math error here. The expenses you listed, assuming the $600 in rents, gets you $9 monthly in the whole. That is a bad deal to lose money each month. On top of that, you did not include other expenses like vacancies, evictions, etc in your expenses and therefore, you net monthly loss is much higher then the $9 monthly.
Since you are just starting out, take the rent and divide by 2. That is your NOI. From there, calculate your debt service and what is left should be a minimum of $100. If not, keep looking. :lol:
Assuming 50% of rent for expenses and with a desired cash flow of $100, the most you can pay for $600 of rent is $30,061. Payment on that would be right at $200.
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
17y
Thank you John
I have been reading the past couple of days on bigger pockets about the 50% rule. I know never say never BUT it seams a bit out of reach. Houses with a 200 mortgage and 600 rent are unheard of. Maybe in other markets but we are a bit sheltered from the big crash. It is hitting us here and everything is down but not near as bad as other markets.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
When I'm buying here in the Denver area, I generally assume 40% for expenses, and I'm just looking for break even. So, I'd go up to about $56K for my permanent loan on a $600 rent property. However, I'm buying with hard money, and usually have some rehab, so I'd actually pay quite a bit under that. I stay out of this price range. Better to be up in the $1000 rent range, IMHO.
I'm willing to use 40% for expense because I manage them myself. I'm willing to forego any immediate cash flow because I have a full time job, and I'm looking for the future.
Yes, its reasonable to expect rents might go up in the future. But, expenses will go up, too. If they go up at the same percentage rate, and you have a fixed rate loan, you should be OK. However, that's speculation. Expenses could rise dramatically. Rents could fall. A few years back, rents were depressed here because everyone bought houses. Vacancies were at 12%. If you buy a decent deal now, you'll be in a better position to weather a downturn. If you buy a marginal deal, you'll really be in a pinch if things get bad.
Don't give up. There are at least three houses within 100 yards of mine that are vacant. But I doubt I could buy any of them at a price that would make them worthwhile. But I can go into other neighborhoods and find deals that meet my criteria.
Real Estate Investor · Cebu, Philippines · Member since 2008 · 297 posts · 5 votes
17y
A little more info- I will manage my own properties, they will be bought using a 30 yr fixed and all of the small repairs will be done by me.
So can you give me an example of what I should buy a house for that has $700.00 per month rent with tenant paying all utilities and mowing their own lawns shoveling their own snow etc.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
Yes, it is against the rule. Here's what that would look like:
Rent: $600
Expense: $240 (40%. That's 50% less 10% for PM which I'm doing myself and doing for free)
NOI: $360
Desired cash flow: $0
Max payment: $360
Max loan amount: $56K
I would have no money (or, at least, very little) into this deal.
Would I rather buy cheaper, certainly. But, I'd also rather have it close by and not have to deal with a property manager and long distance hassles. So, for me, that's a trade off. I also know that I could turn around and sell these houses for a tidy profit, once they're fixed up. But, this is a "plan for the future" thing for me.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
No, I don't think you can apply that rule. For example, I have a rental that has a $633 PITI payment and a $950 rent, and I consider that just break even.
Try my simple property analysis spreadsheet. You'll need to save this to excel or create a google docs account and make a copy if you want to plug in your own numbers.