understnading cash flow
i am trying to better understand how people get cash flow from the rental properties they use. Is it the way a property is financed that creates the cash flow or does it just have to do with the price you paid for the property versus the rent you are getting each month. also are there any really good in depth resources ( besides infomercial type) for better understanding cash flow. thanks for your help!
Cash flow is a relatively simple concept. Income minus expenses = cash flow. If your expenses are greater then your income, your property will be cash-flow negative. If income is greater than expenses, then the property is cash-flow positive.
Any property can be cash-flow positive. The determining factor is usually how much money you want to put down on it. If your down payment is large, then your property is likely to generate greater cash-flow. Remember, when calculating cash flow, you need to take ALL expenses into account. That includes debt service (mortgage), insurance, taxes, maintenance, management, utilities, vacancies, legal expenses, and all the other day to day expenses.
I hope this helps you out. If you have any more specific questions about this issue, please ask and we'll do our best to help you out.
Good luck & welcome to the site!
I agree with BiggerPro that the amount of money you put down can control the amount of cash flow. However, most investors don't have an unlimited amount of money to put down. Therefore, the number of rentals they can buy is very limited.
I do things a little different. I believe that the money with rentals is made when you BUY. I buy every property at a huge discount, which ensures that I will have a positive cash flow for every rental. Is it easy to find properties at a huge discount? NO! In fact, I haven't found anything to be easy in the rental property business. However, if you want to rapidly build a large rental portfolio that generates enough cash flow to live on and build a significant net worth, that is what you need to do.
Please note that I live in Ohio. Prices here are not insane like they are on the coasts. If you live in California, it may be VERY difficult to find properties that cash flow without putting money down.
Good Luck,
Originally posted by "MikeOH":
I believe that the money with rentals is made when you BUY. I buy every property at a huge discount, which ensures that I will have a positive cash flow for every rental. Is it easy to find properties at a huge discount? NO!
I agree with you Mike. You do make money by buying at a discount.
With that in mind, I wanted to invite you and anyone else reading to join our Investor Database. We constantly hear about new deals that are seeking investors and felt it was time to start organizing. As deals come up that match your profile, we will present them to you. It is that easy!
Mike,
curious, where in OH? I am fighting the good fight in Cleveland. I was just wondering where you were at, and if it was any easier that this city. The rent vs. buy is so close here, it is difficult to find something that flows, IMO.
but then again, I am still wet behind the ears.
-
Real Estate Agent OH (#2022000506)
- Berkshire Hathaway Homeservices
- (216) 832-1935
- https://ryanarth.tpragent.com/
- [email protected]
strive for the life,
I'm near Columbus. Finding cash flow properties is not easy in ANY market, especially if you are using real world expense numbers. It is hard work here and I'm sure that it is hard work there. The vast majority of new landlords don't make it because they pay too much for their properties. My advice is do whatever it takes to buy every property at a BIG discount.
Good Luck,
Ditto on how hard it is to cash flow. I'm in the south and we don't have huge booms or busts in my locale. build one new porch to prevent water rotting your door facings off can take your profit for a year. Also, how about a heating and air system that has to be replaced in July. Try and get that back in a year.
It's hard and nearly impossible lately because every realtor in town has the hot sheet every morning and out buying that afternoon. I say you make your profit in the buy and settlement of inspection report findings because most of the properties I buy really need oodles of work just to bring it current. Doesn't anybody sell a property that doesn't need to be completely redone? It's exhausting and you can blow 45-70k in renovations, carrying charges in six months easy -- before your FBSO sign or "FOR RENT" sign goes up.
You really have to have large cash reserves, access to cash and/or a large line of credit to hedge your bets in real estate.
Ditto on how hard it is to cash flow. I'm in the south and we don't have huge booms or busts in my locale. build one new porch to prevent water rotting your door facings off can take your profit for a year. Also, how about a heating and air system that has to be replaced in July. Try and get that back in a year
dal1,
That's exactly right. New investors often don't consider these expenses since they don't happen every day.
A friend of mine recently had a tenant do $10,000 of damage to a house. Of course, that doesn't happen every day or even every year, but how many years of positive cash flow does a $10,000 loss wipe out?
Mike
Doing on a string is one way to do it. Perhaps a parent as a back up to help out if the mortgage and newly assessed property taxes and insurance get to be too much but...if you are on your own... save the cash.
If a new investor just bought low and lived in the house for two years they'd get a real grasp of what it costs to maintain a home. The end result is tax free gain up to $250,000 which is probably not going to be available to us forever. Then take the cash and buy, fix and rent a 80% ltv investment to hold. 1031 it into two investments later on. It's what you do over time that I believe makes the difference.
Just went to an open house that's going to be featured on "Flip that House" . Everyone and his brother was there to soak up a house that had been renovated in 3 weeks. Purchased for 90k, 38k renovations, selling for $209k.--the entertainment factor was everywhere. Some people came to be on film as well, I suspect. 1300 sq. ft. and a decent job at that. OK street. Now when he says $38k renovations that's probably not counting closing costs, carrying costs, finance costs, termite, inspections, utilities etc. nor sales commissions if an agent brings the offer to ......this agent.