Cash flow minimum on SFH

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Cash flow minimum on SFH

Jeremy Torres
Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes

I鈥檓 22, and will be closing on my 2nd rental property soon馃コ馃帀馃彔

it hurt putting 20% down, ouch !

My main question is what鈥檚 the minimum cash flow you want after mortgage is paid ?

My first one is $247/mo

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
5y
Originally posted by @Jeremy Torres:

I鈥檓 22, and will be closing on my 2nd rental property soon馃コ馃帀馃彔

it hurt putting 20% down, ouch !

My main question is what鈥檚 the minimum cash flow you want after mortgage is paid ?

My first one is $247/mo

I started out trying to get $200 or more in cash flow for each property, but it depends on your goals. At the time, my goal was to generate enough cash flow that I could be financially independent. I reached that goal and still enjoy working with no signs of stopping, so now I am focused on other goals.

Don't forget: there are other ways to benefit from real estate like tax benefits, appreciation, or building equity over time. Cash flow is just one measure of a good investment and how you aim to benefit from a property really depends on what you're trying to achieve.

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  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y

    A lot more than that since that small amount probably meant you were under $100/month in CF (or even negative...ouch!!!) while the mortgage was being paid off.  That would also mean the property cost you a lot more than the asking price, and a lot more than what you maximum cost of the property should have been...just the DP .  If that was the case, then you have a lot of cash to recover before you can start making a profit.

    1Reply
  • Jeremy Torres
    OP
    Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes
    5y

    @Joe Villeneuve I put 20% because it鈥檚 an investment property

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker 路 Cody, WY 路 Member since 2010 路 28k+ posts 路 41k+ votes
    5y
    Originally posted by @Jeremy Torres:

    I鈥檓 22, and will be closing on my 2nd rental property soon馃コ馃帀馃彔

    it hurt putting 20% down, ouch !

    My main question is what鈥檚 the minimum cash flow you want after mortgage is paid ?

    My first one is $247/mo

    I started out trying to get $200 or more in cash flow for each property, but it depends on your goals. At the time, my goal was to generate enough cash flow that I could be financially independent. I reached that goal and still enjoy working with no signs of stopping, so now I am focused on other goals.

    Don't forget: there are other ways to benefit from real estate like tax benefits, appreciation, or building equity over time. Cash flow is just one measure of a good investment and how you aim to benefit from a property really depends on what you're trying to achieve.

    The DIY Landlord Book4.7248 Reviews
    WebsiteView Page
    14Reply
  • Jeremy Torres
    OP
    Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes
    5y

    @Nathan G. Thank you I鈥檓 thinking 250-300/mo is good

    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y
    Originally posted by @Jeremy Torres:

    @Joe Villeneuve I put 20% because it鈥檚 an investment property

    I'm not sure you understood what I meant by my statement above.

    If your CF after payoff was only $247/month, what was your CF when you still had a mortgage on that property?  Quick calculations tells me unless that original property was less than $60k, you had negative CF.  That would mean, even if you only had $20/month in negative CF, that's $240/yr, you would have accumulated $7200 additional cost over 30 years (if all years being equal).  So, if you add that to your DP (assuming 20% = $12k) you would have paid at least $20k for that first property.  

    If your after payoff CF is equal to $247/m (about $4k/yr), it will take you 5 years after you paid off the property before you broke even and realized a profit.  That means you would have bought a property and it took you 35 years before you realized a profit...and during the first 30 years, you would have been paying your tenant to live in your property.  That's the tenant's job.  The tenant paid the largest part of the mortgage for you, but you still paid some of it.

    1Reply
  • Jeremy Torres
    OP
    Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes
    5y

    @Joe Villeneuve sorry. I think you misunderstood my initial question. I might have worded it wrong.

    What鈥檚 a good cash flow amount per month after you pay the monthly mortgage bill?

    I still have a monthly balance. The loan is not paid off yet.

    0Reply
  • Jeremy Torres
    OP
    Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes
    5y

    @Jeremy Torres I鈥檓 22 yrs old

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y
    Originally posted by @Jeremy Torres:

    @Joe Villeneuve sorry. I think you misunderstood my initial question. I might have worded it wrong.

    What鈥檚 a good cash flow amount per month after you pay the monthly mortgage bill?

    I still have a monthly balance. The loan is not paid off yet.

     Gotcha.

    That depends on what your specific financial goals are for the specific cash flow funds coming from a specific property. You should establish those goals as steps along the way in a long range REI Plan where the long range financial goals are based on the total financial end goals of "why you are in REI"...such as having enough CF to pay all your monthly bills, and enough profit to have paid off all your "personal" debt.

    The specific use of funds (CF Goal for a specific property) is established based on the specific timeline you are at in your REI Plan. This specific financial goal a property is supposed to achieve can be anything from a lump sum or a specific cash flow, but it is established from the REI Plan, at the specific time you are at within that plan.

    This means the minimum CF or Profit you need to walk way with from each specific deal will most likely be different for each deal, since the specific financial goal that property is supposed to achieve will be different with each step along the path of your REI Plan.

    Clear as mud?

    1Reply
  • Jeremy Torres
    OP
    Rental Property Investor 路 TX (texas) 路 Member since 2019 路 121 posts 路 33 votes
    5y

    @Joe Villeneuve got it thanks . @Brandon Turner always says $250/mo per door For SFH thanks for explaining

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y
    Originally posted by @Jeremy Torres:

    @Joe Villeneuve got it thanks . @Brandon Turner always says $250/mo per door For SFH thanks for explaining

     That's his minimum.  That doesn't mean it has to be, or should be, yours.

    "All squares are rectangles, but not all rectangles are squares".

    2Reply
  • JASON V.
    Rental Property Investor 路 Lee County FL 路 Member since 2021 路 19 posts 路 12 votes
    5y

    I would shoot for a littler higher. This is assuming that you don't have a ton of cash for down payments, and it will take you a little bit to save up again for your next property. (i.e. you purchase your second, and need to save to next year to get the cash to put down on your third) Lower cash flow is cool when you can scale quickly, and move right to your next deal, but it can slow you down starting out. Especially if you get hit with a repair or vacancy.

    Then of course, it depends on your market, what's available to you, etc. Hope that helps, and doesn't just add confusion...lol

    1Reply
  • Jhanel Wilson
    Rental Property Investor 路 Philadelphia, PA 路 Member since 2016 路 63 posts 路 58 votes
    5y

    I dont know what your goals are, if you just want to own a few properties, I guess this is ok? But if you want to make a career of this, I would not continue to invest this way.  Investing 20% to make $250 a month seems like an inefficient use of money.  

    I would suggest using the BRRRR strategy, you should be able to get your initial investment back out. Then be able to use that same 20% of money over and over again.

    Also, find other funding sources.  I don't put any of my own money down. Get creative .

    4Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y

    Keep this in mind when you're making decisions on what/where to invest. DON'T base your CF number on what a particular market (some have referred to it as YOUR market) will give you. Base the market you invest in on the Minimum CF you need, dictated by your REI Plan.

    3Reply
  • Matt W.
    Rental Property Investor 路 Member since 2018 路 157 posts 路 83 votes
    5y

    @Jeremy Torres

    Purchase price would help determine if this was a good deal, meaning 20% down on an $80k house to make $247/month is not bad.

    20% on a $300k house to make $247/month IS bad from a cash flow perspective.

    If it鈥檚 appreciating like crazy that鈥檚 a bit different, might be worth it to suffer a few years to double your down payment.

    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y
    Originally posted by @Matt W.:

    @Jeremy Torres

    Purchase price would help determine if this was a good deal, meaning 20% down on an $80k house to make $247/month is not bad.

    20% on a $300k house to make $247/month IS bad from a cash flow perspective.

    If it鈥檚 appreciating like crazy that鈥檚 a bit different, might be worth it to suffer a few years to double your down payment.

     Why would you double down your payment?  All that does is add to the cost, and delay the time to start making a profit.

    1Reply
  • Joe S.Pro Member
    Investor 路 San Antonio 路 Member since 2020 路 3k+ posts 路 3k+ votes
    5y
    Originally posted by @Matt W.:

    @Jeremy Torres

    Purchase price would help determine if this was a good deal, meaning 20% down on an $80k house to make $247/month is not bad.

    20% on a $300k house to make $247/month IS bad from a cash flow perspective.

    If it鈥檚 appreciating like crazy that鈥檚 a bit different, might be worth it to suffer a few years to double your down payment.

    Good insight.

    0Reply
  • Matt W.
    Rental Property Investor 路 Member since 2018 路 157 posts 路 83 votes
    5y

    @Joe Villeneuve

    Maybe I should have said double your equity.

    0Reply
  • John MorganPro Member
    Rental Property Investor 路 Grand Prairie, TX 路 Member since 2018 路 2k+ posts 路 2k+ votes
    5y

    @Jeremy Torres

    Two fiddy for sfh.

    1Reply
  • Account Closed
    Rental Property Investor 路 Indianapolis, IN 路 Member since 2020 路 562 posts 路 554 votes
    5y

    @Jeremy Torres

    I try to shoot for a minimum of $200 net after I pay all the bills and set money aside for vacancies and maintenance etc.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    5y
    Originally posted by @Matt W.:

    @Joe Villeneuve

    Maybe I should have said double your equity.

     Matters not.  Negative cash flow just adds to the cost of the property

    0Reply
  • Account Closed
    Rental Property Investor 路 Brooke Park Drive 路 Member since 2018 路 1k+ posts 路 2k+ votes
    5y
    Originally posted by @Jeremy Torres:

    I鈥檓 22, and will be closing on my 2nd rental property soon馃コ馃帀馃彔

    it hurt putting 20% down, ouch !

    My main question is what鈥檚 the minimum cash flow you want after mortgage is paid ?

    My first one is $247/mo

     Shouldn鈥檛 hurt if you have a clear vision and (eventually) are swimming in cash flow. Should be thinking I want more more more assets that only require 20% of price to purchase.

    1Reply
  • Alecia LovelessPro Member
    Member since 2019 路 3k+ posts 路 2k+ votes
    5y

    @Jeremy Torres While you always want to get the biggest cash flow possible sometimes you have to be creative or buy for reasons other than monthly cash flow. While I like to try to get at least $250 per unit it鈥檚 not always possible in my market.

    I bought one that cash flows less, around $125 per unit but it鈥檚 the nicest building I鈥檝e ever seen in my geographic area, will have very little maintenance, and given its location and great condition will have low turnover. In fact one tenant has been there 6 years and one tenant 20 years.

    A SFH I bought was going to cash flow about $300 but we realized it would flip to the tune of a $100,000 profit. So I'm flipping it.

    So it just depends on the property you find and the deal you are able to put together for it. I鈥檓 not always able to put everything together in a neat little box of $250 per unit cash flow per unit. My opinion is always think outside the box to get the best profit for your needs.

    1Reply
  • Dustin Somers
    Real Estate Agent 路 Sparks, NV 路 Member since 2021 路 30 posts 路 19 votes
    5y

    @Jeremy Torres. I have asked myself this questions many times. As mentioned above by several people that depends on your goals. However i have also found success and piece of mind in the 200-300/door range so long as that CF is after all expenses are covered including a designated amount set aside for cap ex and repairs

    0Reply
  • Curt Smith
    Rental Property Investor 路 Clarkston, GA 路 Member since 2012 路 2k+ posts 路 1k+ votes
    5y

    @Jeremy Torres I tell new folks to buy at $300ish or better.

    Regardless after 1st yr you raise rent $75 each year, mow $375, etc. You can see how cf goes up quickly.

    Add to yiur lease, that rent goes up every year 7%... even if Multi year lease. My screening req is must be Multi year renters. O ask multiple questions to verify. They typically stay 5 yrs... raises every year...

    Best to you.

    0Reply
  • Ryan Woods
    Investor 路 Denver, CO 路 Member since 2020 路 7 posts 路 3 votes
    5y

    $250 is great depending on the market your in for a SFH. Especially if you ran very conservative numbers for expenses/ repairs/ vacancy cost ect.

    Ryan

    0Reply
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