Will my primary residence cash flow?

Question

So I've been reading about the 2%/50% rules on rental properties, but would still appreciate your opinions on my primary residence as a rental. Here are the numbers:

67k owed on the property

$1, 000-1, 200 comparable rents

Mortgage w/taxes and insurance $580 mo.

If I land a renter somewhere between those numbers, would the property cash flow nicely ornot

Account Closed · Answer

Robert Adams, the house was purchased in sept. of '12 so the payments just started. The numbers I gave do include principal and interest, its a 30yr. fixed at 3.75

So we know it cash flows, but not much? do you guys have any idea if its 100 mo. or 300 mo. that it can cash flow? I know its just estimates but I want to have as much info. as possible before I move forward.

Also, my family has another 4/3 SFH built in '06. Much nicer than mine and their current mortgage(w/ taxes, ins.) is 700 mo. I'm pretty sure that property would rent in the 1200-1300's . So is it safe to say they would cash flow around the same amount?

Robert Adams · Answer

What does your payment schedule look like? How many years left on the loan until you pay it off? I am assuming that 3.75% rate is Principal and Interest not an interest only loan.

After using the 50% rule you will not be getting rich off of the cashflow from the property but it will cashflow and the tenant will be paying off the property (assuming it is P+I not Interest only). I ask how long until it is paid off because once it is paid off you will have a nice cashflow coming in from this property.

With rates increasing and properties selling for crazy prices I think you have the right idea about holding onto it.

Account Closed · Answer

Thanks Fran, that definitely cleared the picture in my head. I was counting it twice.  Thanks guys!

Fran Flanagan · Answer

Basically, 50% is for expenses which INCLUDE Taxes and Insurance.  The other 50% is to pay the principal and interest of your loan + cash flow.  It appears that you may be counting the taxes and insurance twice.

You need to consider if there are any major expenses coming up, etc... but at first glance if the rent coming in is double the monthly money going out, this should allow you to build up a reserve fund decently quickly.  Just make sure that you don't cut corners on tenant screening.

If you have a person taking good care of the place and paying on time, the numbers you've shared so far look like pretty good start.

Account Closed · Answer

Yea I did think about selling, but at a fixed 3.75 % I don't think I should let it go just yet...I want it to be my first investment property.

The mortgage only is 280mo. 
Not sure if you meant included or excluded...those rules are confusing to me.

Mike D. · Answer

So you have a property valued at roughly 120k. Have you considered taking that equity(tax free if you've lived there two years) and putting it towards a property or two with a better roi?

Also what is the mortgage payment portion of that 580? Remember the 50% rule includes taxes and insurance.

Account Closed · Answer

Well to answer Mike's question I have about 50k i n equity.
As to Dan's questions I would be managing the property myself, the renters would pay utilities and vacancy should not be an issue because renters in the area want to sign long term leases (great neighborhood, school distric etc..)

Dan Buck · Answer

what about accounting for vacancy management fees who pays utilities major purchases need to look at all those details before being able to answer your questions

Mike D. · Answer

Another thing to consider is how much equity you have tied up in the property