Looking for opinions: how much positive cash flow should you make monthly off a rental property. To me $200 really isn't worth the hassle, but when you get up to around $300 that would make it worth it. My bottom line would be $275 extra a month, what is your bottom line.
Rental is in San Antonio, TX.
I know some folks like to look at 150-200 cash flow per door,,but I prefer to look at cash on cash return. 200$ per month on an investment of $20k is 12% annual return, but that same cash flow on a property that you have $50k invested in is only a 4.8% return. For me, I want 15% cash on cash return for leveraged properties and 10% for properties owned free and clear. Those numbers, I'm finding, are hard to come by in San Antonio, so I will fudge for properties with lower risk in great locations.
I agree with Ross, I look more at ROI than dollar amount, but then, I don't do SFR rentals, only multifamily. We get several hundred per month per multifamily property, but I care more about our ROI than that dollar amount.
I look for $100/door/month AND 15% Cash on Cash return. Both of those numbers have at least $150/month built in for repairs and cap ex.
This is a question I get asked by friends and see asked at every REI forum I go to. "how much" I never now the answer to this. I myself have goals and as long as I achieve them (ethically at minimum of course) I am happy. For me I look at all the factors to include all those listed above in response to include time and stress. Funny, The properties that offer the greatest return do so because of a reason(s) and as I continue on my journey I try to "better" my systems to achieve my goals. This may sound nutz but it is not always about money. GULP ! ! !
It all depends on the market. What is acceptable for one won't be for another. Like if I invest in a lower-quality area with cheaper properties, I won't settle for less than quite a bit per month because I would want that extra cash flow to justify the extra risk I'm taking on. Texas properties, on the other hand, are very low cash flow (relatively) because of the state property taxes and insurance there. But I'm willing to go lower on cash flow there because of how good of quality the markets and the properties are. It's all a trade-off about what you want. If cash flow is your primary concern, I wouldn't invest in TX. But for a good stable solid rental property, TX is great but you have to be willing to come down on cash flow.
It also depends if you are buying fixer-uppers or rent-ready and/or what neighborhoods you are buying. $100/door is minimum for me in any market, but for TX cities I'd be pumped to see $200-300/door, because that would be high for there.
And those numbers are assuming after mortgage. If no mortgage, then they would be a lot higher.
@Ali Boone I am going to have to disagree with your summation of Texas markets. I can't speak for all the Texas markets but here in San Antonio, it's very easy to net $300+ per month cash flow on SFRs. Yes, there are higher real estate taxes than some other markets (I own properties in St. Louis as well), but the demand for rentals here is much greater than other places. I have never had to advertise my rentals; word of mouth has keep then 100% leased over the 2-year period I have been here. My experience is not unique. My client's won't buy SFRs for rentals if they can't achieve at least $300/month cash flow. Typically this is a true net of $300/month accounting acquisition & renovation with a hard money lender, a refinance into a conforming loan, real estate taxes, water, and a property manager.
They keys to solid cash-flow in SA is buying in the right locations, and purchasing at the right price. By close to Downtown (Southtown, Tobin Hill, Beacon Hill, Government Hill, Laurel Heights, Monte Vista, Mahncke Park, etc.) and you have high demand, qualified renters, and a property that will continue to appreciate. Of course this isn't the only place to make money on single-family rentals in SA. On the East and Westsides properties can be purchased extremely inexpensively. Not all areas are "warzones" as many would like to believe, and working with Section 8 or San Antonio Housing Authority (SAHA) can guarantee rents. The areas I have mentioned don't even begin to cover all the neighborhoods that you can achieve solid positive cash flow.
Lastly, Here are few things to consider when looking at the SA market for a buy-and-hold strategy. San Antonio is home to over 18 colleges and universities, 4 military bases, 2 major medical centers, and large employers like Toyota and USAA. It also has one of the fastest growing populations in the United States, growing more rapidly than Austin since the 2010 census, and almost as fast as Houston. San Antonio is also the first major city across the US/Mexican border and has very large documented and undocumented immigration population. Needless to say these people need a place to live, and most of them will rent.
Agree with @Seth Teel the ROI is available in Texas if you are shopping in the right market. My favorite property nets $470/month on a $17,000 investment - 33% CCR. It's a >1000 SF, 2/2 built in 2007 that is 40ish miles from Austin. Definitely not where most out-of-the-area investors are looking.
Comments from Seth are spot on...I currently have 10 SFR units and they are all cash flowing. My best deals are from several I have on the east side and they net me about 350 each unit. Persoanlly I like the nortrh east side of town from FM 78 to FM 3006. Keep your eyes on that 35 corridor from SA to New Braunfels.
if you are getting $200, you have a good deal. Anything more than that just sweetens the pot.
With all the talk about cash flow curious what formula everyone uses to come up their cash flow. I know there are some very complicated ones but does any use a basic one....
when you figure your mortgage do most use a 30 year payout 15, 10?
rent income - vacancy loss (6%) - payments (mortgage) - expenses = cash flow
In the big Texas cities, if you know what you are doing your vacancy loss will be less than 3%, I have not had a property vacant for more than 2 weeks unless I was doing a major renovation off a turn.
I offer my tenants there deposit back the day they move out if I get the property back in the same exact condition that I gave it to them in, meanwhile my leases say that they have to give me 60 days notice before move out, so I am already marketing the property and lining up the next tenant with a full months rent plus a full month deposit, so you can keep rolling people in and out that way.
I don't care about the cash amount. I care about ROI. $50 a month with 20% ROI is better than $500 a month with 4% ROI.
Remember, real estate makes money 3 ways. Cash flow, debt pay down and appreciation. The monthly cash flow and ROI on that cash flow is one factor, but you can create a lot of value through mortgage payoff and appreciation (especially in SFR's).
What is an acceptable cash flow depends on you goals, time line and how all these factors come into play. Good luck!
I wanted to say thanks to everyone they posted a reply, all this information has been very helpful.
so my question here is when everyone is talking about the cash flow, are you considering the 15 yr or 30 yr loan?