Getting major negative cash flow on deal analysis
Member since 2024 · 38 posts · 21 votes
Getting major negative cash flow on deal analysis
Most Popular Reply
Bradley BuxtonBusiness Member
Real Estate Agent · NV · Member since 2023 · 1k+ posts · 712 votesThe BP calculators are very general and not very market or neighborhood specific. Think of it like a Zillow estimate. There are multiple factors that go into determining rents and if there is limited data the rents will be off. If the subject property is in an area that is highly desirable and the there are no rental comps, the data will be pulled from a distant location that may not be relevant. You can use Zillow and Rent cast to check rents to confirm.
Also every market is different for vacancy. Some markets there is vacancy data available. For example in Reno, NV the apartment vacancy rate is less than 3% and in ATX I've seen apartment vacancy numbers over 10%. With any deal analysis there will always be some assumptions and every calculator will has slightly different assumptions. Areas that the market rents are increasing every year you'll have an opportunity to raise rents. What I like about the BP calculator is that you can easily adjust the number to see where the variables need to be to break even.
32 Replies
- 2yChris LanePro MemberNew to Real Estate · Nashville, TN · Member since 2024 · 13 posts · 7 votes
Some of it may be the market you're looking at. My local market is insanely high and so I'm looking outside my local area. I'm doing a little higher for repairs (8%), and about the same as you for others. I'm finding properties that are right at the edge, which gives me hope, but like you, I'm a new investor as well.
I don't know if you're on Facebook, but there are some off market real estate groups for various towns/cities. It might be work just looking for deal analysis practice to see if you get closer to a number that works.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Your looking at the wrong markets. You need to learn how to analyze markets, not properties. Property numbers are based on the market, not the other way around. Properties are pieces of a market.
You're not doing anything wrong with your property analysis, you are doing wrong in your choice of markets. If when you tell the doctor your arm hurts when you raise it, the first thing the doctor tells you is, "don't raise your arm".
- 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 712 votes
The BP calculators are very general and not very market or neighborhood specific. Think of it like a Zillow estimate. There are multiple factors that go into determining rents and if there is limited data the rents will be off. If the subject property is in an area that is highly desirable and the there are no rental comps, the data will be pulled from a distant location that may not be relevant. You can use Zillow and Rent cast to check rents to confirm.
Also every market is different for vacancy. Some markets there is vacancy data available. For example in Reno, NV the apartment vacancy rate is less than 3% and in ATX I've seen apartment vacancy numbers over 10%. With any deal analysis there will always be some assumptions and every calculator will has slightly different assumptions. Areas that the market rents are increasing every year you'll have an opportunity to raise rents. What I like about the BP calculator is that you can easily adjust the number to see where the variables need to be to break even. - Member since 2024 · 38 posts · 21 votes2ythank you, Chris! It’s nice to know that I’m not alone in the numbers I’m using, but I’m hoping to come close like you as well. Thank you for the great suggestions!
Quote from @Chris Lane:
Some of it may be the market you're looking at. My local market is insanely high and so I'm looking outside my local area. I'm doing a little higher for repairs (8%), and about the same as you for others. I'm finding properties that are right at the edge, which gives me hope, but like you, I'm a new investor as well.
I don't know if you're on Facebook, but there are some off market real estate groups for various towns/cities. It might be work just looking for deal analysis practice to see if you get closer to a number that works.
- Member since 2024 · 38 posts · 21 votes2y
Quote from @Joe Villeneuve:
Your looking at the wrong markets. You need to learn how to analyze markets, not properties. Property numbers are based on the market, not the other way around. Properties are pieces of a market.
You're not doing anything wrong with your property analysis, you are doing wrong in your choice of markets. If when you tell the doctor your arm hurts when you raise it, the first thing the doctor tells you is, "don't raise your arm".
Thank you for your honest advice, Joe. I will definitely consider other markets as well. Haha, I love the analogy!
- Member since 2024 · 38 posts · 21 votes2yThank you, Bradley! I will check Zillow and rent cast to see if the projected rents are similar or different to what bigger pockets pulls from.
Quote from @Bradley Buxton:
The BP calculators are very general and not very market or neighborhood specific. Think of it like a Zillow estimate. There are multiple factors that go into determining rents and if there is limited data the rents will be off. If the subject property is in an area that is highly desirable and the there are no rental comps, the data will be pulled from a distant location that may not be relevant. You can use Zillow and Rent cast to check rents to confirm.
Also every market is different for vacancy. Some markets there is vacancy data available. For example in Reno, NV the apartment vacancy rate is less than 3% and in ATX I've seen apartment vacancy numbers over 10%. With any deal analysis there will always be some assumptions and every calculator will has slightly different assumptions. Areas that the market rents are increasing every year you'll have an opportunity to raise rents. What I like about the BP calculator is that you can easily adjust the number to see where the variables need to be to break even.
Good point about adjusting variables on the calculator. I just would like to be conservative because I don’t want to end up in a situation where we are losing money instead of making it. - Lender · Nationwide · Member since 2023 · 362 posts · 237 votes2y
Hi Felicia, its going to vary greatly depending on the market you are planning to invest in. I'm based out of the Seattle area, but prices are so high, there is no way I can cash flow or even come close to breaking even. Its likely that I would be out 1-2k a month at current prices and interest rates. Instead, I've been investing in midwest markets and have built a 9 property portfolio across Memphis and Detroit using in turnkey, BRRRRs and everything in between. Happy to connect and knowledge share if you are interested.
- 2yJordan RayBusiness MemberReal Estate Agent · Memphis, TN · Member since 2023 · 623 posts · 322 votes
Quote from @Felicia West:
Hi there. I’m a new investor and have begun using the rental property calculator on bigger pockets for my market.
I've only analyzed about ten properties so far, but I am getting about negative $1000 cash flow per month for most of the properties and negative cash on cash return. The properties I am looking at are on the MLS because I feel I do not yet have the skills needed for off market deals
These numbers are even with a 25-30% down payment. I am using 5% for repairs, 10% for cap ex, 10% for vacancy, and 10% for property management. Are these the numbers you use, or what am I doing incorrectly? I definitely do not want negative cash flow on a deal.
Thanks in advance for any insight you can give!Deals are definitely found in the numbers, you will probably analyze 100s of properties and make 25-50 offers or so before getting a deal. Don't be afraid to offer at numbers that make the deal work for you. Asking price is irrelevant honestly, just make the offer because you never know what you might get under contract. Buying real estate is not like shopping at Kroger because you cant negotiate with the cashier but you can negotiate real estate with a seller anytime! Hope that helps! Let me know if I can help at all in Memphis TN or North Mississippi! Talk soon!
Jordan Ray - eXp Realty5110 Reviews - 2yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Felicia West I analyze every multi family property that comes on the market in my target investment areas.
It is good practice to analyze many, you start to learn what works and what won’t work the more deals you analyze in any given market.
A lot of the deals I see today are negative. When that happens sometimes you can figure out creative ways to make them work that others don’t see. Other times they just don’t work and you need to move on.
My two best suggestions are as follows:
1. If you like the market keep analyzing deals in it. 10 is likely not nearly enough to determine if you can find some that the numbers work on.
2. Have all your ducks in a row so you can move quickly on securing the deal when you do find the right one that the numbers work on.
Be prepared to set up a viewing ASAP and be ready and able to make an offer quickly.
In some markets you only have a short window of opportunity before someone else will land the deal and you will miss out.
- 2ySamuel DioufBusiness MemberReal Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
What markets are you looking at? If you're looking for cash-flow and struggling to find it in your current market.. you could always look elsewhere.
I also recommend connecting with an investor focused agent so they can start presenting you with the hottest deals.
Reafco - Samuel Diouf528 Reviews - Member since 2023 · 14 posts · 6 votes2y
Felicia, here is a quick way to analyze markets and properties nationwide.
https://www.loom.com/share/79170bf16882465e8fca26369a1fa1a7?... - 2yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Felicia West 5 years ago you could easily find cashflowing rentals on the MLS!
Nowadays, you need to work backwards:
Start with your target ROI
Figure out what the likely rent will be
Deduct taxes, insurance, maintenance, vacancy, etc.
Using what's left, determine what mortgage payment can be supported to reach your ROI
Figure out, given current rates, what the P&I mortgage payment => mortgage amount
Add your 20-25% down payment
THAT IS THE NUMBER YOU OFFER! Not what the seller is asking.
You may have to make 100 offers to get one accepted - the easy times are over!
Logical Property Management4.9451 Reviews - Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes2y
As a rule, most areas will not cash flow if you're paying retail for the property. Thats been like that for almost any time since I started even looking at investing 20 years ago. I spent the first three or four years shaking my head because the numbers didn't make sense. Put down 20 to 25% and lose money every month?
The key to investing is you have to buy the property at a discount. Typically you want to be all in around 70 to 75% of the value of the home. Then you can usually eke out a small profit on the rental income if you self manage and pull your money back out so you can scale with that.
But its very rare to be able to pay retail today and expect it to cash flow positive - even though you're sinking your 20 or 25% down. Keep in mind though. You are still getting principal paydown and appreciation on your investment so coc is not your true return. And if you're losing money, you'd get that writeoff against your regular income plus the depreciation writeoff.
Still, I'd find better areas where even if you paid retail or say 10% under retail, you can do a little better than lose 1k a month. Thats not sustainable and not scalable.
Here in the towns I'm in (smallish illinois suburbs), you can buy a 3/1.5, 1400 sq ft house for say 190k (retail and rental ready) and rent it out for 1750 to 1850 all day long. If you put down 20%, thats 38k so you'd owe 152k. Your payment at 5.75 would be about 900/mo. Taxes 350/mo, insurance 75/mo. thats 1325. If you self manage, you might net about 100 to 150 /mo after repairs and vacancy.
Lets say 2k a year net rental income. Not great coc for 38k down. Right around 5%. But the depreciation would be about 6k a year so your 2k would be tax free plus you could write off another 4k in depreciation. Your principal paydown would about 2k a year. And if your appreciation is 4% a year, that would be a gain of another 7,600 a year.
Now whats your return on your investment? 38k - 2k, 1500 dep, 2k pripayd, 7600 appreciation - 13/38 = 34%.
Its a great return but it also requires you to self manage.
To me, I don't believe its investing unless you're buying the property at a discount of at least 25%.
I would add though. The numbers don't work as well on LTR as they do on STRs. So if you don't think you can find properties discounted to that level, then maybe look into STR markets too. STRs can help you bring in more money and they have management built in too.
- Member since 2024 · 38 posts · 21 votes2yThank you, Joseph! I love Seattle, but I did noticed it has very high prices, similar to where I live in California. Thank you for the advice, and I’ll get in touch if I ever decide to pursue the Detroit and Memphis areas.
Quote from @Joseph Bui:
Hi Felicia, it’s going to vary greatly depending on the market you are planning to invest in. I'm based out of the Seattle area, but prices are so high, there is no way I can cash flow or even come close to breaking even. It’s likely that I would be out 1-2k a month at current prices and interest rates. Instead, I've been investing in midwest markets and have built a 9 property portfolio across Memphis and Detroit using in turnkey, BRRRRs and everything in between. Happy to connect and knowledge share if you are interested.
- Member since 2024 · 38 posts · 21 votes2yThank you, Jordan! That’s an excellent point about making a lot of offers at the price that makes the deal work.
Quote from @Jordan Ray:
Quote from @Felicia West:
Hi there. I’m a new investor and have begun using the rental property calculator on bigger pockets for my market.
I've only analyzed about ten properties so far, but I am getting about negative $1000 cash flow per month for most of the properties and negative cash on cash return. The properties I am looking at are on the MLS because I feel I do not yet have the skills needed for off market deals
These numbers are even with a 25-30% down payment. I am using 5% for repairs, 10% for cap ex, 10% for vacancy, and 10% for property management. Are these the numbers you use, or what am I doing incorrectly? I definitely do not want negative cash flow on a deal.
Thanks in advance for any insight you can give!Deals are definitely found in the numbers, you will probably analyze 100s of properties and make 25-50 offers or so before getting a deal. Don't be afraid to offer at numbers that make the deal work for you. Asking price is irrelevant honestly, just make the offer because you never know what you might get under contract. Buying real estate is not like shopping at Kroger because you cant negotiate with the cashier but you can negotiate real estate with a seller anytime! Hope that helps! Let me know if I can help at all in Memphis TN or North Mississippi! Talk soon!
- Member since 2024 · 38 posts · 21 votes2y
Quote from @Alecia Loveless:
@Felicia West I analyze every multi family property that comes on the market in my target investment areas.
It is good practice to analyze many, you start to learn what works and what won’t work the more deals you analyze in any given market.
A lot of the deals I see today are negative. When that happens sometimes you can figure out creative ways to make them work that others don’t see. Other times they just don’t work and you need to move on.
My two best suggestions are as follows:
1. If you like the market keep analyzing deals in it. 10 is likely not nearly enough to determine if you can find some that the numbers work on.
2. Have all your ducks in a row so you can move quickly on securing the deal when you do find the right one that the numbers work on.
Be prepared to set up a viewing ASAP and be ready and able to make an offer quickly.
In some markets you only have a short window of opportunity before someone else will land the deal and you will miss out.
Thank you for the great advice, Alecia. I think you’re right… I definitely need to analyze a lot more properties in multiple markets to get a feel for if there are any workable deals there.
- Member since 2024 · 38 posts · 21 votes2yHi Samuel, I am looking at Reno area, but like you said, I will add a few more markets to compare and make sure I find a good deal. Thank you for the advice!
Quote from @Samuel Diouf:
What markets are you looking at? If you're looking for cash-flow and struggling to find it in your current market.. you could always look elsewhere.
I also recommend connecting with an investor focused agent so they can start presenting you with the hottest deals.
- Member since 2024 · 38 posts · 21 votes2y
Quote from @Donato Callahan:
Felicia, here is a quick way to analyze markets and properties nationwide.
https://www.loom.com/share/79170bf16882465e8fca26369a1fa1a7?...Thank you, Donato! I checked out the video and it seems like an awesome analysis tool! I’ll give it a try!
- Member since 2024 · 38 posts · 21 votes2y
Quote from @Drew Sygit:
@Felicia West 5 years ago you could easily find cashflowing rentals on the MLS!
Nowadays, you need to work backwards:
Start with your target ROI
Figure out what the likely rent will be
Deduct taxes, insurance, maintenance, vacancy, etc.
Using what's left, determine what mortgage payment can be supported to reach your ROI
Figure out, given current rates, what the P&I mortgage payment => mortgage amount
Add your 20-25% down payment
THAT IS THE NUMBER YOU OFFER! Not what the seller is asking.
You may have to make 100 offers to get one accepted - the easy times are over!
Thank you, Drew! I really like your idea of working backward. That’s a great way to think about it. Also, thank you for the recommendation of making many offers to get one accepted. I’ll keep that in mind.
- Member since 2024 · 38 posts · 21 votes2y
Thank you, Mike!!! One day, I would love to be able to get properties at 75% of market value, but I figure I’ll work my way up to that.
Your explanation of the numbers was so amazing! You have such a thorough grasp of that. It makes total sense and I will give it a try. Thanks again!
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Quote from @Felicia West:
Thank you, Mike!!! One day, I would love to be able to get properties at 75% of market value, but I figure I’ll work my way up to that.
Your explanation of the numbers was so amazing! You have such a thorough grasp of that. It makes total sense and I will give it a try. Thanks again!
Me too! Buying 25% below FMV is tough in a market that has 5 times more demand than supply. First time home buyers compete with us investors and they are often blue-eyed in terms of how much work a property needs. They will pay full price.
I used to be able to find good deals in Milwaukee before 2020 - and then negotiate some more, but even then it was not easy to get a 25% discount (if you factor in repairs!)
Property management is a luxury. And make sure your rents are realistic (and not too conservative). If you can cover your PITI in CA you found a good deal. You'll have to chip in for repairs and maintenance until the rental has matured and the numbers turn green.
- 2yChris LanePro MemberNew to Real Estate · Nashville, TN · Member since 2024 · 13 posts · 7 votesI'm going through some of the early stages of deal analysis, and listening to some of the books from the library here. One thing I didn't mention earlier, but came up again is the impact of CapEx savings. For those of us starting out, and looking at lower end real estate, saving for expenses will eat up a good portion of that monthly cash flow until we get a nest egg to hold, or until you (I'm in the same boat) get into more expensive/valuable properties. As Brandon Turner put it - $200 CapEx/month on a $2000/month property is 10%, but $200/month on a $600/month rental property is over 30%. The things that need to be updated in a property don't scale as fast as the property itself. In other words - a water heater or a dishwasher for the two properties won't vary nearly as much in cost. I'm betting your numbers look like mine, and CapEx saving is eating up a lot of it.
Quote from @Felicia West:
Thank you, Mike!!! One day, I would love to be able to get properties at 75% of market value, but I figure I’ll work my way up to that.
Your explanation of the numbers was so amazing! You have such a thorough grasp of that. It makes total sense and I will give it a try. Thanks again!
- Member since 2024 · 38 posts · 21 votes2yHi Chris. Oh that’s super interesting. I guess I was thinking the cost would just be 10% regardless of property, but it sounds like you’re saying you actually have to save an even higher percentage if the property rents for less because the amount wouldn’t cover the appliances or other cap ex expenses. Thanks for that insight.
Quote from @Chris Lane:
I'm going through some of the early stages of deal analysis, and listening to some of the books from the library here. One thing I didn't mention earlier, but came up again is the impact of CapEx savings. For those of us starting out, and looking at lower end real estate, saving for expenses will eat up a good portion of that monthly cash flow until we get a nest egg to hold, or until you (I'm in the same boat) get into more expensive/valuable properties. As Brandon Turner put it - $200 CapEx/month on a $2000/month property is 10%, but $200/month on a $600/month rental property is over 30%. The things that need to be updated in a property don't scale as fast as the property itself. In other words - a water heater or a dishwasher for the two properties won't vary nearly as much in cost. I'm betting your numbers look like mine, and CapEx saving is eating up a lot of it.Quote from @Felicia West:
Thank you, Mike!!! One day, I would love to be able to get properties at 75% of market value, but I figure I’ll work my way up to that.
Your explanation of the numbers was so amazing! You have such a thorough grasp of that. It makes total sense and I will give it a try. Thanks again!
- 2yChris LanePro MemberNew to Real Estate · Nashville, TN · Member since 2024 · 13 posts · 7 votesYeah - if you think about it, the cost of replacement is the cost of replacement, regardless. You can have two properties with similarly sized roofs in two completely different neighborhoods at different cost points. 10% "might" be a starting point, but it depends on a lot. But, my point here was that part of the reason I'm noticing deals don't cash flow is because of the amount of capital I'm allocating to expenses and maintenance as a new investor. I haven't built my war chest of funds yet to keep in reserve, so those first properties probably aren't going to cash flow heavily (especially since everything is more expensive with the last year or two of inflation).
Someone more experienced may chime in, but my impression is that at a certain point, you're putting less in reserve for expenses/maintenance because you've already got a chunk of cash stuffed away, and the likelihood of "all" or even a high percentage of properties having major repairs all at the same time is much lower than one or two lower end properties while we're starting out. Hopefully that makes sense. I'm starting to worry less about initial cash flow (I mean, I don't want it to be hundreds upside down each month), and more about does it break even or get really close? If so, there's a good chance I'm a year or two away from that property cash flowing, between savings and increasing rents. - Member since 2024 · 38 posts · 21 votes2y
I’m in the same boat you are. I think cap ex is sinking my profits, and in my case, the need for property management is sinking it too since I’m investing out of state. Yes, I would be happy with at least a break even, but so far, haven’t even come close.
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