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
- 2yKerlous TadresBusiness MemberRealtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ 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!You need to find an agent who is an investor and show you what properties will cash-flow and what they did to get started. Let me know how I can help!
Kerlous Tadres | Reafco Real Estate539 Reviews - Member since 2024 · 38 posts · 21 votes2y
Quote from @Kerlous Tadres:
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!You need to find an agent who is an investor and show you what properties will cash-flow and what they did to get started. Let me know how I can help!
Thank you, Keelous! That’s a great idea. I will definitely reach out when I’m closer to purchase ready to make sure I’m on the right track.
- 2yJames WachobBusiness MemberReal Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 887 votes
Hello @Felicia West,
The BP calculator or any algorithmic calculators for that matter aren't going to provide that kind of accuracy that you could hope for, however, if this tool is married with raw data from PMs that are actually managing rental properties in the market that you are investing in, then it could be very useful in making projections, but it's not end all be all. It's imperative that you partner with someone who understands the market and has tons of experience in leasing/selling investment properties. If you'd like to learn about the Memphis market, I'd love to connect and be a source of great information for you.
- Member since 2024 · 38 posts · 21 votes2y
Hi James, that’s a good point about the algorithms being imperfect. I’m not not if the bigger pockets one is connected to property manager data, but that would be a great idea to talk to them to confirm. Thank you and I’ll let you know if I ever become interested in the Memphis area.
- Member since 2021 · 8 posts · 3 votes1y
Quote from @Mike H.:
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.
@Mike H.undefined
I like your response! How do you go about finding below market value properties? - Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes1yThats the million dollar question. To me there are a couple of ways you can do it, although one is no longer really a workable option - at least not like it was a couple of years ago.
1) Direct marketing. Mail letters to home owners. Maybe filter by people with no or low mortgages and/or people with 90 day notices, or people whose taxes were sold. Sometimes those people are in unique situations to where they need to sell their homes and for whatever reason, don't want to put it on mls and have people come through their house for showings. Keep in mind, these houses typically need quite a bit of rehab work.
2) Find wholesalers doign direct marketing. Some are better than others - way better. But if you find a good one, you have a shot at them doing the marketing and finding a good deal that they can pass on to you at a lesser discoun. i.e. maybe they get a 200k house under contract for 100k and it needs 40k in rehab. And then they sell the contract to you for 115k and it needs 40k in rehab so you'll be all in at 155k. Not a 70% deal, but at least you're getting a discount with some work on your end.
3) Make a bunch of low ball offers. This is the one that doesn't work really any more. It was somewhat successful up until four or five years ago. But these days not so much. I still do it to buy land. Not getting 30% to 35% discounts but I can get 20 to 25% on buildable lots in eastern tennessee so this definitely works a little for land.
But again, it can't hurt to ask. If you see a listing that might have some selling clues in the description (i.e. needs work, owner moving, divorce, etc) or one thats had a recent price drop or a deal thats fallen through, don't be afraid to put in an offer of say 150k on a 200k house. If you can do it without any contingencies and fast, you might have a shot. And maybe 75% is a bit of optimism. But it might be close enough to where they counter at say 165k or 170k even to where you're at least not paying retail.
Those would be three ways I'd be looking at to try to get a discount. The last one is not going to get you to that 70 or 75% LTV like you should want to get deals for when investing. But maybe you get lucky and hit on one at 80%. Thats not terrible these days. The other two ways likely require you to do some rehab. Otherwise, you probably won't see those discounts on those either. - Member since 2021 · 8 posts · 3 votes1y
Quote from @Mike H.:
Thats the million dollar question. To me there are a couple of ways you can do it, although one is no longer really a workable option - at least not like it was a couple of years ago.
1) Direct marketing. Mail letters to home owners. Maybe filter by people with no or low mortgages and/or people with 90 day notices, or people whose taxes were sold. Sometimes those people are in unique situations to where they need to sell their homes and for whatever reason, don't want to put it on mls and have people come through their house for showings. Keep in mind, these houses typically need quite a bit of rehab work.
2) Find wholesalers doign direct marketing. Some are better than others - way better. But if you find a good one, you have a shot at them doing the marketing and finding a good deal that they can pass on to you at a lesser discoun. i.e. maybe they get a 200k house under contract for 100k and it needs 40k in rehab. And then they sell the contract to you for 115k and it needs 40k in rehab so you'll be all in at 155k. Not a 70% deal, but at least you're getting a discount with some work on your end.
3) Make a bunch of low ball offers. This is the one that doesn't work really any more. It was somewhat successful up until four or five years ago. But these days not so much. I still do it to buy land. Not getting 30% to 35% discounts but I can get 20 to 25% on buildable lots in eastern tennessee so this definitely works a little for land.
But again, it can't hurt to ask. If you see a listing that might have some selling clues in the description (i.e. needs work, owner moving, divorce, etc) or one thats had a recent price drop or a deal thats fallen through, don't be afraid to put in an offer of say 150k on a 200k house. If you can do it without any contingencies and fast, you might have a shot. And maybe 75% is a bit of optimism. But it might be close enough to where they counter at say 165k or 170k even to where you're at least not paying retail.
Those would be three ways I'd be looking at to try to get a discount. The last one is not going to get you to that 70 or 75% LTV like you should want to get deals for when investing. But maybe you get lucky and hit on one at 80%. Thats not terrible these days. The other two ways likely require you to do some rehab. Otherwise, you probably won't see those discounts on those either.thank you! This is my first investment property so I feel more hesitant about going into rehab work than something fairly newer or even older but with minimal repairs/recently renovated. I will certainly try the 3rd option!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.