Cash Return or $$$/door, First Deal

8 Replies

Hello All,

My wife and I are new investors, currently living the DC area (military) but looking to invest in our college town of Lansing, MI (Anyone out there?)

We've analyzed a handful of multifamily and a couple SFH and found that I can get a cash on cash return of 20-30% but would only clear about $100-$150/door. In everyone's experience, should I keep looking for a better cashflow or be happy that I can get a higher ROI?

Also, Winter Is Coming, how hard is it REALLY to rent out in the winter?

Prices are about $40-$60 with rents around 500-700.  Am I overanalyzing?

@Joseph Blauwiekel  No, you are not over analyzing.  How much are your planning on putting down?

If I understand you correctly you would be cash flowing (after mortgage, taxes, insurance, management, repairs, capital expenses, vacancy) $100 to $150 per month or $1,200 to $1,800 per year and this would reflect a 20% to 30% cash on cash return.

Also, I assume you mean prices are about $40K to $60K.

Let's assume $100/mo and a 20% cash on cash return.  That's $1,200 per year.  So your cash invested must be 5x that, or $6,000.

That sound like about 5% down plus closing costs if you prices are around $50K.  How are you managing that if you are not living there?  Most banks only offer 80% loan to purchase for investors.

While 20% cash on cash is good, rent vs price doesn't sound very good.

Regarding renters, people move at all times of the year.  There are less people moving in the winter, but there are still plenty.

Your ROI is good but at $100-$150/door the cash flow is not there to sustain the properties. If you use a property manager they will take at least half of your cash flow and maintance/vacancies will take the other half and then some. If you are not tied to that particular area I would choose another city (or state) to invest in with better numbers. Typically in our area for SFH with 20% down you should be getting at least $350/month cash flow and if you are willing to do some renovation you can get up to $500+/month cash flow. We also look to get at least 15% equity out of a deal as well when we purchase and fix up.

Less money down is great but you need to be getting enough cash flow to make sure you can sustain the property.  I have seen a ton of foreclosures where the previous owners were "investors" that only put 5% down and went belly up when the houses prices fell.

Great questions, @Joseph Blauwiekel  . I'm a new investor in this area as well and it has been hard to find good deals and your numbers seem similar to what I have come up with as well. Were you thinking of targeting the student market? That is where I wanted to go but it is a steep curve to get started, which is why I've been looking to the Lansing and surrounding areas instead. Your rent rates are about on average, though I have seen investors rent for more, depending on the area/neighborhood. Would love to know if you do decide to start something here!

 @Larry T.     @Christopher Gilbert  

I have a duplex that could cash flow (before taxes) at $4300 that I could put down (20% conventional) for $12K.  I'm not experienced with the tax benefits to I am conservatively guessing that my take home after taxes would be around $3700/year which is about 156/door.  Total asking is $60k.

Management is built into my costs. We have a PM in the area that took me a while to find that charges 11% plus 50% move in fee.  Still looking for the underground RE in the area.

Thanks for the advice about classing the places up a bit, I'm going home in a few weeks to take a look for myself and drop a few offers to see who bites.

@Emily B.  

Hey Emily, While we weren't specifically targeting the student market, we though that it was a good starting point as newbie investors. More like a "Hey, let's do lansing because we spent a lot of time there, the prices aren't too bad, and there are a few colleges there." So we determined that the risk was lower than where we had been. We've lived in Southern California and now Washington DC, not extremely cost-friendly places.  Glad you are in the Grand Ledge area, my wife student taught there and I am a Pewamo Westphalia alumni myself.

Originally posted by @Joseph Blauwiekel:

 I have a duplex that could cash flow (before taxes) at $4300 that I could put down (20% conventional) for $12K.  I'm not experienced with the tax benefits to I am conservatively guessing that my take home after taxes would be around $3700/year which is about 156/door.  Total asking is $60k.

Management is built into my costs. We have a PM in the area that took me a while to find that charges 11% plus 50% move in fee.  Still looking for the underground RE in the area.

Thanks for the advice about classing the places up a bit, I'm going home in a few weeks to take a look for myself and drop a few offers to see who bites.

 If you did your analysis right there are plenty of investors who would call that a good deal.  I'd like that deal if I felt like I also was buying at a good price.  I like to know that I can sell a place tomorrow and not lose money.

@Joseph Blauwiekel  

What other costs are you figuring into your total befoer you get to your cash flow ? you have to take into account both your fixed (PM, Insurance, taxes, are you paying any utilities?0 as well as the variable ( Vacancy, maintenance , CAP EX repairs ) that wont show up every month but you stll must bidget for. There are some good REI spreadsheets in teh file section that can help you analze properties

@Kenneth Hynes  

I'm using an older generation spreadsheet from biggerpockets. It has vacancy, taxes, management, insurance, repairs, Cap Ex, etc... I'm exclusivley looking for not paying any utilities as I don't want to pay for wasteful habits.  I assigned a measely 5% for repairs and 5% for Cap Ex. 

Thanks @Larry T.   This definitely helps build the first time confidence.

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