I hear a lot about the 2% rule and cash flow but what if

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I am in a pretty hot market like in South Florida.  Rent is pretty hot but to get a 2% on a house or property is a pretty hard find.  but What if I wanted to get lets say a house worth 300K and rent it for about 2,400.  and if I get to just finance 150K.

Is it worth it ?   I wont be upside down since I get to put so much down and I can effort the monthly with my job.  

Any advice will be appreciated.

Thank you. 

Most "rules" are just guidelines for quick evaluation of properties.  In a lot of markets these rules don't apply;  Bay Area, New York City, Seattle, et al.  But for the purpose of quickly evaluating a property then they are great.  If the rules apply to your investment arena.

Use the BP Calculators to see if you can actually cash flow based on the actual expenses of the property.

Medium logo640x400Troy Fisher, Lanika Home Inspections | [email protected] | http://www.lanikahis.com

@Roberto Chan

It depends on what the strategy is. If your goal is cash flow, it's likely not a good purchase. I don't mean to say that you won't cash flow, rather you can apply the money it took to acquire that property elsewhere and earn a better return.

When I look at properties with the numbers you describe, I want to know the appreciation potential. We see many properties like the one you are talking about in D.C. Poor cash flow potential, great appreciation potential.

You have to define your exit strategy and hold period per purchase. If you can break even every month and sell in two years for a $60k gain, then it's worth it.

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196

Originally posted by @Brandon Hall :

@Roberto Chan

It depends on what the strategy is. If your goal is cash flow, it's likely not a good purchase. I don't mean to say that you won't cash flow, rather you can apply the money it took to acquire that property elsewhere and earn a better return.

When I look at properties with the numbers you describe, I want to know the appreciation potential. We see many properties like the one you are talking about in D.C. Poor cash flow potential, great appreciation potential.

You have to define your exit strategy and hold period per purchase. If you can break even every month and sell in two years for a $60k gain, then it's worth it.

That is definitely a case in the area I am looking at.  There is no more land to construct and migration from other part of the country and International is making our real state go up.  I been checking the prices and it feels like a 4% increase instead of those show in the stats.  

Thanks for the reply.  

You realize that the more money (cash) you put down, the farther behind you are at the start?  Right?

Originally posted by @Joe Villeneuve :

You realize that the more money (cash) you put down, the farther behind you are at the start?  Right?

 Yes, I do realize that.  I just want to move slowly at the beginning and make sure I don't lose the property.  Appreciation in the area is good.   That was hypothetical.  I probably will cash out on one of the houses I got and get another.  But I would not be making cash right now.  I will be able to cash out on appreciation.   I will rent it for a couple of years and sell it.  

@Roberto Chan

The 2% rules doesn't apply to major cities like New York, Miami, etc. It is hard because the price of the acquisitions of the properties. I am lucky to get 1% rentals here in Miami Beach, unless I run the as short term vacation rentals, where I can get a lot more per month in rent. Just analyze the market and see what the rents are going for. Just make sure to try and acquire the property at below market value -- that's where the bulk of your money will be made. The cash flow from the rent is the icing on the cake. 

Thanks, yea I am starting to see that,  most member agree with you David.  Now to go shopping =) 

But since you are in Miami Beach you know how hot the market is getting here.

@Roberto Chan

Thanks Robert. Yes I mostly focus my investments in Miami / South Beach / Miami Beach / Hialeah.  So if you have any questions regarding these areas, let me know. I know the markets pretty well!

Look into multi plexes.

Originally posted by @Roberto Chan :

I am in a pretty hot market like in South Florida.  Rent is pretty hot but to get a 2% on a house or property is a pretty hard find.  but What if I wanted to get lets say a house worth 300K and rent it for about 2,400.  and if I get to just finance 150K.

Is it worth it ?   I wont be upside down since I get to put so much down and I can effort the monthly with my job.  

Any advice will be appreciated.

Thank you. 

Would your $150,000 produce better returns if employed in some different endeavor.

150K probably will do a lot of good for a lot of people.  I am just starting and trying to play it safe.    The stock market probably will give you better return but at the same time the risk level is pretty hi.  

I am basically exploring my options.  since I am a newbie.  I wanted to know all the possibilities.  Multifamily sounds tempting but I am leaning towards a Single Family for now.  Playing it as safe as I can.  I am not as lucky as the other younger people in the forum.  I only wish hehehe. 

Roberto,

Single Family doesn't make much sense in South Florida from an investor/cash flow perspective. High purchase price, high property taxes, high insurance costs, and relatively average rental income in return. You can make condos or townhouses work (although they involve a set of other issues), but detached SFR in South Florida is pretty much a pure appreciation play at this point. Speculating, not investing, IMO.

If your goal is playing it safe, as you say, I'd recommend targeting a more stable market.  Smaller swings, stable rents, smaller investment needed (allowing you to diversify across several properties).  Basically the complete opposite of South Florida.

Originally posted by @Robert G. :

Roberto,

Single Family doesn't make much sense in South Florida from an investor/cash flow perspective. High purchase price, high property taxes, high insurance costs, and relatively average rental income in return. You can make condos or townhouses work (although they involve a set of other issues), but detached SFR in South Florida is pretty much a pure appreciation play at this point. Speculating, not investing, IMO.

If your goal is playing it safe, as you say, I'd recommend targeting a more stable market.  Smaller swings, stable rents, smaller investment needed (allowing you to diversify across several properties).  Basically the complete opposite of South Florida.

I see.  What part of the country got smaller swings ?   I had a pro offer me a turn key cash flow positive but in Chicago but I don't know anything about the company nor the area so I decided to walk away from it for now.  and since I live in South Florida I thought I could at least watch my investment. 

Pretty much the entire middle of the country.  The most common strong rental markets discussed on BP are Indianapolis, Memphis, Cleveland, Kansas City.  Lots of folks seem to do well out of the big cities in Michigan and Pennsylvania as well.  And Texas has blown up.  So many options.

If you're going to be investing long distance, though, I'd suggest finding someone you trust that lives in that market as step 1.  Unfortunately, lots of investors get taken advantage of when in your situation.  There are hundreds of markets that could work for you.....the difference maker is having someone with boots on the ground there that can be your eyes and ears.  Plus factoring in the property management expense, of course.

Originally posted by @Robert G. :

Pretty much the entire middle of the country.  The most common strong rental markets discussed on BP are Indianapolis, Memphis, Cleveland, Kansas City.  Lots of folks seem to do well out of the big cities in Michigan and Pennsylvania as well.  And Texas has blown up.  So many options.

If you're going to be investing long distance, though, I'd suggest finding someone you trust that lives in that market as step 1.  Unfortunately, lots of investors get taken advantage of when in your situation.  There are hundreds of markets that could work for you.....the difference maker is having someone with boots on the ground there that can be your eyes and ears.  Plus factoring in the property management expense, of course.

 Thanks for the advice.  Now to build relationship first =)  

I will look into it.   

BP is a great place man.  As long as you are willing to listen =)  

Thanks again.