First rental is getting $400 positive cashflow - how did I do?

13 Replies

Hello! I'm new and excited to have found Bigger Pockets, so far I'm enjoying reading all the content and learning a lot. I come from a background where my parents have always owned rental properties (~20), so I know a bit about the process and managing rentals. However, I just purchased my first rental and I'm curious how to analyze and compare my investment vs. a "good" investment. The house price was $360k and I just rented it with it bringing in $400 of positive cashflow per month. Can anyone give me a guideline of how this stacks up? Good/bad/average?

Thanks in advance!

@NA Sho it is hard to say with the information you gave, but generally speaking if your operating income (expenses, not debt service) for the year is around 8%-10% of the purchase price then it can be considered a good deal.  

The 8%-10% can vary greatly on your market and class of property.... some markets are great at 4$ and some are great at 14% but on average 8%-10% is good

@NA Sho the cash flow does not tell the whole story. Aside from the cash flow, you should be looking at cash on cash Return on investment(ROI), in addition to other things. Cash on cash ROI = (Income-Expenses)/(Cost of property).

For example, if you pay $1 million dollars for a property (100% cash) and you are only getting $400 of cash flow, then that would be a bad deal since your cash on cash ROI for the year would be =$400*12/$1000000= 0.48%. Like @Brie Schmidt mentioned, anything higher than 7% is usually an OK deal since 7% is the historical ROI for the stock market. But it is all relative, some investors might not consider 8% a bad deal if they are used to getting %25 cash on cash ROI. 

In your case, if we assume that you put 20% down, your cash on cash ROI = 12*$400/$72,000 = $6.7%.

Hope that helps!

@Felipe Ocampo @NA Sho , I think Felipe is spot on! I am very concerned about my cash on cash return. If an investor put up the down payment then your return is infinite. You also have to understand your appreciation rate. Is the property increasing in value? I take several aspects into account when purchasing a B&H 

What did you put into it and what is it renting for?

If the house priced at 360k, and the net income is $400/month that's not a bad deal.

My first rental property was around the same price and my monthly net income is less than your income.

I am interested in understanding how others on BP evaluate a good deal. You are talking about taking home 400$ a month. Does this account for vacancy and maintenance?

I ask this because I read generally people usually include .05% for vacancies and .10% for property management. Unless you obviously managing the property yourself. I am assuming this is an SFH. With that is there generally less maintenance to account for then a multi family?

i will bet my years worth of income that a $360k SFH is not cash flowing $400/month. My guess is OP took rent amount, subtracted PITI, and determined that is $400.

I would love to be proven wrong however. 

@Nathan W.   you can buy nice 4 plex in our market for this price.. but I agree on the sfr statement you made.. I rented one of my new constructions ( model home waiting one more year to sell.. value 350k  rent  1800.

Originally posted by @Nathan W. :

i will bet my years worth of income that a $360k SFH is not cash flowing $400/month. My guess is OP took rent amount, subtracted PITI, and determined that is $400.

I would love to be proven wrong however. 

 agree on both points.

Originally posted by @NA Sho :

Hello! I'm new and excited to have found Bigger Pockets, so far I'm enjoying reading all the content and learning a lot. I come from a background where my parents have always owned rental properties (~20), so I know a bit about the process and managing rentals. However, I just purchased my first rental and I'm curious how to analyze and compare my investment vs. a "good" investment. The house price was $360k and I just rented it with it bringing in $400 of positive cashflow per month. Can anyone give me a guideline of how this stacks up? Good/bad/average?

Thanks in advance!

You also got to think and consider averaging out Vacencies, repairs, and potential CapEx. Over the long term these things might bring down your number.

Originally posted by @Jay Hinrichs :

@Nathan W.  you can buy nice 4 plex in our market for this price..

Which is precisely why I said SFH

@Nathan W.   and its precisely why I voted on your post !!!  :) 

Originally posted by @Jay Hinrichs :

@Nathan W.  and its precisely why I voted on your post !!!  :) 

 haha fair enough.  I probably should have put a smiley face after my post as well but I was probably in a crappy mood that day haha :)

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