Initial Investment vs. Cash Flow

3 Replies

I'm looking at purchasing my first duplex for $120,000. I'm hearing in some markets getting $200 a unit is good cash flow. Is this still the case when the initial investment is $30,000? Does tying up $30,000+ to make $400/month reasonable? Thanks for any advice as I get started down this road.

That's not your total return. You'll get: 1) a tax benefit from depreciating the property, deducting interest, taxes and insurance which are usually inside your mortgage payment; 2) equity build up from the rents paying down principal on the loan; and 2) hopefully, capital appreciation when you sell or cash out refi.

$400/mo is still 16% cash on cash return which is not too shabby.

Make sure you are including all costs, including vacancy and maintenance in that $400/mo calc.

That's over 6 years to break even...assuming all goes well (LOL).  I wouldn't do it, but the more pressing question isn't the one you posed.  The most pressing question is, "what are your future investment plans to invest after you buy this duplex".

The answer to my question is a huge contributing factor to the answer to your question.

Too many REI don't think beyond the immediate property. You don't buy properties...you "move cash..through" (not to, but through) every "deal" (not property, ...deal) you make, into the next deal. If you don't know where you're going AFTER you make the current deal you are making, how will you know if the deal you are making is a good deal at all?

I'm constantly seeing this same statement/question posed here, "I just closed on my <fill in the property # here>...now what do I do"?  Sorry, but if you didn't know the answer to the "...where am I going...", you probably went to the wrong place to begin with.

Hey Kevin,

This is where you calculate ‘cash on cash’ return.

$400 a month is $4800 per year. Based on a $30k down payment, this equates to 16% cash return in year 1. Not bad at all. (In fact, your ‘total’ ROI is higher if you factor in appreciation, principal pay down, tax benefits, etc)

The question now is - Can you get a better return on your $30k elsewhere?

Calculating cash/equity returns can seem complicated, but it’s fairly easy if you know the right formulas. Plenty of calculators out there to help.

Lastly, $200 per door per month is just someone else’s general rule of thumb. That’s their investing criteria - doesn’t have to be yours. You will develop your own over time :)

Good luck! Get that Duplex.

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