how to determine minimum cashflow

Question

Hello BP,

I've attended multiple webinars where Brandon Turner does an amazing job doing  rental property analysis which is immensely helpful. I've noticed though he uses $200/month for SFH or $100/month for multi family homes cash flow to determine if its a good deal. I also attended a local RE meetup where one experienced investor indicated they don t get into anything that doesn't give them  $300/month at least. How do we determine what is the right/minimum amt to look for cash flow wise?

James W. · Answer

Personally, I look for >$300 for a SFR after factoring everything (including cap ex, vacancy...) with conventional financing.  Deals are harder to find at times, but I don't want to waste my time on skinny deals hoping to keep it rented with the hopes of appreciation.  I self manage so that might be part of it, but $100/mo ($1,200/yr) is a waste of my time for a single property even with good tenants.  If I were to purchase a larger deal, $100/door might be something to consider but it would need to have a lot of doors to even consider.  I would look at the cost/unit and still would likely want more than $100/mo as there isn't much cushion.

For what it's worth, I take into consideration my investment as well. You will get a wide range of answers from people who are purchasing $50k properties and those purchasing $500k properties.  $200/door on a home at the lower end of the spectrum is completely different than a home on the opposite end.

Chris Gordon · Answer

There's a lot of dishonesty when talking about cash flow. Some folks wont include the holdbacks such as capex for one reason or another. Some Ive met are putting aside a fraction of what Id expect to be put aside. Their cashflow looks amazing, but their Internal Rate of Return will tell the truth

Ola Dantis · Answer

@Nilofer Sickander Hi Nilofer, I think it all comes to what you are ok with getting and sometimes which market you are in.

The $100-$300 range is a good start, but some people get up to $1k/month, so it depends on your market and what you consider as a good deal.

Hope this helps. Goodluck. Thanks! - Ola

Jay Helms · Answer

What markets are you investing in? Mind sending me the address of one of your deals?

Ibn Abney · Answer

@Jay Helms Yes, all have loans. Standard minimum down payments. No large down payment %.

As i mentioned, its a matter of market and property type.  Areas where rents are $1200-$1800/month, but properties are $80K-$150K is definitely possible.

If rents were $500-$600, after expenses and vacancy, % return may be high, be actual $ cash flow are lower.

Jay Helms · Answer

Do you have a mortgage on these properties or did you put a large sum down?

Nilofer Sickander · Answer

@Jay Helms @Ibn Abney

Thank you for the insight. cash flow gauge numbers make more sense now

Jay Helms · Answer

@Nilofer Sickander - cash flow is a sliding scale that runs almost parallel with the asset’s class. $300/month typically = Class D (very minimum appreciation, war zone), negative monthly cash flow = Class A (best chance at appreciation, luxury neighborhoods)...typically. Does that make sense?

Eric James · Answer

I think it depends on your area and what might be available there. Find whatever is the best you can in your area. If the returns aren't enough for you there, look at other areas.

how to determine minimum cashflow

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