Specialist · Santa Clarita, CA · Member since 2017 · 6 posts · 3 votes
I have a Seller in Chatsworth, Ca that wants to sell for $700,000. I know typically we go by the 2% rule for cash flow but Southern California can't use this rule right? $14k monthly seems a little obnoxious even in So Cal. Does anyone have any insight into how much I can pay for this deal and still cash flow.
Ps. I have heard of people charging about 1k per room here in So Cal....
Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes
7y
2% rule is not attainable anywhere in SoCal - it's hard to find even in the more well known "cash flow" happy investor cities. You'd be lucky to find a place that you could rent at 1% of purchase price in SoCal - even that would be near impossible unless you're looking at larger multi-family properties. Most realistic on SFH rentals is you may get a monthly rate of between 0.5% - 0.75% of purchase price.
As mentioned, whether or not you can have positive cash flow on a $700k purchase price depends on:
1) How much of that is financed (and by extension, what your monthly PITI payment amounts to).
2) How much your other total monthly costs are (10% for maintenance? 5% for vacancy allowance? 8% for a PM? Gardening, Utilities, etc.)
3) Add #1 and #2, and compare to how much you think you can rent it for. Rentometer is a good source, as mentioned.
If 1+2 > 3, then you are not cash flowing. If 1+2 < 3, then you are.
Obviously the biggest lever you have to move that needle, is how much $$ you put down. The more you put down, the less your monthly out of pocket expense, the more likely you are to achieve positive cash flow.
It's not clear why you zeroed in on this property specifically. Typically you want to start with an understanding of rent to purchase price ratios in a given area, and if you find a deal in that area with a favorable ratio compared to everything else, then you start a more detailed analysis of that specific property. It seems like here, you started with the property and are trying to reverse engineer what price you should pay based on how close you can get to some mythical rule. If that's what you're doing, I'd recommend taking a step back and looking at the broader area first, and then deciding if this specific property is a good deal or not.
Real Estate Agent · West Hills, CA · Member since 2016 · 43 posts · 26 votes
7y
Hey Justin, is this house on the market, are there any interior photos? I have some spare time, ill do some research for you and let you know what the rent should be. I live in West Hills, very close to Chatsworth.
Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes
7y
2% rule is not attainable anywhere in SoCal - it's hard to find even in the more well known "cash flow" happy investor cities. You'd be lucky to find a place that you could rent at 1% of purchase price in SoCal - even that would be near impossible unless you're looking at larger multi-family properties. Most realistic on SFH rentals is you may get a monthly rate of between 0.5% - 0.75% of purchase price.
As mentioned, whether or not you can have positive cash flow on a $700k purchase price depends on:
1) How much of that is financed (and by extension, what your monthly PITI payment amounts to).
2) How much your other total monthly costs are (10% for maintenance? 5% for vacancy allowance? 8% for a PM? Gardening, Utilities, etc.)
3) Add #1 and #2, and compare to how much you think you can rent it for. Rentometer is a good source, as mentioned.
If 1+2 > 3, then you are not cash flowing. If 1+2 < 3, then you are.
Obviously the biggest lever you have to move that needle, is how much $$ you put down. The more you put down, the less your monthly out of pocket expense, the more likely you are to achieve positive cash flow.
It's not clear why you zeroed in on this property specifically. Typically you want to start with an understanding of rent to purchase price ratios in a given area, and if you find a deal in that area with a favorable ratio compared to everything else, then you start a more detailed analysis of that specific property. It seems like here, you started with the property and are trying to reverse engineer what price you should pay based on how close you can get to some mythical rule. If that's what you're doing, I'd recommend taking a step back and looking at the broader area first, and then deciding if this specific property is a good deal or not.
Attorney · Orange County, CA · Member since 2017 · 242 posts · 99 votes
7y
@Justin DeSantis, if you already have a specific property, forget the 2% rule (or any other general rules) and run your actual/estimated numbers for this specific property through a calculator. What is your monthly cashflow on this specific property? What are you estimates for appreciation on this specific property? Are there any other ways to increase income or decrease expenses on this specific property?
Specialist · Santa Clarita, CA · Member since 2017 · 6 posts · 3 votes
7y
@David Fitch it's a property that a friend of mine is selling. I was trying to see if it was worth the time and effort of finding funding or wholesaling it. After my analysis I'm finding I would need a better price to really do anything with it. Even with the owner willing to go down to 650. I'm passing on it. Thanks for the insight i appreciate your help.
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