What is a good cash flow

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Rachel Mazzanti
Virtual Assistant · Remote · Member since 2020 · 93 posts · 45 votes
2y

While the $250 cash flow target gets thrown around a lot, it's important to remember that cash flow is all about the investor's strategy. Location can make a big difference - that $250 target might be fantastic in a pricier area, but unrealistic in another market. Are you looking for a long-term rental or a house hacking situation with short-term tenants? Your cash flow expectations will likely differ depending on your goals. Maybe steady cash flow is less important to you than the potential for appreciation. The key is to analyze each property on its own merits, considering factors like cash on cash return, appreciation potential, and how it aligns with your overall investment strategy.

I stopped listening to podcasts. It's the same stories rewritten and told in many different ways. Some times I think these podcasts have other agendas lol

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  • Rachel Mazzanti
    Virtual Assistant · Remote · Member since 2020 · 93 posts · 45 votes
    2y

    While the $250 cash flow target gets thrown around a lot, it's important to remember that cash flow is all about the investor's strategy. Location can make a big difference - that $250 target might be fantastic in a pricier area, but unrealistic in another market. Are you looking for a long-term rental or a house hacking situation with short-term tenants? Your cash flow expectations will likely differ depending on your goals. Maybe steady cash flow is less important to you than the potential for appreciation. The key is to analyze each property on its own merits, considering factors like cash on cash return, appreciation potential, and how it aligns with your overall investment strategy.

    I stopped listening to podcasts. It's the same stories rewritten and told in many different ways. Some times I think these podcasts have other agendas lol

    11Reply
  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    2y

    Hey Larry - 

    Aiming for a minimum of $250 cashflow per door is a common benchmark. However, this metric varies based on individual investment goals, market conditions, and property types. Some prioritize higher cashflow, others may focus on appreciation or long-term growth. Ultimately, the answer is vague as it depends on property analysis in conjuction with investment strategy and associated risks. 

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    3Reply
  • David Ramirez
    Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes
    2y
    Quote from @River Sava:

    Hey Larry - 

    Aiming for a minimum of $250 cashflow per door is a common benchmark. However, this metric varies based on individual investment goals, market conditions, and property types. Some prioritize higher cashflow, others may focus on appreciation or long-term growth. Ultimately, the answer is vague as it depends on property analysis in conjuction with investment strategy and associated risks. 

     Agree with @River Sava!

    It comes down to your investment goals. I see some investors in the central Florida area happy with break-even since they are looking for appreciation and on the other side, I also see investors looking for PI mortgage payment to be 50% of market rent so they can cash flow right away. The latter is more challenging to obtain because of the current state of the market. Seller finance would be your best option in a market like Florida if you are looking for it to cashflow right away.   

    0Reply
  • Randy Rodenhouse
    Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
    2y

    To answer your question more directly, I typically look at minimum 0.20% the value of the property for cash flow. For example, $100,000 house I want a minimum $200 a month cash flow, for a $200,000 house I want $400, a $300.000 house $600/mo, etc.  This is super high level and just a rule of thumb. It does depend on many factors.

    Also, in general, the lower the equity position, the higher cash flow I would want.  If you have low equity and low cash flow then that is not a good situation. 

    2Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    2y

    @Rachel Mazzanti "It's the same stories rewritten and told in many different ways. Some times I think these podcasts have other agendas lol" - I agree with this statement. Listen to enough podcasts (not just BP) and you will feel this. I skip numerous episodes anymore as I don't gain much useful, real life, tactual knowledge. It's not worth my time. 

    2Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    2y

    I would agree with @Randy Rodenhouse. The amount of cashflow depends on the value of the house and your equity position. This $250 dollar talk is non sense. If the rental is valued at 500k then $250 monthly cashflow would be a laughable amount. It's very easy to get into a situation where the lender, property manager, and the insurance agent are all profiting more than you. When the numbers are to tight, one large repair could wipe out your cashflow for years to come. 

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  • Mackaylee BeachPro Member
    Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
    2y

    "Good Cash Flow" includes multiple elements. What financial objective are you aiming for? If you're seeking properties with good cash flow, I'd love to get in touch. Share information on available properties and the Kansas City market.

    [email protected]
    1Reply
  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 694 votes
    2y

    @Larry Cersosimo

    Real Estate has several wealth generators:
    Cash-flow
    Forced Appreciation
    Market Appreciation
    Debt-Paydown
    Tax-Benefits

    I look at Cash Flow and Forced Appreciation as a hedge against market corrections. Cash flow (in my portfolio as a whole) covers my expenses. 

    Market Appreciation is where you will make the most money over a 10-year period but is the least predictable. However, real estate values (on a national average) have never gone down over a 10-year period. https://fred.stlouisfed.org/series/MSPUS

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  • Rob BeemanPro Member
    Specialist · Philadelphia, PA · Member since 2010 · 298 posts · 118 votes
    2y

    @Larry Cersosimo I can share an opinion from a lender's point of view. The cash flow (or actually the net income before taxes) from the property (doesn't matter whether it is a single family or multi) should have a DSCR (debt-service-coverage-ratio) of at least 1.20 or more. This means that the income from the property can pay its expenses and generate a pre-tax profit.

    DSCR formula: Add up the expenses tied to the property (monthly taxes, monthly insurance, monthly homeowners association dues if applies, monthly principal & interest payment. Now take the total figure that these add up to and divide it into the monthly rent.

    Example: monthly taxes $400; monthly insurance $100; monthly HOA $0; monthly principal & interest payment $1200. Total = $1700. The monthly rent to have a 1.20 DSCR would need to be at least $2040/month. Anything less than that means the DSCR will be lower (the higher the DCSR the better). This example would yield a pre-tax net of $340/month (minus any vacancy credit or capital set aside for maintenance (capex). Hope this helps to understand how a lender looks at a rental property's income to be a self sufficient asset. Rob.

    0Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Larry Cersosimo, you also have to remember that cashflow can be bought.  Want more cashflow, put more money down.  That doesn't necessarily help your returns, but if your only metric is cashflow, then a nearly surefire way to get it is buy all cash.  

    You can also create cashflow by deferring maintenance.  

    Also, be careful about podcasts.  Many, many people on podcasts only have a few years of experience (not all, but like @Jaron Walling notes, you can save yourself a lot of time if you skip over the people on podcasts that have only been investing the last 5 yrs or less).  

    Lastly, most people I see underwriting deals, and even those on the podcasts (assuming they are the majority with only 2-5 yrs of experience owning rentals) are likely to realize their 5% maintenance and 5% capex reserves are less than one bad tenant away from being way off.  But, those numbers get you $250/mo in UNDERWRITTEN cashflow.

    2Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Larry Cersosimo

    a lot of properties just don't cash flow at all anymore at today's prices and today's rates.  in my portfolio i have some that break even that I am keeping because they are in great areas, and others that cash flow $100-300, but only because I have rates in the 4s or lower on them.  

    i think it's a very different market now than it was 5 or 10 years ago.

    3Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Larry Cersosimo

    another thing to understand is that cash flow in the first few years might be very different than once a property is stabilized, fixed up, rents up, etc.  see this thread.

    https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

    0Reply
  • Sean Haley
    Real Estate Consultant · Dallas · Member since 2022 · 36 posts · 12 votes
    2y

    Not using a nominal rate per door for analyzing cash flow. 

    Consider cap rate alignment with the risk profile (opportunistic, value-add, core plus, core). Additionally, if leveraging, ensure you have ability to withstand potentially significant drops in rental rates. 

    It’s a very broad question that encompasses dimensions of risk and risk-adjusted returns. 

    0Reply
  • Jake AndronicoBusiness Member
    Realtor · Reno, NV · Member since 2019 · 1k+ posts · 938 votes
    2y

    @Larry Cersosimo

    That can be a great start. Depends on your goals and being realistic with how much you have to put down. 

    In our area you'd likely need 40-50% down on good inventory to hit that metric. However, people are still buying daily. 

    The people that bought last year in our area when interest rates were the highest are already sitting on equity (prices appreciated about 7%). 

    Buy when it's right for you and you're ready, take calculated risks, have reserves, and get in when it makes sense for YOU. 

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    2Reply
  • Simon Ashbaugh
    Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
    2y

    Hey Larry, I agree with Rachel and River that $250 cashflow target is a common rule of thumb but it's not a one-size-fits-all approach. Cash flow Goals can vary depending on your location. A $250 target might be achievable in a high-rent market but unrealistic in a lower-rent area. There are also unexpected costs and repairs that you need to factor in. Don't underestimate vacancy periods or property management fees. You have to know your numbers.

    1. What's the average rent in your area?
    2. What operating expenses do you expect such as mortgage, taxes, etc?

    By analyzing these, you can set a realistic cash flow target for your investment strategy. Hope this helps!

    0Reply
  • Account Closed
    Investor · FL · Member since 2024 · 7 posts · 2 votes
    2y

    @Larry Cersosimo, what is good cash flow is a great question to ask in the very dynamic real estate market and general economy. 

    If we take the opportunity cost of money approach, if you have $40k in cash you could either put it on a deposit in a secure bank, earning around 5% per year in a very passive way. Or, you could use the $40k for the 20% deposit on a $200,000 property (assuming away the closing costs). If you cash flow $250 per month on this property, you would make a pre-tax 7.5 percent return on your $40k. It may not be as passive as the deposit in the bank, but you get 2.5 percentage points more for your troubles. 

    Now assume that the property you put the $40k on only cash flows $150 per month, equivalent to a return of 4.5%. Then using “cash flow” as your only decision parameter, would suggest that you are better off keeping your money on a deposit in the bank? To be sure, we can complicate the argument by introducing the tax advantages that real estate investment such as depreciation etc…but we won’t go there now.

    so, if we assume that the appreciation of real estate in general is going to be negligible over the next several years, as a prudent investor you should look for properties that can cash flow at the minimum rate of return equivalent to or better than the rate the bank would give you on your money. 

    This is all to say that a good cash flow is a dynamic metric, depending on the interest rate the bank will pay you on your money; the rate of inflation; the rate of appreciation of real estate, which is also tied to the inflation rate;  and also your equity stake in the property.

    In my portfolio, I focus both on cash flow, to meet my operational expenses; secure a decent level of cash reserves for the rainy day; and to build a war chest to take advantage of deals; as well as on appreciation to build net worth. But, I am alway mindful of how my money is performing relative to its possible alternative uses and the fixed deposit rate is perhaps the easiest rate to focus on for a comparison. 

    0Reply
  • Randall Jones
    Denver co · Member since 2024 · 14 posts · 2 votes
    2y

    “Cashflow” is a relative term and depends on property type, and is only one metric investors use to understand profitability over the long term . 

    Use a Commercial Broker they'll help ya…:)

    0Reply
  • Andrew West
    MI · Member since 2018 · 12 posts · 4 votes
    2y

    It's impossible to answer that question without more context.

    Is that $250/mo cashflow on a 500k property you paid for in cash? Then probably not.

    Is that $250/mo on a 250k property that's 90% leveraged, after debt service and expenses? Then maybe.

    You also need to look at total return and compare those numbers with the returns you could receive from other investments

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    2y

    @Nicholas L. That's been our experience and with nearly identical cash-flow numbers based on interest rates. We took a 60% LTV on our last BRRRR deal just to hit the cash-flow we wanted. That's the fast way to run out of capital so we didn't buy in 2023.

    Who knows this year?... 

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Jaron Walling

    yes.  and I know we were saying the podcasts have become a little rote, but the latest one is actually really, really good - it's David Greene, Dave Meyer and Rob Abasolo talking about "cash flow" and "financial freedom" and quitting your job to "do real estate."  they talk about something i've been thinking a lot about, which is converting EQUITY into cash flow.  which, to do that... you have to GET EQUITY.  and one of the great ways to get equity is... TIME.

    @Larry Cersosimo

    I recommend a listen.  

    2Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    2y

    @Nicholas L. I just listened to that episode yesterday. I agree it was quite good. The basic math they used to describe "replacing" your income was a bit shocking. I did the math to replace my 9-5 income and I needed nearly $900k worth of equity. Big goals. 

    Can we all go back to like 2018 and buy 7 more properties then fast forward to 2024? The best time to buy was yesterday but d**n it's tough out there. 

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Jaron Walling

    yep.  Jason Hartman has great content on this.  he says that folks who bought when rates were low were buying like it was 2011 because as we all know - price + rate = payment. and most people don't pay cash!

    also congrats on your vote to post ratio.  just noticed we have about the same number of posts but apparently i only add value 66% of the time and you add value 92% of the time =)

    every time someone asks "how do i get started" i respond "house hack" and those posts don't get a lot of votes i guess.  ha!

    3Reply
  • Daniel Stoychev
    Investor · Sarasota, FL · Member since 2022 · 29 posts · 14 votes
    2y

    @Larry Cersosimo

    Determine your goals, and be confident with your financial situation!

     I can't stress that enough when speaking with new investors. Although the $250 per door is often used as a benchmark, it should not be the main focus when looking at properties. 

    Here are some questions I ask myself when underwriting properties, and speaking with potential investors.

    What am I working with as my initial investment ( equity) I am putting in? 

    Is this a buy and hold and wait for appreciation or am I getting this at a significant discount with good amount of equity from day one?

    Can the  potential loss in per door revenue be absorbed if the cashflow is not there to cover operating costs for a specific time period?

    Last thing you want is to get in a building you have to continuously pay to own, but make sure your goals matches what you are looking for in a building. 

    It is easy to get thrown in different directions by listening to all the gurus out there. Do your research, and make sure your not throwing yourself under the bus.

    Happy Investin!

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    2y

    @Larry Cersosimo There's other metrics that are just as important such as CoC. I'm making $250/door and have a ton of equity but it was just pointed out to me that actually taking into consideration my whole portfolio I have an incredibly low overall CoC and given the amount of overall equity I have my cash flow is pretty low compared to what I might be able to make were I invested in other things.

    I understand with LTR your cash flow as a whole IS lower than if you had STRs but it’s not the whole picture.

    0Reply
  • Calvin Thomas
    Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    2y
    Quote from @Larry Cersosimo:

    I hear on many podcasts that people wont entertain a property unless they can hit $250 of cashflow for the door. What do yall think and how do your properties cashflow


     $400-$600 a door or it's not worth my time.

    0Reply
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