All Forum Posts by: John Barr

What is a good percentage to pull from the cash flow in a rental property?

Say you have a house that is 1,700 sqft rental property that was built in 1975. The property just underwent a 50K renovation (foundation, roof, bathrooms, kitchen, flooring, paint, pretty much everything but the AC). The property is rented out for $1,500 a month.

I was figuring a 10% hold back for capital expenses before payment on everything else. So for this house, I would be holding back $150 a month.

What are your thoughts?

@Stephen Kauffman

Welcome to the BP community! you have some to the right place.

How long have you lived in SA? 

The city isn't like most whereas in a typical city your better housing and rentals are closer to the cities core. Here in SA some of our cheapest most run down areas are closest to downtown and the better rental areas are out in the Suburbs. Not to say that there are not deals in the more run down areas but those typically tend to be more of the seller finance type deals and off-market style rentals.

I have been in SA for over four years now and have been doing REI full time for two of those. Like you I also graduated with a CM degree which is what brought me to Texas. Having the CM degree has definitely helped with the management of Rehabs and working with contractors

Feel free to reach out to me if you have any questions or would like to meet up sometime.

Happy investing!

@Giovanni Di Puglia I agree with @Rick Pozos on it will probably be better in getting rid of that property. Only having $25 cash flow is way to low for a long term rental. That doesn't even really leave any money to help build your reserves. Think of it this way an AC on a house could cost 7K. Even if you had $100 cash flow that is still 70 months of cash flow just to be right back where you started. I don't hold something that doesn't at least cash flow 300-350. 

When analyzing a sub to I look at how much to get in and how long before I have my money back out via cash flow and captured equity. I have an attorney that will close the sub-to deals the right way out of Austin and another in Dallas but they do charge a premium to handle all of the proper documents, mostly disclosures about the underlying lien.

I do know another investor that works only in the Killeen market and is pretty Savy as all the do is the sub-to type deals up there. I would be more than happy to pass on the information if you want to shoot me a personal message. She would best be able to tell you what the details of the deal would be.

@Keith Usry

I was almost just like you just over four year ago except I moved down here just after school for my first job. I bought a house in my first year of being here. Rented out two of the bedrooms and house hacked. I am now in the process of selling that property for a substantial profit.

Since moving down here I left my job and went REI full time two years ago March 6th. It has been a wild ride for sure.

I would love to connect when you get here as we have a couple projects going on and have a few things that we could work with you on to get you going and pass some of our knowledge on to you.

Best of luck!

@Ronald Lou By all means please do!

@Raluca G.

I am located here in the San Antonio market. What are you looking for?

@Henry Tse No problem at all. I do a market update every month for here in the San Antonio market. If you want to shoot me a PM I can give you a link so you can see how are market is performing.

@Henry Tse

I have been in the San Antonio and Austin markets for several years now and here is my take.

Austin is constantly rated #1 not just about every list that comes out. From real estate market, to boom town, to fastest growing markets. While that is all well and good it has created  A LOT of outside attention to this market and a lot of speculating investing. Some of which are just from people that just have loads of cash not moving and are happy with very modest returns as they are playing the long game. Austin is an appreciation town. Like many investors have said it is very hard to cash flow in Austin anymore and your best bet is to get your return from the appreciation.

Just 90 miles south you have San Antonio. In SA it is still pretty easy to get cash flow out of properties. SA doesn't have the appreciation like Austin does but it is the slow and stable market of Texas. While the city might have the extreme high amount of high paying tech jobs we do have a very large solid working class. This does two things keeps housing affordable and keeps cash flow possible.

I look at it this way. Appreciation is like the stock market. It goes up really quick but also comes down just as fast when the cycles turn. Appreciation is also un realized until you sell a property. Pick the wrong time to buy and the wrong time to sell and your return can easily be negative. 

Cash flow is like your bonds. Slow to rise slow to fall. The returns might not be as high but they are stable and it is recognized every month. In down markets rents are very stable. they may flatten out (still providing cash flow) but they don't fall like equity does. So purchased right even in downturns you are still producing returns.

I can only speak for the SA market as that is the only market that I have pulled and analyzed the data on back to 2004

Hope this helps.

@Raluca G.

I offer a bit of a hybrid for turn key properties.

We still own and actively manage (with professional property management) the properties since we are currently located in the locate market so we understand it very well.

once we have renovated and rented we sell off access to the rent roll. We are still in the deal so it is advantageous for us to make sure the property is renovated and managed well as we are financially liable for all repairs moving forward.

The returns are not as high as if you owned the property out right but this is about as hands off for real estate investing as you could get. You get access to the cashflow, you don't ever deal with tenants and toilets, and you get to capture appreciation over the long term.

If you would like more information feel free to shoot me a PM.

@Christopher Oliva Have you looked into becoming an agent? The cost is relatively inexpensive for the payoffs you can get. It isn't too hard to do and It is perfect for situations just like this. I have made several deals work out because I had my licence.

1. you can pull your own comps.

2. you can get referral on listings.

3. you open the door to start doing shorsales if you are doorknocking foreclosures.

The way I look at it both of those prices are in the shortest of supply in the city if she is wanting retail and won't accept an owner finance you can still get a 3% commission on the sales price.

If the houses need repair but she is being a little unreasonable in her asking prices then this was the deals are still under your control.

If you have any questions feel free to reach out.