do i have enough cash flow?

[Nam Nguyen]

Hi,

Just signed up yesterday, and the amount of information available has been a bit overwhelming.  As I read the various articles and hone in on what I REALLY want to do I'm hoping I can get some advice.  My goal is to someday have enough properties to donate to charities that help Sexual Assault Victims, especially at colleges.  If any of you follow college football then you probably know about the Baylor situation with Art Briles.

The low down: 

Purchased a Fort Walton Beach, FL townhome in 2011 via short-sale when I was stationed at Eglin AFB ($64,000 @ 4%). I used my VA loan to buy it with no money down and it was my primary residence for 1-year due to my overseas relocation in 2012. It has been renting out since then at $900.

After property management fees, mortgage and escrow payments I bring home about $200 per month.  How do I know if I'm making the most out of my property?  I'm confused with the term "cash flow" and a part of me thinks there is a strategy (or two!) out there that will help me better utilize the townhome for profit.  I have some cash saved up to pay for the mortgage completely (about $40k) but I've read on this forum that paying off a mortgage isn't the best move.  

Thanks!

[Rudy Hernandez]

Nam Nguyen

Hi Nam this is a great question and one that every investor has a different definition for. After being on bigger pockets I have redefined what cash flow means. Your post stated that after mortgage (I assume tax and p&i included) as well as management fee you are getting $200.00. What you are missing are the following: Vacancy %; Capex %; and Maintenance and repair %. By % I mean you should calculate a fee from your profit to cover these expenses for the future. It's almost like your savings account. This is if you're truly trying to become financially free and not have a day job in the future.

When you calculate you would take $900 * 5% vacancy and subtract that from your profit. You do the same for the rest. That is just as example. I would advise on finding out what your common vacancy rate is in your part of town (your PM should help give you that). As for repair and capex a good rule of thumb is using 5-10% for repair and that depends on age of home and up to 10 % for capex again depending on age of the home.

Hope this helps.