On the subject of cash flow and self-sustaining properties...

[Lucas Mills]

Recently, I've been experiencing some confusion as it relates to cash flow, expenses, and the concept of self-sustaining properties.

At some indeterminate point in the future, I want to have replaced my monthly w2 income with that of rental property income. Simultaneously, I don't want to have to worry about working a second job (such as wholesaling) to replenish my cash reserves as I use them over the months/years to pay for capital expenditures and other expenses.

So, first of all, how should I approach this when analyzing properties? Do I essentially need to depreciate the CapEx items for each property I analyzed and figure out how much I will need on a monthly basis to allow the property to sustain itself?

When I ask local investors about expenses, I get mixed responses. One guy, who has about 16-17 rental properties over the course of the past few years, said that if you're getting $200 above the principal and interest, you're doing well. He said he takes out about 10% for vacancy and 10% for repairs/CapEx (20% variable expenses total) -- he seems to be ignoring property management as well as being too low on repairs/CapEx. If he's going to combine them, I'd think he'd want that number to be at least 15%.

Anyways, I'm just trying to figure out exactly how to go about analyzing properties so that I purchased properties which can truly be self-sustaining with regards to all expenses, while providing $150 - $200 in cash flow on top of that. Hypothetically speaking, I'd like to have 30 properties that can sustain themselves without needing to ever contribute any additional money to help pay for expenses. Is this viable? And if so, how do I prepare for this?

[Mike Dymski]

You're on the right track.  Check out BP's deal analyzer and it may confirm some of your thoughts.  Many BP members are not a fan of using percentages as the percentage will vary by property and by rental amount (x% of $750 in rent is obviously not the same as x% of $2000 in rent).  Some BP members schedule out the property components, their estimated remaining lives, and their estimated future replacement costs.

Nice work on properly thinking through cap ex.  Some investors go many years without properly factoring them in and learn the hard way that their portfolio is not as profitable as they thought.