The Cash Flow house dilemma

[Joseph Walsh]

Hi all,

Question for you all.  We are looking at student rentals.  We found a few that are "great" options.  We have found a few houses that are well priced, and will rent probably at the mythical 2%, maybe more if I were to do some reconfiguring in future years.  Rents are increasing, and due to demand, vacancy, while account for, may never actually happen.  Houses are cheap, 60-80k.  Problem is, there is no growth in this market, these houses will be worth 60-80k.  maybe a few % 5+ years down the road.  What's the best way to purchase these.  I likely can't get the house low enough + improvements to hit 25% equity for a "traditional" private/hml investor, improve, cash-our refi.  How would you approach an investor for say, only the DP and improvement costs, and the return is on the rents for say, 3-5 years, instead of in year 1.

There is a silver lining.  Worse case scenario I could just do a traditional finance and pony up the DP at those prices, but it ties up that cash for 4 years.  It might still be worth it.

Thoughts?

Thanks, 

Jay

[Joe Villeneuve]

Easy.  All the money is in the cash flow equation.  So, minimize the down payment if possible.  That will set the dollars needed to recover (before profits are made) low.

DON'T think that if you increase your DP (or add your money to the payoff) that you are somehow getting a better result from the CF Equation...'cuz you ain't.

You want a formula that actually means something?  

Here it is:  The Cash Flow Equation

CFE >>>>  CI/MCF = CFR...and the lower the number (CFR) the better.

CFE = Cash Flow Equation

CI  = Cash In (this is how much money/cash YOU put in out of pocket)

MCF = Monthly Cash Flow (this better be possitive, or you are a fool)

CFR = Cash Flow Recovery (this is how long it takes to recover CI)...remember, you don't start to make a profit until CI = Accumulated MCF