Cash flow = NEGATIVE $2,000 per month

[Adam Knickelbein]

Hi everyone,

I'm looking for my first deal here in my hometown of Boulder, CO. What I've found is that price-to-rent ratios are high - ranging from 24-30 depending on zip code. The median home sold price is $800,000, and average rents for a 3-4 bedroom home are around $2500. A very quick screen (20% down payment, 30 years, 4.5% interest, 50% operating expenses) tells me that cash flow would be negative $2,000 per month. So to break even with these assumptions at $2,500 rent, I would need to buy for approximately $300,000. To get a 10% COC return I would need to buy for $220,000. And none of this analysis considers rehab or closing costs. In other words, I need a seller to accept an offer 70% less than list price for me to make a return. Even if I somehow got operating expenses down to 30%, I would need to buy for $400,000 to make a tiny return.

So my questions are:

1. Do I even bother looking for deals in Boulder? Or should I just look elsewhere?

2. If elsewhere, how do you decide where to look? Is this type of analysis useful in determining where to look?

Thanks!

Adam