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

[Natalie Kolodij]

You may need to look for creative or off market deals there. 

Or look in another market. 

Or look at short term rentals. 

Very rarely can you buy at market MLS prices and have it be a good cash flowing property.