What numbers can I change on rental calculator for cash flow

Question

Hi, I live in San Diego and I am wanting to buy a multi-family home but every time I put it into the rental calculator every property has come out to a negative cash flow. I tried messing with the numbers to get it to go positive but even then I have not had any luck. I'm not sure if I'm doing something wrong or if it's just the market here? Looking for a suggestions on how to House hack in San Diego with cash flow or even just break even.

Maxwell Ventura · Answer

@Vidal Preciado

Without a value add, the SFR & small multi-family will generally be cash flow negative initially (Or at best has minimal cash flow) when using realistic estimates for expenses.

Value add's can be in the form of rehab, adding/converting an ADU, and/or leveraging non-optimized zoning.

The SD market is generally a safer play w/ consistent appreciation (5.5% annually over the last 10 years), which is 1 reason why it is hard to see cashflow right off the bat, unless your downpayment is size-able.

You mentioned you're looking for a multi-family property. Purely as investment? Or have you considered house-hacking and living in one of the units? If you're looking for more privacy, there are may duplexes throughout the metro area of SD that are essentially 2 separate SFRs on the same lot divided by a fence. Of course, you can always install your own (A relatively inexpensive value-add) if the lot size is adequate.

Hope this helps

Dan H. · Answer

@Maxwell Ventura sentiment matches my views but I wanted to clarify.

Post indicate San Diego does not have good cash flow but what they really mean is San Diego does not have good initial cash flow.   The actual cash flow is the cash flow acjphieved over the holding period.

All of our San Diego RE cash flows with the 50% rule.   They all have over a 1% rent to purchase ratio.   The best has over a 4% ratio.   Seems like the cash flow is outstanding.

How is this the case.  First we have not purchased recently so all properties have benefitted from rent appreciation.   Second, we typically purchase properties with value adds.  The value adds result in rent increases.

Even without the value add, San Diego has good to great cash flow.

How many have seen the BP spreadsheet on buy n hold returns by city?  The long duration was 2010 to 2018 which is not that long.   There was also a property tax error for all Ca cities.  Do you know where it showed San Diego’s cash flow?   About the middle.  Fix the property tax error and it would be higher.  Use a longer duration and it would be higher.  I suspect at 20 years San Diego likely is top 5% not only because of the rent appreciation, but also the prop 13 property tax advantage.   What do you think the property appreciation would be?    Overall I suspect the total return for San Diego for 20 years to be near the top in the nation (which is also what Case Shiller depicts).

Buy n hold is a long term investment.    Initial cash flow would be analogous to the stock that is paying a good dividend.  San Diego is more similar to the growth stocks.

Good luck

Steven Silman · Answer

@Vidal Preciado The calculator will help you figure out what a property does and is likely to do but if the numbers are consistently coming up negative then you are likely looking at properties that just don't cash flow because of local rents and local prices. To get such a property to cash flow, you can push the numbers in different directions by decreasing the price you pay initially (buy distressed, value-add, maybe off market), increasing rents (if currently below market or by improving the units), or by reducing expenses. Outside of that, I'd suggest looking at secondary markets near your area that might work for your house hack.

Eric James · Answer

CA is generally an appreciation market. Not cashflow. Not likely you'll get good cashflow. However, if you buy right and wait 20 years you could make some good money.

Nate Bestward · Answer

Only way to have positive cash flow in a big market is to put down a 50-100% down payment lol It's the same here in Vancouver, B.C. and surrounding areas.  Rent doesn't cover expenses unless you're buying the property outright lol When you're paying $1M for a teardown house which gets $1500/mth rent, it's a hard market to have cash flow from rentals.

Twana Rasoul · Answer

@Vidal Preciado initial cashflow is difficult here and it depends what areas of town you are looking in, the number of unit, type of financing, etc.

What numbers can I change on rental calculator for cash flow

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