i hope im making the right choice

[Lilach A.]

hey there, hope you can help me, so after almost a week of going back and forth, we agreed on a price, they asked 420k we agreed on 395k, did the rent calculation and it says after all expenses I will have 500 - 600 left each month .my question is because I'm getting cold feet, is am I paying too much. and I'm not sure the 1-2% rule applies because I am thinking ill get 2900-3000 a month rent. how would I know if I'm making the right choice in this crazy market? thank you.

[Johnny D.]

The 1% rule is easier to obtain on lower priced properties but more difficult for around the $400k price point.  I wouldn't recommend using cashflow alone as your main metric to measure success as a property costing $150k or below that cashflows $500-$600 per month would be a better cashflow deal than one costing $395k.  That is of course if cashflow is your main goal.  I like to compare the combination of both cashflow and cash on cash returns.  For example if you are paying a downpayment of about $80k to get the property, and it cashflows $500 per month after all expenses, you would calculate the cash on cash return by dividing the annual cashflow ($500 x 12 = $6000) divided by how much cash you paid (the downpayment to include closing costs).  Most people aim for at least 10% for this number since you could usually park money in the stock market and get an 8-10% return.  The only exception I would make for a lower cash on cash value is if I feel very confident about high appreciation, but for me this would involve a lot of information showing the movement of new jobs to the area and confidence in the overall economy as a whole as you wouldn't want a repeat of the last housing crisis.