How much do you put down to be cash flow positive?

Question

I have people tell me to send them investment properties that are good for rentals all the time when I am at Open Houses. I am in Orange County, California. I understand lot of investors are looking for cash flow positive properties, but in general, with how much down payment is that based on? Because, you put enough down and at one point you're in the positive.

Bud Gaffney · Answer

@Bibi Mathew depends on the numbers.

Caroline Gerardo · Answer

I'm in OC. Average 2 bed condo rents $3100 costs $800000 you need 60% down to cash flow loan payment $1818, tax and insurance $1066 HOA $400 you will lose money on high cost locations

OR Buy lower cost single family with no HOA where there are high paying jobs to boost the rent. A $500000 house (in Riverside county) where rents cap at $2600 and PITI is $3200.

The hope is to find location that appreciates and risk is softened by long term gains. Will that happen in today's market???

Other risk(s): buying at a distance makes you pay more for repairs and management and emergencies and travel.

Buying other asset types- stocks for example you have zero control; artwork or jewelry are subjective and can be damaged or stolen; buying a business you need deep knowledge and labor...

Billy Daniel · Answer

I get the "send me some good deals" people all the time.  Most of the time when you ask them to explain what that looks like, they can't answer.  There needs to be a conversation to drill down to what they think is a good deal.  A good deal for one investor will look like garbage to another.  You have to help them discover their goals and then you can help find the property!

Lien Vuong · Answer

You can put 100% and cash flow but traditional non owner occupied homes are 25% down payment.

Jeremy H. · Answer

If someone is asking you to send them deals they need to give you some specific criteria such as size, type, location, price etc

You will then set up parameters to send them properties that fall within their criteria. If you come across anything special or different you can send that to them as well. Not your job to run their numbers - you are not a mind reader. You simply provide the information and let them make the determination.

As a realtor I would think you have some access to information/deals that the rest of us don't - those are the types of deals investors really want.

Eliott Elias · Answer

Depends on your market. Here in Austin we're having to put down 30-40% down to break even

Bill B. · Answer

Why would you bother “paying” to make the property cashflow positive?

If it’s negative $500/mo you have to put down an extra $100k to get to cashflow even.

I’d rather put in $500/mo than $100k today. Heck I can make more than $500/mo with pretty much guaranteed money.

I bought some lakefront property in MN 5 years ago that was negative $800/mo. It still have a tax free income (because of depreciation) of a little over $12k/year from loan paydown.  Years later it was $500/mo negative and bringing in about $16k. Now it’s paid off and brings in almost $30k/yr and it went up $300k in value. putting down another $200k to make it cashflow $200/mo would have prevented me from buying 4 extra Las Vegas properties.

Cashflow just doesn’t matter. If you NEED $200/mo cashflow, you’re not ready for real estate. 1 month of vacancy, an expensive appliance, a water heater, one ac unit after a few years, a new roof after 5. These will all make you not cashflow.

Can you imagine people banking on cashflow in 2020 when the rent moratorium went in to effect? They were told only cashflow mattered and they shouldn’t “gamble on appreciation” but nobody told them they were “gambling on cashflow” like it was guaranteed if your spreadsheet said it was.

Peter Mckernan · Answer

California is lower cashflow and high appreciation state. The play for this area is value add and hold, there are multiple investors I work with that have 20-50 rentals in OC alone that were buying when rates were high and rates were low with some paid off and some with loans. The reason they have huge incomes off of it is that they picked a great area to buy and knew it would be a long term hold with high appreciation which has turned their net worth into large numbers. The other option would be to house hack some deals get the ball rolling, buy a house put an ADU in the back and cashflow, or do the say but it's a duplex/triplex/fourplex.

The other routes which are not wrong are areas that the appreciation is not that high (midwest and other places in the states) that do cashflow; however, the numbers are not as good there on the increase in prices later down the line. Those places do cashflow off the bat and there is a lower price point to jump in.

These conversations are where the goals that you have in mind need to exceed the areas and the wants. Once you have the goals locked in within your buy box of investing then you will see growth in your net worth, portfolio and more!

Patrick Drury · Answer

@Bibi MathewThat's kind of a loaded question. It depends on the market and the location. In Columbus, you can put 25% down and cash flow positive in one neighborhood and not another because the price point compared to rents is a higher disparity. I am not familiar with the southern California market, but if your clients are looking for something to be cashflow positive they might be wasting your time unless they are willing to put a large amount down. I would analyze a handful of listings in that market and get a general idea of what you would need to put down to run positive and if your clients can't or won't put that down let them know their expectations are too high for the market and follow up or recommend they look at another market where they will run positive with less down.

Caleb Brown · Answer

I'd dive deeper into their criteria. Find out if there's a certain percentage they are looking for(on return) or area they are currently buying in. Run numbers and see what properties are doing in different locations. Saying they want cash flowing properties is pretty broad and doesn't give you much info on what and where they are looking in.

How much do you put down to be cash flow positive?

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