I've been spending a lot of time reading up on buying rentals here on BP and other sites and I've seen a few blogs and articles with the claim that some investors won't buy unless they are getting $500 monthly cash flow, or another figure I've seen a lot of is not buying unless you get a 20% return on money invested and the rule of 50% of rent to expenses -mortgage. Basically the question is, how is it possible to get these returns??? The math doesn't seem to add up with house and rent prices in my area anyway. Example: a house I'm looking at now 3bedroom 2 bath listed at $119000 (close to market value according to what has sold) even if I purchase it for 20% below market value as suggested that is $95,200. Rent on nearby homes in same neighborhood are $1200-$1300 max for similar house. So $76000 financed after a 20% down payment would have a mortgage of about $410 at 5% interest rate. $600 left over after the 50% guidline - $410 for mortgage payment only leaves $190 cash flow per month x 12 is $2280 divided by investment of $19000 only comes out to a 12% return. That's not even counting on any of the costs to splash on a little paint and spruce the place up a bit with minimal costs. Just seems so far fetched for $500 a month cash flow or 20% return on every property. How many of you investors are really pulling in those numbers? Thanks for any information?

@James Register Hi James, NOLO publishes do it yourself legal guides. They take the laws and simplify them so that it's easier to understand. http://www.nolo.com

Interesting rule, never heard it before. My properties are right around 2.5, so that must be good?

Hi Josh, I like your post but, I have a quick question. What is NOLO? Thanks, James

It looks like I'm on target with a lot of post here. For my first complete year of renting out my house I previously lived in for 5 yrs; I am averaging 22% (year) profit. Typical max is around 33% or $350 a month. Most my major expense have already been replace while I was living in the house. Refinancing helped me a lot to get my numbers. Single family house 2br/1b. There is also the "2 factor" rule, I' not totally sure on the rule name. Basically rent / mortgage = # factor. The closer you are to 2 the better the investment. Example 1000 / 700 = 1.428. I don't include all the expenses but rather keep it simple. We can quickly over complicate things. Remember this is only on paper in a utopia setting. Things don't go perfectly.

I didn’t insult you and I’m glad you changed to a strategy that made sense after your first deal. I called your working strategy “common sense” and your second post supports my label. Your implication was that I and others were prostituting ourselves because we expect our investments to work for us. I did take offense at that and I don’t understand your offense at my calling your and my plan common sense. I don’t know much about you or your finances but I’m still betting if you had stuck with your first option your dreams would have died at about 3 properties. There are a lot of people on BP that pretend that the “smart investor” only invests for appreciation. You played into their hands by referring to yourself in a derogatory term, that I didn’t even feel comfortable repeating. You and I are in agreement and congratulations on 35 properties that is more than 98% of the people here will do in their lifetime. Had I listened to the naysayers I would still be in California waiting for my first deal. Instead I’m aiming for 400 doors by 2016, I couldn’t do it in any other market. I’m glad I’m in a market where the appreciation is better than anywhere AND the cash flow is second to none.

$500 month cash flow or at least 20% return on investment???

Mike Landry

Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes

$500 month cash flow or at least 20% return on investment???

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Ouch!