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Updated over 7 years ago, 03/22/2017
Every home seems to cash flow??
Hello everyone, i have recently been looking online to practice putting the numbers together to see if the property will cash flow or not. It seems like most homes that have more than one unit in the area that I am looking will cash flow. I am wondering what I am missing? am 22 and have yet to buy a property, currently in the Air Force and living in Japan. My plan is when i return to america (Omaha Nebraska area) to buy a 2-4 unit multifamily. Thanks for all your advice in advance!
Are you asking whether you made a mistake in your calculations? If you plugged everything into a REI calculator like the one here on BP, it should be right. I'm not familiar with your area but where I invest is a C+/B- area where I can pretty easily get my SFRs to hit the 2% rule and cash flow about $400/mo after all expenses including mortgage. Usually the cash flow is higher the lower the asset class which can be offset by higher maintenance and tenant turnover costs. It seems like my properties are at a happy-medium so far ( fingers crossed, Lol). I hope that helps!
Buy as many units as you can afford under one roof and it will get even better! Buy in a good area and make sure its a solid property thats as new as possible.
@Kyle DoneyI have been trying to buy in relatively good areas, i'm trying to house hack, and potentially use a va loan. because im moving and do not have a vehicle etc in america i wont have alot of money for a decent down payment.
@Jacqueline Coombs yes I was using the BP calculator, googled most of the information relative to the area like taxes and average rental, and usually bump up the numbers some just to calculate for my mistakes.
It just surprises me that their could be so many houses that could cash flow decently and have been on the market for a while. this may also be because i am so new to real estate and was never aware of how many houses are typically on the market.
Originally posted by @Jeffrey Gagnon:
@Kyle DoneyI have been trying to buy in relatively good areas, i'm trying to house hack, and potentially use a va loan. because im moving and do not have a vehicle etc in america i wont have alot of money for a decent down payment.
@Jacqueline Coombs yes I was using the BP calculator, googled most of the information relative to the area like taxes and average rental, and usually bump up the numbers some just to calculate for my mistakes.
It just surprises me that their could be so many houses that could cash flow decently and have been on the market for a while. this may also be because i am so new to real estate and was never aware of how many houses are typically on the market.
Maybe because why would you get excited to put $20,000 down just to see it return to you at $300-$400/month?
@Patrick Philip because i'm living in the home and it would be free to live in, and if i use a VA loan i don't have to put much if any money down. most of the time i am only taking into consideration one of the two units and they cash flow $300-$400 that sounds pretty good. sure its only $200 a month take home but I am also saving $1000 in BAH which i could save to put towards an investment with better cash flow? would you not agree?
One big thing to keep in mind with multi units is that the landlord often pays for many utilities and yard care. See if you can find out how the apartments are metered and what the costs are. If you are paying for the garbage, sewer, heat, and all yard care it can add up to a lot more than 3 or $400 dollars a month.
Hmm, if I could get a 24% ROI not counting rent increases, I'm pretty sure I could sell that opportunity to another investor who would take a 15% return. Or I could hold on to that long term if it had little to no risk.
Meaning it all depends on the property, what your expectations are, and what your goals are. I can think of a lot of uses for $20,000. But investing in real estate would be right near the top of that long list.
You could always pick one of these up for $20K:
https://www.youtube.com/watch?v=wCfClc8ssOU
But it may not make you as much ROI...
Definitely use your VA loan and if you can get a 4 plex under market value then awesome! You can hold it or you could sell or refi and use the VA loan again on another property when you're ready. Good luck in your search.
It shouldn't come as a surprise that lots of places cash flow, given that a lot of areas have a low price/rent ratio - i.e. a good sign for investment. I suggest keep crunching the numbers, but be extremely mindful that taxes come into play, capex, and other sudden expenditures might spring on you. Your strategy when you return home is spot on btw. Good luck!
@Jeffrey Gagnon It would be an awesome idea for you to house hack using for VA loan. It would require very little money upfront and you could get a three or four unit property that you could keep for a long time if it is a great deal. If it is cash flowing with you living there, it will be even better once you move out. At your age, this is a great way to get started in Real Estate. Also, Jerry makes a very good point. Make sure to check on how the utilities are metered, as this will make a big difference in your expenses and cash flow.
But to answer your question, there is a good chance a multifamily property with cash flow quite well unless its in a very expensive area.
On another note, with your VA loan, you are allowed to have more than on VA loan at a time. This may help you in the future if you continue to house hack or decide to buy a SFR after for your personal use, but there are some caveats to it. Let me know if you have any questions.
Thank you for your service and good luck!
@Jeffrey Gagnon - the midwest is a great place for cash flow. I would factor 50% NOI for most properties (+/-5% given the condition). So even though they all may cash flow at that, some will obviously cash flow more than others. Best of luck on your investment journey and congrats on realizing it's the best way to financial freedom!
Jeffrey Gagnon What you might want to do is list out the expenses that you're taking into account when you're talking about cash-flow. You might be missing something. Some people don't factor in vacancy, capex, owner-paid utilities (if applicable), all of the way down to the pesky little annual pest/termite inspection. You could also be looking at properties that are well priced (at first glance) because they have a 35 year old roof. $10K-$15K on a roof can kill your entire annual cash-flow without breaking a sweat. I hope I'm not coming across as negative! However, if everything you look at cash-flows then you're either great an initial diligence or maybe just forgetting an expense area someone along the way.
Side note, in multi-family I've never trusted what I *think* I could rent a property out for, I've always used a T12 to see what the previous owner was able to rent for.
Originally posted by @Patrick Philip:
Originally posted by @Jeffrey Gagnon:
@Kyle DoneyI have been trying to buy in relatively good areas, i'm trying to house hack, and potentially use a va loan. because im moving and do not have a vehicle etc in america i wont have alot of money for a decent down payment.
@Jacqueline Coombs yes I was using the BP calculator, googled most of the information relative to the area like taxes and average rental, and usually bump up the numbers some just to calculate for my mistakes.
It just surprises me that their could be so many houses that could cash flow decently and have been on the market for a while. this may also be because i am so new to real estate and was never aware of how many houses are typically on the market.
Maybe because why would you get excited to put $20,000 down just to see it return to you at $300-$400/month?
A return of $300-400 per month is $3600-4800 per year. That is an 18-24% annual return. Assuming the property is in good condition in a good area, that doesn't seem bad to me. Can you elaborate on what you consider a good return in today's market?
Originally posted by @Jeffrey Gagnon:
Hello everyone, i have recently been looking online to practice putting the numbers together to see if the property will cash flow or not. It seems like most homes that have more than one unit in the area that I am looking will cash flow. I am wondering what I am missing? am 22 and have yet to buy a property, currently in the Air Force and living in Japan. My plan is when i return to america (Omaha Nebraska area) to buy a 2-4 unit multifamily. Thanks for all your advice in advance!
Well I do have one thought I like to point with MFRs. Are you estimating what could happen if you only have one unit filled? Many times it is impossible to sync up 2 or more leases you you might never be 100% filled! So maybe estimate what the cash flow will be with only one unit. Also, are you looking at the extra expenses such as grass/snow removal? Water? MFRs can be much more costly than SFRs.
Originally posted by @Joe Splitrock:
Originally posted by @Patrick Philip:
Originally posted by @Jeffrey Gagnon:
@Kyle DoneyI have been trying to buy in relatively good areas, i'm trying to house hack, and potentially use a va loan. because im moving and do not have a vehicle etc in america i wont have alot of money for a decent down payment.
@Jacqueline Coombs yes I was using the BP calculator, googled most of the information relative to the area like taxes and average rental, and usually bump up the numbers some just to calculate for my mistakes.
It just surprises me that their could be so many houses that could cash flow decently and have been on the market for a while. this may also be because i am so new to real estate and was never aware of how many houses are typically on the market.
Maybe because why would you get excited to put $20,000 down just to see it return to you at $300-$400/month?
A return of $300-400 per month is $3600-4800 per year. That is an 18-24% annual return. Assuming the property is in good condition in a good area, that doesn't seem bad to me. Can you elaborate on what you consider a good return in today's market?
How is it an 18-24% return? Doesn't it depend on how much you put down? $4800 per year... You could make that in one month rehabbing. Also, that's about one wholesale deal. I'm just saying that wholesaling and rehabbing seem to be more profitable than tying up a large down payment to get it back at $4,800/year.
@Andrew Johnson What is a T12? Does this provide information for most rentals in most markets?
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@Jeffrey Gagnon
How about you put down the numbers here and we can analyze whether you are doing it right or now. No need to tell addresses, just say
Purchase Price, Downpayment, Mortgage, Taxes, Insurance, Utilities, PMI (if any), Vacancy, CAPEX, Maintenance, Management, etc
Originally posted by @Patrick Philip:
Originally posted by @Joe Splitrock:
Originally posted by @Patrick Philip:
Originally posted by @Jeffrey Gagnon:
@Kyle DoneyI have been trying to buy in relatively good areas, i'm trying to house hack, and potentially use a va loan. because im moving and do not have a vehicle etc in america i wont have alot of money for a decent down payment.
@Jacqueline Coombs yes I was using the BP calculator, googled most of the information relative to the area like taxes and average rental, and usually bump up the numbers some just to calculate for my mistakes.
It just surprises me that their could be so many houses that could cash flow decently and have been on the market for a while. this may also be because i am so new to real estate and was never aware of how many houses are typically on the market.
Maybe because why would you get excited to put $20,000 down just to see it return to you at $300-$400/month?
A return of $300-400 per month is $3600-4800 per year. That is an 18-24% annual return. Assuming the property is in good condition in a good area, that doesn't seem bad to me. Can you elaborate on what you consider a good return in today's market?
How is it an 18-24% return? Doesn't it depend on how much you put down? $4800 per year... You could make that in one month rehabbing. Also, that's about one wholesale deal. I'm just saying that wholesaling and rehabbing seem to be more profitable than tying up a large down payment to get it back at $4,800/year.
How is it an 18-24% return?
annual return / cash investment = annual percentage return
Doesn't it depend on how much you put down?
Yes, in this example you stated $20,000 was the down payment. If the down payment was increased or decreased, the rate of return would adjust inversely. So assuming the same annual cash flow, increasing the down payment will reduce the rate of return. Decreasing the down payment will increase the rate of return.
I'm just saying that wholesaling and rehabbing seem to be more profitable than tying up a large down payment
Flips and wholesaling are very time intensive activities and they are taxed disadvantaged compared to rental properties. It is the difference between having a job or having an investment. Months go by where I don't even talk to tenants and the money just goes into my account. Also during that time my tenant is paying down my mortgage, so every year I gain equity in the property. Then in the future I sell the property for a gain and I pay long term capital gains at 15% versus a flip where you will pay 28% or even more depending on your tax bracket.
If you want a job, go ahead and flip houses or wholesale. I want an investment where I can travel and not be tied to a full time job, so I prefer buy-and-hold. Most flippers end up either adding rentals as a side business or transition to it all together because they realize the benefits.
Allyssa Mccleery T12 is just shorthand for the trailing 12 months of income and expenses for the property. It's an easy way to see *collected* rents and actual expenses. I don't put a lot of weight in what a real estate agent or current owner says the property *could do* when it comes to cash-flow. I want to see what it has done. In some cases you'll see a difference between: 1.) average rents for the area, 2.) rents charged for the specific property, and 3.) collected rents for the specific property. When I'm doing a pro-forma I only care about #3.
@Andrew Johnson How do you obtain this information? Is it public record? Or when you are seriously considering buying a property do you have the previous owner show you receipts?
Allyssa Mccleery The current owner would have it and be able to supply it. It might not be in the prettiest form but you have to keep and track it for paying taxes. Because it is owner supplied (sometimes through a PM) you can't exactly take it as gospel. However, if an owner won't supply it's definitely a red flag for me. Either he/she doesn't maintain good records (which makes me think they lack the same attention to detail on their property) or they are trying to mask something (high expenses, uncollected rents, etc.). Owners don't always give them out like candy, it is proprietary information, so don't be surprised if they ask to see something like proof of funds, a pre-qual letter, etc. before they do.
@Andrew Johnson Thank you!!
