What is an acceptable C on C ROI and cashflow for first property?

Question

While still learning the about the processes involved with buying a rental property, I've been keeping an eye on real estate around me. I have noticed some promising options, but to get a strong ROI/cashflow I have to buy for very low and rent for very high. Is there a baseline that I should look out for?

Thanks!

Jake Hart · Answer

Alexander,

I'm new to the investment world but with my first property I went with a college rental. I know Missouri State is there by you so I might start looking there. My 5/bed 2/bath college rental house cost $100k and rents for $1,750/month. I get about $500/month in cash flow. It's 2x what normal SFH get and I think less risky as most kids have either parents money or student loans to pay for their rent.  Pricing around Missouri State might be more but its worth looking into.

- Jake

Alexander Thomas Chaney · Answer

Thanks for the information everyone, it really expanded my view on how to approach buying a property. Can't wait to post about it again as a success!

Thomas S. · Answer

Keep in mind C on C only applies to calculations pre purchase or at best for first year of ownership. After that there are soo many different variables involved that C on C is not longer relevant or at best very complicated to calculate.

Taxes, equity growth etc. simply throw the numbers out of wack.

Jake Hart · Answer

@Alexander Thomas Chaney When investing in a house that will be rented to college students you definitely want consider the extra risk due to potential damages. But like @Ian Kurela said, the majority of the properties around college campuses are in bad shape. To me this i gold! Why, because that means if I offer a very nice house, doesn't have to be fancy, I stand out above all the other Landlords. This makes it 1,000 times easier to rent my place and I can up the rental amounts. Look at it this way, why would a college student take care of the property they are renting if the Landlord doesn't even do that. For me, my rental is very nice and I maintain the lawn and have a presence there at the property. This shows my tenants that I am interested in my property and their stay and want them to be comfortable. When I treat my tenants like I would want to be treated, 9 times out of 10 the tenants will respect my property. I also go into the property every 3 months to check the air filter and smoke detectors which doubles as a secret landlord inspection.

Ali Boone · Answer

The only real baseline is "positive". Just make sure the numbers are in the positive, and that's the only official thing. But more detailed than that, there's a lot that goes into it. "Acceptable" or "good" for one market may be completely different for another. And it also depends on the risk vs reward trade-off too....if I'm buying a really risky property, there better be a really high projected cash flow attached to it to make up for that risk.

Here's some details on considerations-

https://www.biggerpockets.com/renewsblog/2016/02/2...

Hope that helps!

Ian Kurela · Answer

I am still in college, though a very small campus (3500 undergrads). Most duplexes in the popular part of the city are being rented for around 2800-3000 and these homes are only worth around 250k.

Majority of the time, college rentals will surpass the 1% rule but of course there is the downside. On one hand, they are usually more expensive simply because the sellers understand the cash flow demand. Second, they are most likely ALWAYS in bad condition. Sometimes you will be able to throw in tenants and they won't trash the place too much, but beware about damage to the property.

All in all, if you are able to have a good property manager or live near the property yourself and can stomach some damage to the property, the cash flow will be worth it.

Alexander Thomas Chaney · Answer

Ah, I understand. That's pretty clever. So you have found that college students in that market usually expect to live with roommates and are therefore not turned away by the price. Thank you again for the answer, I may apply this to my situation in the next few months. I'm sure I'll have more questions around that time=]

Jake Hart · Answer

By college rental I mean a house or any property that is rented to college students. This could be a SFH, duplex, or larger property. So for instance, I have a single family home that is a 5 bedroom 2 bathroom just 1/2 mile from the college campus. There are families that live around in the same area but there are a lot of college students that rent these homes. I know that the market for a SFR to a family would be only around $900/month for this house and college students tend to pay around $350 per bedroom. When I go to market the house, I market it as $1,750 utilities included which is $350/ bedroom. By pricing the home per bedroom and higher than other normal SFR in the area I tend to only get college students applying. Doing it this way also keeps you from discrimination. If a family wanted to rent the house for $1,750/ month I would rent to them but why would they do that when they can move a mile away and lower their rent by $850.

Alexander Thomas Chaney · Answer

Could you expand on what you mean by college rental?

Do you mean like a duplex or bigger?

Thanks for the response!

What is an acceptable C on C ROI and cashflow for first property?

Most Popular Reply