Chatsworth, Ca Cash Flow Rental residential

[Justin DeSantis]

I have a Seller in Chatsworth, Ca that wants to sell for $700,000. I know typically we go by the 2% rule for cash flow but Southern California can't use this rule right? $14k monthly seems a little obnoxious even in So Cal. Does anyone have any insight into how much I can pay for this deal and still cash flow.

Ps. I have heard of people charging about 1k per room here in So Cal....

Any help would be much appreciated.

[David Fitch]

2% rule is not attainable anywhere in SoCal - it's hard to find even in the more well known "cash flow" happy investor cities. You'd be lucky to find a place that you could rent at 1% of purchase price in SoCal - even that would be near impossible unless you're looking at larger multi-family properties. Most realistic on SFH rentals is you may get a monthly rate of between 0.5% - 0.75% of purchase price.

As mentioned, whether or not you can have positive cash flow on a $700k purchase price depends on:

1) How much of that is financed (and by extension, what your monthly PITI payment amounts to).

2) How much your other total monthly costs are (10% for maintenance? 5% for vacancy allowance? 8% for a PM? Gardening, Utilities, etc.)

3) Add #1 and #2, and compare to how much you think you can rent it for. Rentometer is a good source, as mentioned.

If 1+2 > 3, then you are not cash flowing. If 1+2 < 3, then you are. 

Obviously the biggest lever you have to move that needle, is how much $$ you put down. The more you put down, the less your monthly out of pocket expense, the more likely you are to achieve positive cash flow. 

It's not clear why you zeroed in on this property specifically. Typically you want to start with an understanding of rent to purchase price ratios in a given area, and if you find a deal in that area with a favorable ratio compared to everything else, then you start a more detailed analysis of that specific property. It seems like here, you started with the property and are trying to reverse engineer what price you should pay based on how close you can get to some mythical rule. If that's what you're doing, I'd recommend taking a step back and looking at the broader area first, and then deciding if this specific property is a good deal or not.