Investing for Cash Flow $120k to $160k range.

[Chai Jonn]

Hello!

I am looking to invest in the range of $100 to $150k in SFH/house /any type with good cash flow in mind. ($400 to $600 cash flow or more after all expenses per month). I am open to any market in USA. Will hire a PM to do the work. Please let me know if anyone has any suggestions on what market to focus to achieve my goals. I am not that worried about appreciation. Good to have. But cash flow is important especially with how the job market is now

[Erik W.]

@Chai Jonn.  Depending on where you go, this could work.  It comes down to ratios.

Basically, better properties cost more to buy and produce fewer dollars of profit per dollar invested vs. less good properties.  I'll give an example from my market, a mid-western town of about 160,000 people in a metro area of about 250,000.

A "class B", 3 bed, 2 bath, 2 car garage "starter" home will cost you about $110 - $150K and will rent between $800 - $1,300 / month.

A "class C", 2 bed, 1-2 bath bungalo that might have a garage or not will cost around $30K - $60K and will rent between $500 - $800 / month.

Right away you should notice the price disparity.  The bottom of the Class B rents match the top of the Class C rents, but look at how much LESS you spend to purchase the Class C.  It's almost 50% off.

Now there are tons of variables such as location, appreciation, class of tenant, etc.  But the bottom line is in most markets, cheaper properties yield more rent dollars per dollar invested.  So if CASH FLOW is your goal, and it sounds like it is, I recommend you look for Class C to B- properties in the Mid-West.

Keep in mind that properties will have operating expenses around 30-50% of gross potential rent.  If you hire a PM, expect it to be no less than 40% unless the properties are brand new and require almost no maintenance.

With that model in mind, let's look at the Class B property above.  Let's shoot middle of the road: $130K "all in cost" and $1,100 rent.  

Operating expenses - maintenance, insurance, taxes, etc (30%) = $330

Property manager (10%) = $110 + half months rent for any turn overs

Vacancy (5%) = $55

CapEx reserves (5%) = $55

Net Operating Income = $550.

Any debt service? On a 30 year note at 4.5%, 80% LTV your payment is $526.

Cash flow = $24/month on $26,000 invested (20% down) or 1.2% ROI.

I'm not saying your scenario CAN'T be done, but you really have to know your numbers and the market you're getting into.  People don't just give that kind of info away for free online, most times because they don't actually have it to give.  Market knowledge involves intimate dealings in an area over time.  Someone who flies in 3x per year as a long-distance land lord is not in a position to give you everything you need to know to invest successfully in a market you know nothing about.

All that said, good luck!