Anyone managed to generate cashflow when RTV is less than 1%?

[Matthew Gu]

I feel it extremely difficult to have positive cashflow when RTV is lower. I searched through zillow for several promising places like Tulsa OK, Indianapolis IN and Memphis TN, the best RTV I can find is around 0.75% in Tulsa. Here's the breakdown of all the cost and incomes:

home purchase price: 140k, rent per month: 1100 (RTV=0.79%)

Income: 1100*12 = 13,200 per year

Down payment 30%, interest rate 4% => mortgage per year is 5,600

1.5% property tax, 1% maintenance, 1.5% home insurance => another 5,600 per year

PM fee: 10% rent per month + 100% rent for new tenant (assume tenant stays for 3 years) => 1,320 + 1,100/3 = 1,686 per year

Total cost: 5,600 + 5,600 + 1,686 = 12,886 per year

There's barely any cashflow and does not even include the vacancy time between lease, legal fee in terms of a dispute/eviction etc.

So the question is, should I try harder to find 1% properties in these areas, or there's something that I miss in the calculation above?

[Bill B.]

Las Vegas example:

Home price $260k, rent per month $1300 (RTV 0.50%)

Income $15,600

30% down 4% interest mortgage is $898 x 12 = $10,775

0.35 % property tax ($902), WAAAY less than 0.5% maintenance ($1300 extra safe), 0.16% home insurance ($435)

PM is 8% plus $300 for new tenant. Assume 3 years $1248 plus +300 - $1548 per year

Total cost $10,775 plus $2637 plus $1548 = $14,960 

So I get about double the profit with double the cost of house, BUT, that’s at 0.6% RTV, if I could get your 0.79% I’d be getting $2054/mo in rent, brining in $24,648, clearing almost $10,000 per year. So yes.  You can make a killing at .79% RTV. 

Don’t forget, in my first example even the first year you’re making another $275/mo in loan pay down. So you’d be making $4,000/year even year one at 0.6%. Then you’d take $7,563 in depreciation showing a taxable loss of $3500.

It only gets better each following year. 

Your PM isn’t helping matters but your insurance and property taxes are killing your cash flow. If you could cut them in half you’d go from $315/year to over $3,000. 

If cashflow is super important to you put more money down, but you’ll actually be hurting your returns. You might get better results with 20-25% down (depending on lender) having that cash in your pocket and having a little negative cashflow.