How much cashflow can you receive monthly purchasing a $100K SFH, Duplex, or Triplex?

Question

From what I've read on the forums, it sounds like anything over $100 / month per a unit is a solid cashflow, but out of curiosity how would you classify more or less than $100/monthly per a unit?

For example, for a duplex:

Would most of you consider $50-$75 / unit monthly bad?

What about $75-$125?

Is it realistic to expect $125-$200+ a month per a unit when your property is in the ~$100K range? Would love to get an idea as to what you can realistically find if you were to do some serious bargain hunting.

What is the most anyone here has made in terms of cashflow / month on a single property for $100K or under?

Jon Holdman · Answer

Lots of folks would and have argued its impossible to find "2%/50%" deals.  In many areas, like Denver, I would tend to agree.  But we do see deals like that crop here.  There's even a group for that.  So, it does appear than in the right location, you could really purchase properties for $25K and expect to get $500 in rent.  With the 50% rule, you'll get NOI of $250/unit.  So, you could buy four of them for cash with your $100K and be generating $1000 a month, $12,000 a year, in returns.  That's 12%.  Really, your investment would have to cover closing costs, so maybe you have $110K invested.

Alternatively, say you can get 70% LTV loans.  Not easy for small loans like this, but say you can do it.  Say its $2500 in closing costs and loan fees.  So, you need about $10K each.  Payment on a $17,500, 30 year, 6% loan would be $105 a month, leaving you $145 in cash flow.  For the same $110K, you could buy 11 of these.  That gives you $1595 a month or $19140 a year on your $110K investment.

Your total rent would be $5,500 a month.  By doing your own property management, you could earn back the property management costs.  These are all over the may, but 10% of collected rent would be a reasonable estimate.  That's another $550 a month you can EARN doing the PM, or $6600 a year.  That brings your total return to $25,740 a year.

Or, you could really put effort into finding properties you could acquire with little cash out of pocket.  Subject to, lease/options, owner financing, etc.  Build a good relationship with a small bank and work up to having a line of credit to buy and rent, then put them under a blanket loan.  With a bunch of work, you could parley that $100K into a much larger set of properties.

Jon Holdman · Answer

The rules would allow you to sell the 11 SFRs and 1031 exchange them into one big one.  But the timing rules are strict and actually making that work would be a challenge.

Jon Holdman · Answer

Nope, never done a 1031.  Still on the small property stage of building a portfolio.  I think you'd either need to move them as a portfolio to a single buyer, or do 2-3 into a single larger property.  I think the time line is that you have 45 days after the sale (or first sale for multiple properties) to identify the three candidate properties, and then 180 days from the sale to close.  I don't really know how the timing works if you're doing two into one, but I'm assuming the sale of the first would start the clock.  You also have to close before you file your taxes for that year.  That's just a matter of delaying filing or filing for an extension, but could trip you up if you're unaware.

Sage Jankowitz · Answer

Yeah, as I recall the window is only a month or two. If one were to pull a move like this I would assume it would have to be in a red hot market where you happen to own a slew of properties in that area.

Out of curiosity have you ever a pulled a move like this, where you exchanged multiple properties for one much larger one? Or do you know anyone who has?

Sage Jankowitz · Answer

Thanks for that well thought out response Jon. A lot of things to think about there...

Based on what I've read thus far and as a complete newbie, I think the way to go is to buy a number of small properties like you mentioned, maybe 10 or so and then try and flip the sale using a 1031 exchange into a bigger property and work my way up in # of units.

Eventually one could get to the point where they have 200 units each producing $100 cashflow/month or $20,000 a month!

That brings me to another question. Could you purchase 11 properties like you mentioned, and then sell all of them at the same time five years later using a 1031 exchange for a much, much larger INDIVIDUAL property with much higher cashflows? Or can only a single property be transfered in a 1031 exchange for another single property?

Jon Holdman · Answer

Its going to depend a lot of how much rent you can get.  In some places a $100K house is a tar paper shack that might rent for $700 or less.  That's going to produce no cash flow at all.  In other places, you might buy a quad that would rent for $500 a unit.

Sage Jankowitz · Answer

Thanks for replying Jon and that makes sense to me. Different areas are going to command different rents depending on a number of factors.

But in terms of cashflow, how much could you realistically expect to take in a best case and worst case scenario given a price range of ~$100K or less?

I'm trying to figure out if it would be possible to make a decent cashflow off of say 5-10 properties that are all great buys, or if realistically one would need to purchase 30-40 before they could see any significant returns from cashflow alone. Obviously not taking into account appreciation or the extra equity I would receive in buying below market value in the first place...

How much cashflow can you receive monthly purchasing a $100K SFH, Duplex, or Triplex?

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