Realistic cash flow on SFR in Louisville?

[Micah Mcarthur]

I am still learning, and feeling like I have the confidence to pull the trigger soon on my first investment.   I have been analyzing houses almost everyday now for weeks and weeks, trying to get a good feel for the areas, what the market is looking like, local rents in the area, etc.  

As I run the numbers, learning what works and what doesn't, I am wondering what type of cash flow I can realistically expect.  

My current thought, assuming an off market deal doesn't just suddenly fall in my lap, is that I will purchase a fairly run down SFR off the MLS, in a B or C neighborhood, and try to be "all in" repairs and everything at 70%. absolutely no more than 80% market value.

What I am seeing, is that even buying at 70% market value, -minus repairs, finding $200 cash flow on a SFR is very tough, even lower if you use the straight 50% rule of thumb.

[Rob Bergeron]

I'd definitely buy off market (I'm a realtor). Our typical inventory is around 4,5000 homes we are currently at 2,980 properties. I'd reach out to wholesalers and let them know what you are wanting. I'd also consider going across the river to New Albany, great renters there from Amazon. I don't sell over there, but Katie Noe does a good job. Katie and Brad Noe have about six rentals in New Albany that all appraised for $20,000 more than they purchased them for. 

[Jay Leisten]

I look for 1.5+% of purchase price in rent. You can find them via MLS but you have to be quick. Most good mls deals will get blind offers at this point. Wholesalers are a good resource, but only a few can do math. Don’t fall for the highest ARV and highest rents in the area trap. Also here’s a reason they’ve moved things around to block or cover issues. If you can find someone to mentor you a bit and split a deal or 2 you can get some good tips, and connect with the right contractors etc.

[Clay Smith]

I can find rentals using your numbers. Let an agent send you a deal or get to know other investors. 

You want to learn more? I will be speaking at the KREIA event this month and training on the weekend. Our KREIA is a non profit and you can find the details in the events section of BP.

--NOTE: I am not buying or selling anything, I am not a guru, I am not an agent, just a volunteer.

[Micah Mcarthur]

Thanks for the responses guys. A couple of really good insights. I kind of knew the MLS wasnt really the way to go.The very few "deals" I have found either go under contract almost immediatly, or have sat there for months, which makes me think there is probably something major. I am not in for a major overhaul or reno yet, not on my first deals. I dont have the time or really the money.

I would really like to fall in with someone I can work with, do all the legwork, and learn how to the game works and establish the contacts.    I havent reached out to agents or wholesalers, or other investors as of yet; I didnt feel like I was ready up until about now.  

I absolutely want to learn more!!  I will be at the KREIA meeting next week.  I am actually intown next week, so that is perfect.   

[Thomas S.]

SFHs do not cash flow very well unless you are buying C-/D properties. You will be very lucky to pull a true $200 on a B class SFH.

[Micah Mcarthur]

Really? thats why I am asking, it doesnt seem worth it to get into SFH if your going to pull $200 or less per month cash flow. Granted, cash flow is not the end all be all of my plan, but I am trying to gauge if my target is even right.

I am OK taking a little less cashflow on my first, just to get my feet wet and learn the game, however if it becomes an option, I think I would prefer to get into MFH, but I understand those are even harder to get your hands on here in Louisville.

[Erik Hitzelberger]

@Micah Mcarthur

With long-term financing at current interest rates and our low tax rates, cash flow at $200 per month is very easy to find. My bigger concern is that you haven’t fully defined your goals. If you buy a property that doesn’t support your goals, it’s a bad investment regardless of the numbers. 

Rental properties are capable of producing wealth and/or net income. The balance you want to achieve should dictate the type of property and area you but in. On top of that, you need to decide whether you want value conscious tenants or price-sensitive tenants. This will let you know the level of finish you need in the home. Finally, you need to determine how much time you have to allocate to real estate each month. Be very, very realistic about this last point. 

Here’s some guidance on the first part. I group properties by goals rather than some arbitrary opinion of neighborhoods. 

(A)ppreciation - primary goal is long-term wealth building. Expected appreciation in the 5-6% range, net income is $0-100 per month. These type properties often require you have a good reserve fund

(B)oth - lower appreciation (4), but more cash flow ($100-200)

(C)ashflow - still appreciate (1-3%) and produce ($200-300) in net income

(D)isposable - no expected appreciation, $300+ Cash flow

Of course you will find some variance, especially with level of rehab. Certain niches like student rentals or Airbnb may also generate more cash in the A/B ranges. It just takes more effort. Overall though, these numbers are easily attainable in Louisville. 

[Micah Mcarthur]

Thank you @Erik Hitzelberger.   I appreciate your perspective and the nuggets of wisdom.   You have certainly given me a few things to chew on.   

Time---- that is a resource that I have just about maxed.  It is the biggest factor in all of my decisions, personally and financially.   

[Tim Stolt]

@Micah Mcarthur

Is $200 cash flow per door available and doable, sure. The question is are you willing to buy where that is realistic? I've got two amazing rentals in the upper east end/Crestwood area right now. East end property was essentially a foreclosure live in rehab/flip currently cash flowing $500 per month. I count luck and time as the main factors on this one. The Crestwood property is cash flowing $600 per month. This was also a personal residence for years, then refied, now is a rental. Luck, good market timing, and time in general are major factors in the current cash flow. Am I finding these deals in today's market in these areas - nope. At the moment, I'm buying in the western and southern neighborhoods of Louisville with a bogey of $200 per door per month. I'm finding the cash flow target is easier to hit by going multi family, if not commercial size properties. The SFH $200 per door cash flow is going to be difficult to come by using MLS searches. If you find one, you better attach the cash to the offer because they go quick! Buying and managing a multi family isn't more difficult than an SFH, it can actually be easier since you have that whole economy of scale idea working for you.
Best of luck in your search.

[Micah Mcarthur]

Thanks for your input Tim,  multi family is something I am looking at as well.  

[Chad Doerr]

@Micah Mcarthur I'm reading this post five years later and curious if you ever pulled the trigger on your first investment property and what you learned along the way.  

[Chad Doerr]

Quote from @Erik Hitzelberger:

@Micah Mcarthur

Here’s some guidance on the first part. I group properties by goals rather than some arbitrary opinion of neighborhoods. 

(A)ppreciation - primary goal is long-term wealth building. Expected appreciation in the 5-6% range, net income is $0-100 per month. These type properties often require you have a good reserve fund

(B)oth - lower appreciation (4), but more cash flow ($100-200)

(C)ashflow - still appreciate (1-3%) and produce ($200-300) in net income

(D)isposable - no expected appreciation, $300+ Cash flow

Of course you will find some variance, especially with level of rehab. Certain niches like student rentals or Airbnb may also generate more cash in the A/B ranges. It just takes more effort. Overall though, these numbers are easily attainable in Louisville. 

@Erik Hitzelberger  I love the way you broke this down. Five years later, I'm curious if any of these numbers have changed.  Are there specific Louisville zip codes I should be looking at if I want "Both"?