Cash flow analysis.

[Mark Albano]

Hey everyone. I am new to BP and I currently do not have any investment properties. I plan to close on something this coming March. I have the idea of starting out with a single family or a condo/townhome for a rental property after living there for a year or so. I want to post a possible deal for second opinions. Even though I am not pulling the trigger on anything yet, I just want to know if my head is in the right spot or if I need to rethink somethings. So here is the kind of possibilities I am looking at. I plan on putting 5% down on anything I do. Also, how much should I ask off of the listing price? Thanks in advance.

Here is the description:

"Move in Ready two bedroom town home located in desirable area. Recently painted and new carpet in bedrooms make this the perfect investment property or starter home. Main level is complete with kitchen, dining area, pantry and great room which is perfect for entertaining family and friends. Two spacious "master-like" bedrooms in upper level with bathrooms. Home is located near shops, restaurants and entertainment."

 2bed 3bath 1254sqft condo.

Listing price :$124,500

HOA: $145

Build date: 2003

Mecklenburg annual tax: Approx. $1300

AVG. rent: $919 according to rentometor

[Susan Gillespie]

Hi @Mark Albano yes, you need to dig deeper into the numbers.

Your question is about cash flow analysis.

At first blush, the average rent you posted isn't even 1% of list price. At $124k, you would want to see monthly rents closer to $1200 at minimum. You would never buy based on that guideline alone, but it's a starting point. From there, add your other expenses, from vacancy to insurance to repairs, to estimate what the property will really cost you.

Example: $599 mortgage, $107 tax, $145 HOA = $851/month PLUS insurance, repairs, vacancy, property management, PMI, etc.

Your example as-is creates negative cash flow.

For beginning investors, it's extremely important to look for positive net cash flow. This means that after all expenses are paid, including mortgage, the property leaves you with money in your pocket.

You're asking good questions and hopefully will find something that works for you.

PS - Ask the real estate agent what "perfect investment property" means. Then ask them about cash flow, and how they came to that conclusion. Then look for a real estate agent who owns rental properties themselves and knows what to look for.