Cash Flow Requirements- Pennsylvania

[Connor Vanin]

Hi All

I am close to purchasing a duplex just outside the Lehigh Valley, in Pennsburg. I have everything worked out on the spreadsheet, and I would be looking at a average monthly cash flow of $150, after mortgage, expenses, and putting away 10% cap ex, 5% maintenance, and 5% vacancy. The gross rent per month would be 2500, both units are 3/1. 

I am worried that the cash flow may be too low for my trouble. Can anyone give me some thoughts on these figures? The COC% would be 8.01% at these numbers. This would be my first property.

[Patrick Liska]

Connor,

I figure CAPEX but i don't. what i do is take the net income i have and leave it all in the account, usually until you have at least a steady 10K in there. for your size house, that should be enough to handle any emergency, furnace or new roof, even if you decide to redo the bathroom. then you just replenish it if you do use it. but after reaching that 10k then the rest of the money is for you to do what you want. if you want to keep more in there, that's up to you, but then you no longer have to put away for CAPEX, meaning that 250 goes to your pocket and you can figure that as income, now your return should be better. don't be afraid to look at numbers a different way. If you figure it like this, you now net the 150 if you add back the 250 for cap ex and another 250 for maintenance and vacancy which means you are pulling in 650/ month. it will take you 16 months to save up 10k after that you are making 650/ month. hopefully nothing goes wrong in those 16 months where you need the money, but how does your return look now if you figure it that way ?

 Maybe 10k is not your magic number, maybe you want enough in the account in case you loose a tenant and have to pay the bills, maybe it's 15k or more, you need to figure out what works for you. save that money first and don't spend it, this will help you be successful.