Need estimate for buying SFH

[Jack Srimani]

Hi,
I am planning to buy a single family home. This is a two bedroom and 1 bath home with detached garage. The rent around the area is 600-650. What should the price I can settle for most to get cash flow. The seller currently has marked it for 40000 and lot of things are redone. I would appreciate any advise. Are the rules different for SFH. Thanks.

[Jon Holdman]

There are really three factors in a good rental:
1) Cash flow
2) Demand
3) Equity

You only asked about cash flow, so I'll give you an opinion on that. But you need to be sure there's demand on there will be no cash flow at all. Equity just means you should buy at a discount vs. similar houses that are readily available. As Max says, consider the rehab as part of your purchase cost.

Rent: $600
Expenses, vacancy, and capital: $300 (50% rule)
NOI: $300
Down: $10,000 (25%)
Closing costs; $2000 (just a guess)
Loan: $30,000
Payment: $180
Cash flow: $120/month, $1,440/year
Cash on cash return: 12% ($1,440/$12,000)

If you manage it yourself and do some of the maintenance it will be better than that because you're earning the PM and maintenance cut, too.