How to run the numbers on a low rental rate property?

[Martin W.]

Hi all,

I'm practicing by running numbers on a diversity of potential properties. When I run my numbers on SFHs with rents >= $900/month my cashflow ends up >$100/month, but when I go down to around $700/month the numbers don't work anymore. I'm trying to get at least $100/month cashflow after expenses.

Here is an example of a property, with my numbers:
Purchase price: $70,000
Rehab: no (turnkey)
Down payment: 20% ($14,000)
Closing costs: $3,500
Mortgage interest rate 5%; loan term 30 years amortizing; monthly payment: $304

Rental income: $700/month (in line with 1% rule)
Property taxes: $96/month (1.65%)
Homeowner's insurance: $50/month
HOA: no
PM: $70/month (10%)
Maintenance: $35/month (5%)
CapEx: $35/month (5%)
Vacancy rate: $56/month (8%)
PM vacancy renewal: $29/month (50% of one month rent)

Total cashflow: $25/month

What am I doing wrong? Or is the 2% really needed for properties of $70k and lower to make it work?

Thank you,
Martin

[Joe Villeneuve]

  The math works...the property doesn't.  Why would you expect a property with a very low rent (income) to cash flow any higher?  Logic tells us it can't.  The problem isn't the math.  The math tells all.  The problem is the property.  The math is telling you NOT to buy that property...period.

...and throw away the 2% rule.