All Forum Posts by: Adam Johns

@Ciro LoCascio

Since it seems like no one else wants to answer this, I'll take a crack at it. Let's start at the beginning; Most investors use the 50% rule for figuring cash flow. That is that 50% of rent goes to the costs of doing business (maintenance, vacancies, etc.) and 50% goes to costs of ownership (loan servicing, taxes, insurance, etc). Your cashflow is what's left from the cost of ownership. Also, if the owner pays water, this changes to a 60/40 rule.

Granted, this is a quick rule of thumb for figuring cashflow, and it may be different on different properties, but your numbers still seem pretty low for maintenance. 10% may cover the cost of turning over a unit, but what about when it's time to replace a roof, water heater, or HVAC. What about keeping up the external portions of the properties?

Using the 50% rule the numbers look like this:

43,200 (rent) * .5 = 21,600

21,600 - 10,620 (20 yr loan) = 10,980

10,980 - 2800 (taxes) - 8,180

8,180 - 8,304 (HOA, which is a cost of ownership, since it needs to be paid regardless of the place being a rental or a residence) = -$124

As you can see, you end up with negative cash flow. I also notice that you didn't even mention insurance in your figure, which would make that deficit even more.

All of that being said, I'm new to REI and own 0 rental properties. I'm only sharing what I know from extensive reading and listening. Someone with more experience may jump in and correct me (and I certainly welcome it), but personally, I wouldn't do this deal.

-Adam

@Jessica Soares

Hi! I'm new here too, but I figure I need to start jumping into more of these conversations so I can learn a few more things.

How are you financing these flip deals right now? If you're not already doing so, have you considered HML or keeping current mortgages in place so that you can put most of your capital towards the repairs? It just seems like if you're set on flipping and need to make the money stretch, more creative financing is the way to do it.

Joe Gore thanks!

Hi BP Community! After about 3 weeks of reading everything I can get my hands on and listening to podcasts about real estate investing, stopping only to explain everything I learned that day to my wife (who usually just glazes over and waits for me to take a breath), she finally asked me, "so, when are you going to start?" She's obviously the smarter one in the marriage. So I'm considering this introduction as my starting point. I'm currently active duty Marine Corps and living in Huntsville (but working in Guntersville) as a recruiter. I believe that some of the sales skills learned as a recruiter can translate very favorably to REI. Knowing I have the support of my wife, I'm going to take a freight train approach; I'll start out slowly, but once I get going, nothing is going to stop me. I don't know that anything about my plan is unique; wholesale while learning and networking, move to flips, and eventually get some rentals. The only reason that's not more detailed is because I realize that I may find a niche that I'm particularly good at and stick to it. I have done some rehab work on homes I've owned, but that's about the extent of my experience so far. Finally, I'd like to thank all that contribute to BP for all that I've learned so far, and all I look forward to learning in the future. I truly believe that this site changes lives, and I look forward to being next.