All Forum Posts by: Mark Schwab

Some municipalities have an exception from rent control if a building was built after a certain date. But going forward, who knows if this will be the case? I always thought rent contol was a lazy, short-sighted way to deal with the lack of housing in a community. It is basically the local city government saying -"we don't want to deal with this issue so lets just make the private investor pay for it- who cares how it affects the housing shortage going forward?". 

Jason-that is great! I have a rental outside of Tampa, but with prop management, hoa, high taxes, high insurance, I am well over 1% (relative to my loan balance)  and I still just break even.

 I realize in theory anything can cash flow with enough down payment and favorable taxes, mortgage rates, etc-Im just curious as to what investors are seeing in their area with regard to that rule and after factoring in local taxes, insurance, repairs, etc. Mike from San Jose says he can get good returns even below that number. I don’t know if that is with financing but your point is well taken  as far as financing and down payment. I guess at that point it depends on how much  down payment is needed to make it cash flow. But my interest was in seeing real world examples around the country in today’s market.

Thanks

I can only speculate that the rule came about when investors saw more deals that didnt work when they didnt (at least) meet that number than deals that did.. If you have found properties that cash flow well under that number then so much the better. it is, at the end of the day, about ROI.

 I think the point of that rule is (was) whether there is ANY cash flow to be had if it at least doesn’t meet that minimum threshold, and not to compare one market against another. At least I think that is the point IMHO.

Miichael- were you cash flowing 10% after all expenses (taxes, insurance,repairs, capex reserve,etc)?

I'm curious as to whether anyone is getting decent cash flow at 1% of purchase price?  Or more specifically,  is it possible to find good quality single family homes or duplex's (at least in an up and coming '"C" class neighborhood,if not a "B" for instance), where, after ALL  expenses,  you still can get a decent return?  Or how far above this baseline do you need to be? I realize "decent return" is pretty subjective, but can some of you share your own experiences?   This would have to be based on current or  recent deals, as I realize anything bought even just a few years ago may have been easier to purchase with good cash flow, especially in some markets that have risen dramatically. And it would be helpful to know if someone bought a turn key deal versus an off-market deal needing work, for example. And finally, Im not suggesting you use this metric as a strategy to go out and buy a property as an investment, but I am curious as to whether this is even a viable metric anymore.  Thanks

Yes, of course Avtandil is correct. I in no way meant to assume one should accept a "pro-forma" cap rate. But it may merely be a starting point to see if you may even be interested in looking closer at a deal after figuring what the cash flow may be (emphasis "May" be), based on any given cap rate (irregardless of what it ends up actually being). 

As an example, if you have a $500,000 purchase, and the cap rate is 7%, then your NOI should be $35,000. If your were to to buy that property with 20% down ($100,000) and get a 30 year loan at 5.5% fully amortized, then your annual payment would be $26,500 (rounded up a few dollars). so now your cash flow is $35,000- $26,500 or $8500/yr. So your cash on cash is $8500 divided by your $100,000 investment or 8.5% -the point is, if you know the cap rate, you can know your cash flow if you know how much you are putting down and what rate you are paying for the money. It scales up or down, all other things being equal. And like Rich said, the better the loan rate, the better the cash on cash return (assuming you aren't paying all cash).