Originally posted by @Jared Baker:
My question is how do you create a positive cash flow from rental properties early on?
You have to buy the property at a price rent ratio (Purchase Price/Gross Rent Per Year) that enables you to cash flow. This example, based on the numbers you provided, suggest a price rent ratio of 4.9 which would be above par and probably a Class C property at 11.3% cap.
If the property has/had 4 rentable units at the $140,000 price, gross rent exceeds both mortgage and expenses, producing a CF of $7,328 per year. Not something you can retire on but 10 of a similar property puts you at $73,280 per year.
The headache of managing 10 of such properties, at different locations and with a total of about 40 tenants would almost be a nightmare.. so at some point, an apartment might be less run around for same CF per year. But then, a 40 unit apartment at $1,400,000 would be about $35,000 per door -- that narrows significantly which markets you would be looking into.
| Purchase Price | $140,000 |
| Down Payment 25% | $ 35,000 |
| Loan Amount | $105,000 |
| Mortgage Rate | 4.5% |
| Term | 30 Years |
| Mortgage Payment (Month) | $709 |
| 4 units @ $600 each (Month) | $ 2,400 |
| Gross Rent (Year) | $ 28,800 |
| Expenses 45% (Year) | $ 12,960 |
| Net Operating Income NOI | $ 15,840 |
| Debt Service (Year) | $8,512 |
| Cash Flow (Year) | $ 7,328 |
| Cash Flow (Month) | $ 611 |
| CF Per Unit | $ 153 |
| Cap Rate | 11.31% |
