Fortunately, he was smart enough the stockpile the $2,000/mo net rents from the entire portfolio... but he had about $40k in expenses in one year for these 5 properties.

UofR area is not inexpensive.

@Jonah Walsh You can find great mentors, and inexpensive training at local REI club meetings.

That sounds more reasonable, but also doesn't even meet the 1% test.Just want to check my understanding here, because my takeaway from all of this is that anything with more than 1% rent vs cost means you can support more than 50% expenses and still be cashflow positive - so 1.5% test or more only needs to be met if there are higher than normal expenses (i.e. older house etc).For exampleHouse price 100KRent is $1500 (1.5%)Mortgage is ~$450Meaning I could have 1K in expenses (which is 67% of rental price) and still be (barely) cashflow positiveHouse price 100KRent is $2000 (2%)Mortgage is ~$450Meaning I could have 1.5K in expenses (which is 75% of rental price) and still be (barely) cashflow positiveHouse price 200KRent is $3000 (1.5%)Mortgage is ~$900Meaning I could have 2100K in expenses (which is 70% of rental price) and still be (barely) cashflow positiveHouse price 200KRent is $4000 (2%)Mortgage is ~$900Meaning I could have 3100K in expenses (which is 77.5% of rental price) and still be (barely) cashflow positiveIn the book, expenses are said to range anywhere from 30%-70% of rental price.

I know I am late to the party here, but let me add my two cents as far as where to look for inexpensive, but cash flowing rentalsPetworth: wildcard, prices are all over the place but investors like it because if you are diligent you WILL find something)Anacostia: even 1 year ago I would not have mentioned this area, but now it is growing, and the fact that Amazon is coming to Crystal City, this is probably the best bet.North East: Lots of small little pockets, but I am seeing Trinidad, Deanwood, and Eckington grow more than usual (more so with flips) but the condo conversions and rentals are an option, and the entry point is why we are talking.And of course Baltimore.  

Inexpensive to get in. 

A commercial umbrella policy might mitigate any liability concerns, and they are pretty inexpensive for the coverage offered.

I put in expenses pretty conservatively (about 20k) and assumed you would do PM.

The much bigger issue tends to be operators that don't have good management or processes in place, and vastly overestimate their performance in the underwriting, but can't deliver on value-add.2) I would go with other investments / market options in times when they are most inexpensive: during a recession, during some kind of asset crash, slow period for an industry, etc.

@Alex Rayford Alex i would stick with simple and inexpensive.