Author Topic: Another cash flow evaluation  (Read 2049 times)

$200k

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Another cash flow evaluation
« on: December 09, 2016, 06:14:23 PM »
Hey gang - would like any insights on this rental property:

Purchase Price: $130,000; 3/2 SFH (mountain town); 1920s brick construction; "B-" neighborhood. 
Down: $26,000
Closing costs: $3,000
Interest rate 5%/30-years

Monthly Rent: $1,200
- Vacancy: $60 (5%)
- Mgmt: $120
- Taxes: $105 (1%)
- Ins: $100 (ballparking this cost)
- Repairs: $60 (5%)
- Utilities: $50 (ballparking this cost)
- CapEx: $60 (5%)

Cash Flow from Ops = $645
- Mortgage: $560

Monthly cash flow = $85

This is a "retail" deal and most likely a pass.  Still, I'd like some opinions!  Am I too low on vacancy and CapEx?  Too high on insurance?  Seems like it evens out and it still doesn't cash flow very well.   

Am I doing something wrong or is this just the wrong property? 

Blindsquirrel

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Re: Another cash flow evaluation
« Reply #1 on: December 10, 2016, 08:08:27 AM »
would pass, way to thin on cash flow

waltworks

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Re: Another cash flow evaluation
« Reply #2 on: December 10, 2016, 09:49:57 AM »
Insurance varies so widely between areas that I wouldn't secondguess you there, but it does seem high.

I'd put vacancy at 10%, not 5%.

Regardless, I wouldn't buy it.

-W

bobechs

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Re: Another cash flow evaluation
« Reply #3 on: December 10, 2016, 10:32:23 AM »
Just apply the one percent (or 100 months' rent) rule to the purchase price as a first screen and you don't need to read any further.  There is no way to make up with fancy financing shell-games or double-secret insurance discounts for that decisive failure.

There is nothing easier than finding property offered for sale above one hundred months' rent, anywhere you may live.  Each one of those listings is telling you the owner expects to capture all the potential profit from your rental for herself, in advance, with no rebates.

Just because a property passes that initial screen does not mean it is a good prospect, but if it fails there is no realistic chance you will make money renting it out.  Don't pester me with scenarios of fantastic increases in realty prices.  That is real estate speculation, not rental and it is a whole other bubble to deal with.

$200k

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Re: Another cash flow evaluation
« Reply #4 on: December 14, 2016, 03:41:39 PM »
Just apply the one percent (or 100 months' rent) rule to the purchase price as a first screen and you don't need to read any further.  There is no way to make up with fancy financing shell-games or double-secret insurance discounts for that decisive failure.

There is nothing easier than finding property offered for sale above one hundred months' rent, anywhere you may live.  Each one of those listings is telling you the owner expects to capture all the potential profit from your rental for herself, in advance, with no rebates.

Just because a property passes that initial screen does not mean it is a good prospect, but if it fails there is no realistic chance you will make money renting it out.  Don't pester me with scenarios of fantastic increases in realty prices.  That is real estate speculation, not rental and it is a whole other bubble to deal with.

Yeah I realize this doesn't meet the 1% rule, but I wanted to run the analysis and get some opinions on the analysis, even if it was just academic for my own "learning experience."  I've also heard there is a general sentiment that 1% is hard to find in much of the U.S., unless you are willing to invest in a warzone.

But agree with everyone though, definite pass. 

 

waltworks

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Re: Another cash flow evaluation
« Reply #5 on: December 14, 2016, 04:13:45 PM »
Yes, 1% rule is hard to find right now. RE prices are crazy high, so spending a lot of time/effort on finding rentals is probably a waste of your time unless you have a great network to find off-market stuff or you live somewhere with low housing prices and high rents.

Just not a good time in the US for rentals. I sold all mine except one that I might eventually move into.

-W

$200k

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Re: Another cash flow evaluation
« Reply #6 on: December 14, 2016, 05:14:38 PM »
Yes, 1% rule is hard to find right now. RE prices are crazy high, so spending a lot of time/effort on finding rentals is probably a waste of your time unless you have a great network to find off-market stuff or you live somewhere with low housing prices and high rents.

Just not a good time in the US for rentals. I sold all mine except one that I might eventually move into.

-W

Do you plan on going back into the RE market when prices make sense?  Most realtor/banking events I attend are predicting a small slump in price for 2017-2018; but nothing like what we saw during the downturn.   

Finding it hard to sit patiently on cash (what if it takes 5 years for prices to get back down to 1%?), but I know its the right thing to do.   

waltworks

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Re: Another cash flow evaluation
« Reply #7 on: December 14, 2016, 06:58:03 PM »
Invest in other things, that's my advice. If RE won't make you money, sitting on cash isn't IMO a great idea. If you want to keep a little bit handy to jump on a deal, fine. But basically you should be sticking money in the market or paying down debt or doing *something* with extra funds, not sitting around waiting for RE deals.

-W