| Vegas69 |
07-10-2012 09:49 PM |
Quote:
Originally Posted by realcoray
(Post 423673)
This is the biggest pitfall of real estate investing, cash flow is not a function of rent - PITI, because what happens when you have to replace a water heater, or a roof etc?
In reality a property like that will over a longer period of time cash flow probably 150-200$ a month. Now as you mention you get the benefit of principle and possible appreciation so it can definitely be double digit returns.
Most of the hard core RE investors, like say from biggerpockets.com, would advocate rent be 2% of the purchase & rehab price, so 1k rent on 50k house but that would mean investing out of state (the south mostly) for many of us, and then paying a property management place (thus taking 8-12%)
I found that when looking at the numbers that anything less than 1% is not worth it to consider, and you have to assume that expenses will be about 40-50% over the long term, and that does not include PITI.
Again though, the deal you mention would not be terrible, I don't have my spreadsheets at work but I'm closing a somewhat similar ratio deal in 3 weeks, a 132,500 house that I figure will rent for 1300+ quickly. I projected making about 250$ a month, with PITI of around 690$.
|
You are absolutely right. I'm not counting on pocketing $400 per month. I've already owned 5 single family rentals in my days. I really shouldn't have said it's all cash flow but it is a nice margin on a property that will offset the costs. I have a spread sheet set up factoring in a one month vacancy factor, repairs, home warranty yearly, hoa fee, etc.....
I am factoring in the principal reduction and will depreciate the properties as Greg said with the thought of a 1031 down the road into a more lucrative investment or residual income when I have the deed. |
