Cash Flow Investments
Typically, rental properties which are held to create a positive monthly cash flow.
Tips From The Cash Flow Investment Blog
What is a good cash flow deal?
A lot of people are taught the rule for a cash flow deal is when rents are 1% of the purchase price. Well lets take a look: In this example, rehab of the property is already included in the purchase price. So if the property rents for $1000, then based on this calculation you would be willing to pay $100,000 for that property. Would you be happy with that sort of cash flow? Let’s do some calculations. At a 6% interest rate on a 30 year fixed, you are paying around $600. Add $200 for tax and insurance and you cash flow $200, right? Well, what about property management of $100, and vacancy of 10% or $100, or even HOA dues? Now you may be barely breaking even! And who thinks they will never have to spend a penny on maintenance? An investor could end up negative cash flow on a deal with these numbers. Then you are left to speculate for appreciation which is completely out of our control.
We believe a good cash flow deal is when rents are at least 1.5 the of the purchase price. Or rents are double PITI. In the above scenario we are looking at $1500 in rents. That is some great cash flow. Let’s look at another example of a great cash flow deal.
Purchase + Repairs – $100K
Rent = $1500
Payment at 6% 30yr fixed – $600
Tax+Insurance – $100
Property Management – $150
Vacancy 10% – $150
Maintenance 10% – $150
Total Expenses – $1150
Positive Cash Flow – $350
At $350 positive cash flow per month, the next question is how many of these should I buy? Now this example in San Diego would be for a 1 to 2 bedroom condo. So now try calculating it for yourself on the type of investment you’re looking at. If you need help, speak with our Investment Brokerage Division by calling 619-309-7883.