I get many questions from interested investors, so I thought I’d start posting them, as I’m sure others have the same questions.
Question/Inquiry from potential investor [May 27, 2009]
I heard that it is possible to achieve ~ $600 per month positive cash flow. I would like to develop in my mind a profile of these types of properties so that I have a better idea of what I am looking for.
Here this is how I responded:
1) Cash flow will always depend on your finance situation. For instance, the more money one is able to put down, the more cash flow (up to 100% cash flow). My first question for you is, how much are you able to put down? Or, what is your comfort level? Or what is your budget? Are you obtaining a loan? Or would this be a cash transaction.
2) One way many investors are generating big rewards and high cash flows is to buy under valued properties that need value added. This demands cash reserves to do put toward renovations. Also, many times these types of properties do not qualify for a loan due to the poor condition of a property.
3) Also, $600 cash flow might be on the high side of expectations. I have closed a few deals with investors that have received that kind of cash flow by putting 20% down and at times buying their rate down. One recent scenario was a duplex that sold for $105K; 20% down; $10-12K in renovation; bought the rate down to about 5.25% – his total housing payment (including taxes and insurance) is about $700/mo. and he’s getting $1600 in rents. This is a dream scenario, but as you can see it takes some reserves to pull it off.
4) A very common situation is a SFR in the $80-120K range that needs $2500 in repair, and would cash flow $300-$400/month.
What questions do you have?
Sacramento Real Estate Reflections 