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What do you consider a great cash flow deal?

What is a good cash flow deal? I was always taught that a good cash flow deal is when rents are 1% of purchase. In this article, rehab is already included in the purchase. So if the property rents for $1000, then 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 6% interest on a 30 year fixed, you are paying $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. Now you are 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.

I believe a good cash flow deal is when rents are 1.5 – 3% of purchase. Or rents are double PITI. In the above scenario we are looking at $1500 – $3000 in rents. That is some great cash flow. Let’s look at another example of a great cash flow deal.

Duplex – two 2bed/1baths

  • Purchase + Repairs – $50K
  • Market Value – $80-100K
  • Rent – $650/unit = $1300
  • Payment at 6% 30yr fixed – $300
  • Tax+Insurance – $100
  • Property Management – $130
  • Vacancy 10% – $130
  • Maintenance 10% – $130
  • Total Expenses – $790
  • Positive Cash Flow – $510

At $510 positive cash flow per month, the next question is how many of these do you need to fire your boss? If you live frugally like me 3-4 would do the trick, but 10 or even 30 would be much better. I will discuss when it is time to fire your boss in a future post. Also, in one of my next articles, I will identify markets full of great cash flow properties just like these. You can check out more posts, articles, Guides and information at www.realreturnrealestate.com.

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3 Responses to What do you consider a great cash flow deal?

  1. Mike says:

    That is a strong cash flow property there. Even better yet, drop the $300 estimated monthly payment off by using the cash in one of your investment accounts, instead of a loan, if you can. That makes it a $950/m positive cash flow. The estimate used a purchase price with repairs of $50k. Using that number, if you borrowed it from an investment/retirement account, it would be paid back in 53 months. Not to mention the potential for increased property value in the next 5 years….all while someone is paying it off for you. Then you realize $950/m as long as you can keep the unit rented. This only works if you have the cash but will also work the same way with a loan, just a few more months, so it sounds good. I have several investors doing similiar things here in the Phoenix area.

  2. Ryan Moeller says:

    Awesome post Mike. I totally agree. That strategy will help you pay off the home much faster. Phoenix is a market that has interested me again lately. Is it true you can get rentals and good LTVs and strong cashflow outside the warzones? What do you feel is the best strategy in the Phoenix market?

  3. Beverly says:

    I’m looking into doing a 1031 tax exchange (selling a sfh in order to buy -cash- either a 4-plex or a couple duplexes). Your examples reflect having a mortgage – how do you analyze a good investment/cash flow on a cash deal? Are duplexes or multi-family properties better?

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