Question for those of you with rental property...

[Nole Lou]

Do you have a rule of thumb for how much you difference you need between your mortgage nut and your rent? Obviously, you have to be able to sock some money away for expenses, vacant months, etc...just wondering if you used a standard measure, like need to be able to rent at at least double the fixed mortgage expense.

We're thinking about buying a place near where we live. I don't really need the cashflow, it's more of a long term play on the appreciation, and the cash flow ten years from now when it's totally paid off. It's not extraordinarily expensive, but it's not a $35k Detroit special either. I don't know that I could get double the mortgage payment, at least for a few years, and I just don't know if that's enough, considering I would definitely be paying a management company.

 

[Bartdog]

*lurk*

 

[GoNolesTX]

Definitely not educated on this, but I'd imagine mortgage payment + 40% would get you tenants and still give a nice egg.

 

[Formerly Rockymtnole]

Wasn’t the time to invest in real estate a few years ago?

 

[Nole Lou]

Definitely not educated on this, but I'd imagine mortgage payment + 40% would get you tenants and still give a nice egg.

Yeah, what I'm thinking about should be about +50-60%. Seems like that should be enough, and we'd have some cash on hand if something came up while we built up a little expense fund, but I really don't know.

 

[Nole Lou]

Wasn’t the time to invest in real estate a few years ago?

Definitely...will you rent me your time machine?

 

[tolkien1]

I've looked at a number of properties in Tallahassee and not been able to get the numbers to pencil out, especially including fees for a management company. I'd be all over it if I could pay the mortgage and generate ~ 50% on top.

 

[nynole1]

I have a rental property, paid cash for it. At this point in my life, I don't want the risk of having to cover a nut. Everyone's risk tolerance is different, though.
You can Google the answer to your question I'm pretty sure. One thing to keep in mind is the aggravation that goes into having a tenant.

 

[1handsomenole]

Do you have a rule of thumb for how much you difference you need between your mortgage nut and your rent? Obviously, you have to be able to sock some money away for expenses, vacant months, etc...just wondering if you used a standard measure, like need to be able to rent at at least double the fixed mortgage expense.

We're thinking about buying a place near where we live. I don't really need the cashflow, it's more of a long term play on the appreciation, and the cash flow ten years from now when it's totally paid off. It's not extraordinarily expensive, but it's not a $35k Detroit special either. I don't know that I could get double the mortgage payment, at least for a few years, and I just don't know if that's enough, considering I would definitely be paying a management company.

Lou - My first rule is to fully evaluate what the actual market rent is for the type of asset I intend to buy. Then I develop a simple investment pro-forma that includes all holding costs (debt service, RE taxes, Insurance, general maintenance et al) and back that out of my projected rent. Hopefully, it is a positive cash flow.

Unless there is some future transitional event for the property that would compel me to fund a negative cash-flow asset, I'm always seeking no less that an annual NNN CAP rate of 9%

 

[Nole Lou]

Lou - My first rule is to fully evaluate what the actual market rent is for the type of asset I intend to buy. Then I develop a simple investment pro-forma that includes all holding costs (debt service, RE taxes, Insurance, general maintenance et al) and back that out of my projected rent. Hopefully, it is a positive cash flow.

Unless there is some future transitional event for the property that would compel me to fund a negative cash-flow asset, I'm always seeking no less that an annual NNN CAP rate of 9%

Very helpful, thanks.

 

[NoleMoreTears]

It's really up to the local market. I love in a college town, rent is
1680 on a payment of 1179
1820 on a payment of 1380
and 2100 on a payment of 1545

Not great return but I have zero vacancy and a high floor on the property values because of the local market.

 

[NoleMoreTears]

Others say your rent should be 2%or more of the purchase price. That's really hard to do in many areas but the midwest and low income neighborhoods offer good options...imo it's not worth the higher vacancy factors.

 

[Nole Lou]

Others say your rent should be 2%or more of the purchase price. That's really hard to do in many areas but the midwest and low income neighborhoods offer good options...imo it's not worth the higher vacancy factors.

Yeah, that's not the kind of thing I'm looking for. I couldn't touch that in anything I'd want to deal with.

 

[F4Gary]

I had 2 rental homes, but they were homes that I lived in and then got transfered. I wasn't looking for extra income, I just wanted the rent to cover all my expenses. Then at some point in the future I would sell it at an appreciated amount.

 

[SmittyNOLES]

If the rent price can pay it off in 5 years or less I'll do it. Most of mine are in good shape but i have a couple that I wouldn't stay in. All stay rented. Always a good investment if you have the patience to deal with some of the people

 

[NoleMoreTears]

Yeah, that's not the kind of thing I'm looking for. I couldn't touch that in anything I'd want to deal with.

With all the deductions and tax advantages it may not have as high a yield as the stock market (right now) but I like the stability.

I take in roughly 65k a year in rent and it still comes out a net loss or zero income.

 

[Urban Cryer]

Depends on the area and how much people are willing to pay! Definitely need to monitor how much homes are going for around it and in similar condition. I hear millenials don’t like to buy homes so that should help the market for renting.

 

[RangerNole]

All depends on the market. I owned several rental properties a while back and honestly it is like having a 2nd full time job that always has an emergency at the worst times. Of course you could pay a management company to handle things but there goes your profit. Just remember the washer, water heater, A/C etc. will break at the worst time. A renter will trash your place or walk out at the worst time. Luckily I got out at the right time and made some decent money when I sold. Just remember everything that goes wrong at the house you live in will go wrong at a rental property you own and if you live in a hurricane zone things can get bad real quick.

 

[MIKE_G]

I hear millenials don’t like to buy homes so that should help the market for renting.

Well they live with their parents, so...

 

[Bartdog]

We have a 4/2 condo in hogtown. Kinda lucked into it. We had to buy via a HELOC because no mortgage company would touch it. Paid 120, put another 20 eek into it and are charging the same as everyone else in that complex . I think, since we went through so much trouble to remodel, that we could possibly get a little more, but we wanted to have no risk of vacancy. We need to rent 3 of the rooms because our kid lives in the 4th.

I'm just hoping to have a good place for my daughter to live, where she won't have to worry about that stuff if she goes off for an internship or co-op, and maybe just maybe make it all back some day.

So far so good. New dryer being delivered this Sunday.

 

[Bud Fox]

Do you have a rule of thumb for how much you difference you need between your mortgage nut and your rent? Obviously, you have to be able to sock some money away for expenses, vacant months, etc...just wondering if you used a standard measure, like need to be able to rent at at least double the fixed mortgage expense.

We're thinking about buying a place near where we live. I don't really need the cashflow, it's more of a long term play on the appreciation, and the cash flow ten years from now when it's totally paid off. It's not extraordinarily expensive, but it's not a $35k Detroit special either. I don't know that I could get double the mortgage payment, at least for a few years, and I just don't know if that's enough, considering I would definitely be paying a management company.

General rule for rental properties is the yearly rent should equal roughly 10% of what the property is worth. This has worked very well for us, and we are happy with the margins it provides. Real estate rentals are a great diversification investment, good luck.