So, Will It Cash Flow?

I can’t help people qualify for the best loan products, but I can find investments that will be very likely to cash flow! How do you find those, you may be asking yourself right now? Is there a formula? Yes, there actually is. It’s a very simple and straightforward formula that anyone can use. It’s actually not even a ‘formula’, but simply a ratio.

All you need to know is the rent amount (or estimated rent range) and the purchase price. The ratio between the two will come out to tenths of a percent. This is your “Rent Ratio”. The larger that number, the more likely you are to cash flow with less down. The lower the number, the better the loan product you must qualify for and the more down payment you may fork out initially.

In Minnesota right now investors can expect about .5% to .7% for single family homes depending on area, size, etc. And, with ratios like that, an average person would probably have to put 10% to 20% down – depending, of course on the mortgage product they pick. One of the reasons we are so excited about Texas right now is that number – the ratio between cost of the unit & rent – is almost up to 1%. That’s huge! I mean really about the best in the nation. And the best we’ve seen in a very long time. You do however, have to add in 8% for the management though

Here’s an example to illustrate: those single family homes are in the upper 140’s – we’ll use $148 for the example – and the rents will be about $1200 - $1400/ month. 1200 divided by 148,000 equals .81%. 1400 divided by 148,000 equals .95%. These properties, based on those numbers alone, are quite likely to have some cash flow before even tax benefits or depreciation.

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