Basic rule to determine cash flow on a rental investment
Thinking of buying a rental property? Single family home or a multi-family, there is a simple rule that will help you determine if the property is worth considering. This rule is especially effective for first time investors. Keep in mind, the rule only works (effectively at least) as long as you have done your homework. No investment should be considered without first knowing the basics of where, what and how much.
Three things you must know before considering a property for rental investment.
- Market and neighborhood(s)
- Last 6-12 months of rent history on comparable units (single family or apartment)
- Inventory and Rental Days on Market averages (for comparable units)
There are additional factors to consider. These are the foundations of any property consideration. As you get more advanced in your rental purchasing, you will start to evaluate economic plans and trends for the town(s). New developments being conducted or planned. Traffic considerations, bus routes, etc. But before you start building complex spreadsheets, downloading software, taking classes, know your market and follow this simple rule. For first time rental investment opportunities, avoid overanalyzing a property. As you advance and grow your rental portfolio, you will use other methods (e.g. cash on cash, CapRate, Gross Rent Multiplier, Internal Rate of Return, Equity Appreciation, etc) to better evaluate properties. But for the first rental investment – keep it simple.
Here is a video to explain the fundamental rule for a first time rental investment and how to apply it to quickly and effectively determine the cash flow opportunity (or lack of it).
We are always looking to purchase properties. Especially in Connecticut and Maine. If you have a property (rental, probate, etc) that does not fit with your plans and needs, contact us. Condition does not matter. No need for repairs. Skip the inspections. We are always seeking properties to purchase and will present you with a fair market value offer. We can help you move on from that unwanted property.
Give us a call at 203-486-8868 or email me (George) at [email protected]
Thanks!
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