Without positive or at the very least neutral cash flow, it will only be a few months before you will wonder why you are doing this!
You must carefully put together a monthly spreadsheet that will evaluate whether a rental property makes sense. The one I use is as follows:
Mortgage Payment $1100.00
Insurance $100.00
Taxes $200.00
Ave Utilities $300.00
Property Management $200.00
5% Emergncy fund $100.00
The above totals $2000.00 so I would want to make sure I could collect at least this $2000.00 each month and I should have a worry free situation each month.
The reason I am willing to accept a neutral cash flow situation is that because my tenants will be paying down my mortage each month the mortgage payment portion will reduce over time. In addition over time the amount of rent collected will increase each year due to yearly rent increases.
So a situation that starts out neutral will turn to the positive after the first year and get better each year.
Of course positive is the best situation so I always try for this first.
If you only buy positive cashflow properties you cannot go wrong!
posted by Greg @ 4:09 PM
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