3 Rules for Positive Cash Flow Properties
August 13th, 2006 (Real Estate)
Here are a few good rules of thumb for positive cash flow properties that you may want to apply to the properties you like:
1. They must bring in at least 30 percent more cash each month than you pay for interest on your mortgage(s), real estate taxes, insurance, and operating expenses (maintenance, labor, electricity, and so on).
2. The lower the gross rent multiplier (GRM), the easier it is for you to get a positive cash flow. Typical GRMs run from 3 to 12. This means that the price of the property (and the amount of money you’ll have to borrow) will run between 3 times and 12 times the annual rental income. For a building with a $25,000 annual rental income, the price will range from 3 x $25,000 = $75,000 to 12 x $25,000 = $300,000. So look for the lowest GRM because it will give you a higher positive cash flow!
3. Work positive cash flow from both ends, that is (a) reduce your costs, which will free up cash for MIF, and (b) raise rents where you can, which will increase the cash coming into you every month.