How to Make Any Rental Property Cash Flow (Before You Buy)

Summary

BiggerPockets Real Estate Podcast

Episode: How to Make Any Rental Property Cash Flow (Before You Buy)
Host: Dave Meyer (BiggerPockets)
Guest: Ashley Care
Date: August 27, 2025

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Overview

In this episode, Dave Meyer and guest Ashley Care break down the exact process of analyzing a rental property deal—specifically, how to adjust the numbers before making an offer to ensure positive cash flow. Through a real investment scenario involving a Buffalo triplex, they walk listeners through the nitty-gritty of deal analysis, negotiating price and terms, and making informed offers—even when the initial numbers don’t work. The discussion emphasizes realistic assumptions, creative financing, and negotiation tactics, all for the goal of building wealth and financial freedom through real estate.

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Key Discussion Points and Insights

1. Why Initial Numbers Don’t Always Cash Flow—And That’s OK

• Dave reminds listeners that not all properties will cash flow at first glance, but “that is just a starting point. You have options to craft an offer that other potential buyers are not going to be thinking about.” (00:00)
• Focus is on which numbers you can legitimately adjust, and which you should never fudge.

2. The Deal: Buffalo Triplex Sourced Through Long-term Networking

• Ashley receives an off-market lead from a landlord she’d networked with years ago—demonstrating the long payoff of building relationships (02:09–02:49).
  • “He kept my card for three years ... Maybe I need to give out more business cards,” Ashley jokes.
  • “It’s just a long game. ... If you do this for two or three years, they’re just going to start hitting over time.” —Dave (02:49)
• Seller is seasoned, offloading multiple properties, open to seller financing and possibly a 1031 exchange.
• Property details:
  • Triplex, asking $275k (below local median)
  • Rented units: two 2-bedrooms ($900, $800), one 1-bedroom ($600)
  • Upside for raising rents and property improvements (05:56–06:46)

3. Walking Through the Analysis: Prepping Numbers

• Gathering All Info: Purchase price, current rents, renovation estimates, property taxes, insurance, management, vacancy, maintenance, etc.
• Ashley’s Approach: “Always do it as is … what the rents are. Because, what if the people stay there for three years? Then your rents are the same and you haven’t increased them.” (20:18)
• Big focus on modeling numbers conservatively and not assuming best-case scenarios.
• Discussed 3 potential financing routes:
  1. DSCR loan (Debt Service Coverage Ratio): 20% down, ~8% interest, 30-year fixed (17:01–18:18)
  2. Commercial loan from a small local bank: 20% down, ~8% interest, 20-year amortization
  3. Seller financing: Lower down payment, potentially attractive interest and term

4. Plugging in the Numbers—It Doesn’t Cash Flow!

• Using the BiggerPockets calculator, they input the real numbers:
  • $275,000 purchase price, $10k repairs, current rents, all estimated expenses
• Result: “Whoa. ... With the current estimates, you would lose $1,000 a month, and your cash on cash return would be a whopping negative 20%.” —Dave (26:33–26:54)

5. What Numbers Can You Change?

• DON’T fudge rent growth or underestimate expenses.
• DO adjust:
  • Purchase price
  • Your financing (down payment, interest rate, seller terms)
• Calculated the actual purchase price needed for break-even:
  • "You need to offer less than half of what they're asking for to break even." (28:24)
  • Only at ~$125k does the deal break even at today’s rents.

6. Creative Solutions: Seller Financing and Package Deals

• When “the bank numbers just don’t work,” Ashley explores seller financing:
  • 10% down, 3% interest, 30-year amortization at a purchase price of $225k
  • Still only break even at today’s rents, but upside as rents rise
• Packaging deals: "I'll buy both of them [triplex and duplex] for $350k and not even say how much is allocated to each one." (35:14)
  • Use portfolio purchases to negotiate further

7. Realistic Underwriting and Negotiation Tactics

• Model all expenses, including vacancy, capex, management—even if self-managing, to account for future changes (22:37–23:00).
  • “I do [self-manage], but I always account for it, 10%, because there was a time I didn’t.” —Ashley (22:55)
  • “8% [vacancy] is basically one month of vacancy per year, and to me, that’s just like a good way to be safe.” —Dave (32:28)
• Don’t be afraid to send two offers (bank terms & seller finance), or to show your math using the calculator report.
• If including variable expenses makes your offer lower than expected, explain your reasoning to the seller—educate if needed.

8. Setting Expectations: Creative, Patient, Data-Driven Investing

• Ashley: “I used to like 12 to 16% [cash on cash return], but that's getting harder.” (33:58)
• Dave: “If you can get even at 7, 8% cash on cash return on a deal like this, you're still doing better than you can get in other asset classes.” (34:03)
• Ashley emphasizes the importance of patience, negotiations, and building on existing management systems.

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Notable Quotes & Memorable Moments

• (02:49) Dave: “It’s just a long game. … If you do this for two or three years, they're just going to start hitting over time.”
• (06:34) Ashley: “I rent a second story studio for $600 a month. So I think definitely a one bedroom could be increased to probably $750 to $850.”
• (13:00) Dave: “Do you run it at what they're asking for, which is 275? … Because maybe you have a slamming deal already and you don’t want to push too much to frustrate the seller. Or maybe it’s terrible and you really need to be aggressive. Well, we’ll find out.”
• (14:50) Dave: “Sometimes this is just the way it works. You just need to spend some money to increase rents, but market value is not really going to change that much. But it’s an investment in the long-term viability of your income.”
• (26:41) Dave: “What we're seeing is with the current estimates, you would lose $1,000 a month, and your cash on cash return would be a whopping negative 20%.”
• (28:24) Dave: “That means you need to offer less than half of what they're asking for to get this to break even.”
• (29:06) Ashley: “This is where I’m definitely looking at the seller financing option… Maybe I'm only putting 10% down, maybe it's only a 3% interest rate.”
• (33:58) Ashley: “Yeah, I used to like 12 to 16% [cash on cash return], but that's getting harder.”
• (34:18) Ashley: “I've spent a lot of time building my systems… to add another unit… is not very labor intensive or time-consuming on my portion.”
• (36:14) Ashley: “There's that duplex he wants to sell right away too. So in presenting this as a package deal… then he can decide when he closes.”

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Key Timestamps

• 00:00–01:51: Episode set-up; why adjusting the numbers matters
• 02:09–04:24: How the deal came to Ashley (the power of long-term networking)
• 05:56–07:05: Rent estimates; pros and cons of buying with tenants in place
• 11:20–15:44: Step-by-step rental analysis and establishing conservative assumptions
• 16:04–18:39: Loans explained (DSCR, commercial, seller financing)
• 20:12–23:08: How Ashley models rent, expenses, and what to include
• 26:33–28:24: Breaking down the numbers—losing $1,000/month at asking price!
• 28:24–29:57: Adjusting price, exploring how low you’d need to go to cash flow
• 29:06–31:13: Seller finance analysis, still just break-even
• 33:58–34:03: Setting realistic investment expectations
• 35:14–36:31: Package offer strategy for multiple properties

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Summary Takeaways

• Start with the real numbers, not what you wish they were. Input actual rents and expenses, being conservative.
• If it doesn’t cash flow, look for creative levers: Mainly purchase price and seller financing terms, not unrealistic income/expense assumptions.
• Package deals and rapport can uncover better terms. Sometimes the deal might not work standalone, but there’s opportunity when viewed as part of a larger purchase.
• Don’t be afraid to ask for what the deal needs. Use the math to justify your offer and explain to sellers why you can’t overpay—even if the answer is tough.
• Patience and persistence pay off. Build a network, maintain relationships, and don’t rush into bad deals.
• Always model all expenses, even if you self-manage. The goal is scalability and the option to free up your time.
• In the end, don’t force a deal—let the numbers guide you.

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For deeper learning, listeners are encouraged to experiment with the BiggerPockets calculator, run numbers conservatively, and never be afraid to negotiate for what makes the deal work for them.

Transcript

[A]

This is how you make an offer on a rental property that will not only get accepted, but will also increase your passive income. Sometimes when you run the basic numbers on a property, it doesn't cash flow. And that's okay. It happens all the time. That is just a starting point. You have options to craft an offer that other potential buyers are not going to be thinking about that can help you land a great deal. So on today's show, we're going to be running through which numbers you can actually change and modify before making an offer to a seller to increase the long term performance performance of any rental property you're adding to your portfolio. And we'll also talk about which numbers you should never change when analyzing a.

[B]

Deal, even if it's really tempting to.

[A]

Hey, everyone, it's Dave Meyer.

[B]

Welcome to the Bigger Pockets podcast.

[A]

Today on the show, we are going to be breaking down a real live.

[B]

Deal that's brought to us by BiggerPockets.

[A]

Rookie host, Ashley Care.

[B]

Ashley, thanks for being here.

[C]

Yeah, thank you so much for analyzing this deal with me. I've been resisting temptation.

[B]

You actually haven't analyzed this?

[C]

I have not. I haven't actually input it into the calculator reports at all.

[B]

All right, cool. Well, ahead of time, Ashley did share some information about the deal with us. So I know that it is a triplex in Buffalo going for 275. That's what they're asking for. Yeah, I mean, that means that this property is well below the median home price for a single family home, which is like 420, but you're getting three units at roughly $90,000 a unit, which is awesome. So in, in this episode today, basically we're going to hear about how Ashley found it.

[A]

We're going to analyze this deal together. We're going to show everyone how you can use BiggerPocket's tools to do this.

[B]

In their own investing.

[A]

And hopefully by the end of this episode, Ashley, you'll decide if you're going to offer and how much.

[C]

Yeah, I think it's more of how much I'm going to offer because, you know, you might as well put any offer out there. If you don't offer, then you'll definitely not get the deal.

[B]

You. That's right. So let's figure that out. Tell us about this deal, how it came to you.

[C]

Yeah, so I actually have a Google voice number that I have set up for my tenants to contact me and also anybody else to talk about investing, I guess. And I received this voicemail from this guy the Other day and he said, hey, I got your card from. It was one of the local banks and he said that one of the bankers there had given him my card three years ago and said, if you ever want to sell, you should call Ashley. So he kept my card for three years. And I think that just like is a great example of maybe I need to give out more business.

[B]

Honestly, that is such a good example. I don't think I've ever kept a business card for more than 15 minutes. But it just really speaks to sort of this like long term nature of finding off market deals. I know people all want off market deals and you want to be able to get them immediately, which is understandable, but it's just a long game. You know, you have to put a lot of hooks and lines in the water essentially and some of them might pay off quickly. But if you do this for two or three years, like they're just going to start hitting over time. And this is just a perfect example. So what does this guy have to offer?

[C]

Yeah, so I sent him a text and I said I would love to know more information if you could send me the addresses of the properties and what the rents are. So based on that information, I can pretty much find any other information like property taxes, different things like that that I would need to actually analyze. So those are the things that I need to know to actually start analyzing the deal. So he ended up sending me an email and basically went into. He'd been a landlord for over 25 years and he had accumulated five properties. There was a six unit, a four unit, a three unit, and then a couple duplexes, I think. Yeah. So he said it was just time for him to start letting go. And this year he wanted to sell two of them. The triplex will go over and then another duplex and then over the next couple years he'd like to sell the other ones and he'd like to work something out with me where I eventually bought them all from him.

[B]

This is a dream come true. Like if you get that call, you are hooked up for the next five years. I like where this story is going so far. So what happened next?

[C]

Yeah, so he sends me the rents. He also sent me interior photos of all the properties too. In this triplex we're seeing, one unit was completely renovated, nice lvp, newer cabinets, things like that. And then the other ones, they're a little outdated, I would say.

[B]

Okay.

[C]

And he did mention in his email that he would be doing a 1031 exchange with the sale of the property, but he would be willing to do seller financing on the sale of it.

[B]

Whoa. One of the challenges I've always had in investing Great Lakes region is the age of these properties. How old is this one?

[C]

Like 1800?

[B]

Yep. Yes. Okay. Because you knew that from the listing, But I assume at this point you didn't even know what was going on with the systems.

[C]

Yeah, I mean, I could figure just because of this town that they're in that they probably were at least early 1900s. The triplex is actually right around the corner from where I went to high school. So it's like I've walked by it so many times that once I like saw where it was located, I could picture the house immediately.

[B]

Oh, that's great.

[C]

But that's how most of my portfolio is. They are older properties.

[B]

Yeah, I've done it too. You just have to account for that during your, your diligence. So at this point, do you have an estimate in your head at least of what it could grab for rent?

[C]

Yeah, the rent's actually pretty confident. And I have a bunch of rentals already in this town. And then I'm friends with another property manager who has like 80 units they manage there. So the lower apartment in this is a two bedroom apartment that's listed at $900 per month, which I think is market value, pretty comparable.

[B]

Okay.

[C]

And then one of the upstairs apartments is another two bedroom apartment and that's listed at 800. I feel like it could easily be brought up to 900. Rents are going for a two bedroom between 900 to $1,000 in this market. The second upstairs apartment is a one bedroom apartment at $600 per month.

[B]

Okay.

[C]

I rent a second story studio apartment for 600amonth. So I think definitely a one bedroom could be increased to probably 750 to 850.

[B]

That's pretty good. So you're, you're talking what, 25, 2600 bucks a month in total rent, asking prices to 75. So you're almost at the 1% rule, just even paying what the guy's asking for.

[C]

Yeah. And like there's the room to increase the rents by about 250 per month. And every unit he's selling is actually filled, so there's no vacancy.

[B]

Oh, that's nice.

[C]

And I know people, you know, that's a big debate. Do you buy apartments with people in them or not? And I've done it both ways. And I think it's definitely nice to get a property that already has income coming in to it. But also I really do like to vet my own people and bring them in.

[B]

Well, this sounds very interesting. Just back of the napkin math. Let's actually break out the Biggerpockets calculator and analyze it. But we gotta take a quick break first. We'll be right back.

[A]

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[B]

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[A]

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[B]

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[B]

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[B]

The Modern Investor.

[A]

Welcome Back to the BiggerPockets podcast. I'm here with Ashley Kerr.

[B]

We are walking through a real life deal she is preparing to make an offer on.

[A]

So we're going to break out the Bigger Pockets calculator but just wanted to.

[B]

Call out what Ashley has done first before we got to this step was get the relevant information here.

[A]

You know, she knows what the asking.

[B]

Price is, she knows what the rent estimates are going to be at this point. Ashley, have you made an estimate for rehab costs?

[C]

I recently did another property that is very comparable in size to the other apartments and it was about $5,000 to do each of those and I haven't seen inside. So that is just like the basic renovation of these two others. So we're going to use 10,000.

[B]

Okay.

[C]

But like you said, this is also something I definitely want to account for in my numbers. But since there are people that are living there, it's not a rehab that would be done right away. It would wait until it was turned over again. Because they're actually getting decent rents.

[B]

Yeah.

[C]

Not being completely updated.

[B]

All right, let's, let's actually do this thing. So I'm not going to give away the street address. So I'm just going to put in your, your name. Street address is Ashley's deal. And I'll just say Buffalo, even though it's probably in a suburb. Right. So I'm using the biggerpockets calculator. Basically, for anyone who's listening to this, I'll talk you through what I'm doing. There are five parts of the BiggerPockets calculator. First thing is just putting in the property info, which I did, basically copy and pasting an address. Then we're going to go through the purchase information. So cost, closing cost, arv, which stands for after repair value. We'll talk about the loan details, the rents and then expenses. So when you do this getting started first time, do you run it at what they're asking for, which is 275?

[C]

Yes. Because I think that's such a great starting point. And then you can tailor it from there.

[B]

Right? Exactly. Because maybe you have a slamming deal right already and you don't want to push too much to frustrate the seller. Or maybe it's terrible and you really need to be aggressive. Well, we'll find out. What do you estimate closing costs to be?

[C]

I would say since we're not using a real estate agent, let's just put on my side three grand. Because you have to use attorneys in New York State.

[B]

Okay. You will be rehabbing it. So do you have an estimate for arv? Because this is the hard part. Right. There's not a lot of comps. So you're still trying to figure out what the value is.

[C]

Yeah, I honestly don't think that adding the 10 grand will increase the value that much. I think you'll be able to increase the rents. So I would say it probably stay at 2. 75, which seems ridiculous to okay, put 10 grand in and still be worth the same. But I, I think that the opportunity would be to increase the rent. So I guess if you had an appraisal done, it would depend on how they were appraising the property too. If it was the income based approach or if it was based on the market value.

[B]

Right. I think this is really good insight though for our audience here. Like sometimes this is just the way it works. Like you just need to spend some money to increase rents, but market value is not really going to change that much. But it's an investment in the long term viability of your income. Like I've done this where I buy and put 15 grand in repair costs just to like replace stuff I think is going to break so I don't have to worry about it for the next five years or 10 years. Or like you said, replace a bathroom because you know it's going to get you 100 bucks a month or cover some parking. You know, stuff like that, that probably.

[A]

Isn'T going to come back to you.

[B]

But it's going to make your vacancies lower, it's going to make your rent higher and that has a lot of tangible value. All right, so that was easy. That was the purchase information. Again, just for everyone listening. Ashley is running this deal at 275.

[A]

Repair costs of 10 grand.

[B]

We're estimating that the property is going to cost ten grand to renovate and then the ARV is going to be the same 275. Let me ask you, in the calculators, it asks us for appreciation. The default on the bigger Pockets calculators is 2%, which is low. That is below the long term average. Buffalo is a hot housing market, Zillow's top housing market for two years in a row. What do you run your appreciation at?

[C]

So I actually googled it for this market, did a little research. I used bright investor and they said like the annual growth for appreciation, like the last five years averaged about 3% for this.

[A]

Okay.

[C]

This market.

[B]

So I like that. I like using 3% personally. That's close to the long term average. And I like to assume appreciation is going to be average and if it's better, great. But you know, I don't want to count on that because it's completely out of your control. All right, let's move on to financing. Haven't asked you that. How do you plan to finance this?

[C]

So I actually have three options that I could do. One is just a DSCR loan, 20% down, probably around an 8% interest rate. I would have to increase my closing costs probably for doing a DSCR loan. My second option is to do a commercial loan, which I've actually done this more often than a DSCR loan. So the commercial loan I go to a small local bank. I go to the commercial side of lending and I've done it on single family, I've done it on duplexes and they offer 20% down and it's a five year fixed and then it can be amortized over 15 or 20 years, which in this case I would pick 20 years. And the interest rate would probably be around 8% too.

[B]

Okay. And then it adjusts after five years.

[C]

Yes. And the closing costs are a lot less using the small local bank than going and doing a DSCR loan too.

[B]

Okay, So I just want to explain to everyone, if you haven't heard what a DSCR loan it stands for, a debt service coverage ratio loan. And basically what this is, it's a loan product that mimics commercial underwriting. When you go and buy retail space, large, multifamily, they are not evaluating you as an individual for your creditworthiness. They're, they're looking at the quality of the deal as a business. And if that business can produce enough cash flow to cover the mortgage payment, that's how commercial loans work. Over the last couple of years there's been this thing called the debt service coverage ratio loan that's got become very popular that basically does the same thing, but for residential properties. So rather than underwriting you going through your credit scores and your W2s and all that stuff, they're basically to say, hey, you're buying a triplex, Ashley. Like, can this thing throw off enough cash to cover your debt or not? And that's a great option for investors. One, the underwriting tends to not be as difficult. I think they close a little bit faster, I've heard.

[C]

Yeah. And you get 30 year fixed rates too, with them, which commercial lending you usually don't like. My, usually you can get 5, 7, maybe 10 year fixed rate, which personally.

[B]

I believe is one of the greatest things about residential real estate. One of the main reasons to invest in residential real estate is 30 year fixed rate mortgages. So that's really beneficial. And it can also help investors who are bumping up against 10 conventional mortgages. It becomes difficult to do it once you get that. And DSER loans are not subject to that same limitations. So those are two. I think you said that you had three financing options.

[C]

Yeah. And the third one is the seller financing option.

[A]

Oh, yeah, yeah, forgot about that.

[C]

So what I we do is, and we won't have time for this, I'm sure, but what I usually do is I would do two offers.

[B]

Yeah.

[C]

And one offer would be the bank financing and then the other offer would be the seller financing. Usually different, you know, purchase prices and obviously different terms, things like that, but I would submit both to the seller. So Steve, which one do you want to do?

[B]

Okay, well, let's, let's start with the bank financing because that one's just a little more straightforward.

[C]

Okay. So we're going to do 20% down.

[B]

Okay, 20% down. And do you have an estimate of rate?

[C]

I would say probably around 8%.

[B]

Okay, we'll go with eight. All right. I assume no points charged. And then what would the term be on that?

[C]

We're going to put a 20 year.

[B]

Okay. So it's amortized over 20 years, so that's shorter. So that is going to eat into your cash flow. Just so everyone knows, when you amortize a loan over less time, it means that you are paying more per year, but the benefit is that you pay less total interest over the lifetime of your loan. So it might eat your cash flow, but your total profit over the if you held this for 20 years would be higher. And you know, if you wanted to own this free and clear sooner, that's also another benefit if you don't need the cash flow today. All right, so we've moved through three steps of the analysis. We've done property info, purchase, loan details. Now we're on rental income. So do you want to use it with current rents, which I think you.

[C]

Said 900, 800, 600.

[B]

All right, so that's 2,300 bucks. We'll go with that.

[C]

Yeah. And I think always do it as is what the rents are because like, what if the people stay there for three years and great, you don't have to do anything, but then your rents are the same and you haven't increased them because you haven't rehabbed.

[B]

Yeah. I guess the only thing I would do sometimes do differently is, is if they're really under market, I will accelerate what I think my rent growth will be in the first three years because like, normally I'll model out 2 or 3% rent growth most of the time, but if it's 20, 30% under market value, I'll put like 10% rent growth for three or four years. Because I'm not one who's going to just go in and bring it up to market rate right away. I usually try and work with people. So that is just one caveat there. All right, what about rent growth? How do you usually model that? At what rate do you think it will grow?

[C]

I would say probably we could put 2% for this. Okay. I don't think that it will be huge. I think that this area is kind of like at the top of it. I don't like it's drastically, drastically increased since, you know, 2020 in the last five years from what rents were. But I don't see that drastic increase happening the next five years. Or so, like, I think it'll be more steady and stagnant.

[B]

I think that is very wise in a lot of things these days. It's just like assume low growth. If you're wrong. Great. All right, so we're onto our last step. That one was easy. Do you know what the taxes are going to be?

[C]

Yeah. So this was also something he supplied for me, like a nice breakdown. So in this town you have to pay school taxes, town and county taxes, and village taxes. They come out to $3559.

[B]

3559.

[A]

Great.

[B]

What about insurance?

[C]

1500.

[A]

Whoa, that's awesome.

[C]

Well, this is based off of like the other properties that I have in the air the area as to what they are. So I, I think insurance is one of the hardest things to estimate, especially if you don't have any other properties in the area.

[B]

But it's an easy thing to get a quote for though, if you don't like rule. Rule of thumb, you know, like, it's hard to estimate if you've never done it, but it's something you can call about easily. All right, we're on to the expense portion here. So we talked about the fixed costs, which are property taxes and insurance. What about repairs, maintenance, vacancy capex. How do you model those for a.

[C]

Property like this that's older? I'm going to do 8. 8, 8, 8. Across the board.

[B]

8. 8%. Just so everyone knows. 8% of rental income. So that comes to $184 per month for each of these. I think those make a lot of sense then management fees. Do you self manage?

[C]

I do, but I always account for it 10% because there was a time I didn't.

[B]

Okay, so we're adding on fees now. What are we doing with utilities on a property like this? Do the tenants pay or do you.

[C]

So the tenants actually pay for all of the utilities? Yes, everything is separately metered.

[B]

Oh, that's really nice. Yeah. Okay, I assume there's no hoa no.

[C]

There'S just a lawn care and snow plowing would be the other two that we need to add. That would probably be about 3,000 per year for both of them.

[B]

Yeah. Okay, 250amonth.

[A]

All right, well, we have all the numbers, so let's actually we're going to.

[B]

Click finish analysis and see what kind of deal you got here.

[A]

But I'm going to leave everyone with.

[B]

A cliffhanger because we do have to take one more quick ad break and we'll be right back.

[A]

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[B]

Com.

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[B]

So let's just.

[A]

We're going to press analyze.

[B]

Whoa. Okay, Ashley, this is a money loser at current rates. So anyone who's watching on YouTube can see this.

[A]

But we ran these through the Bigger.

[B]

Pockets calculator, and what we're seeing is with the current estimates, you would lose.

[A]

$1,000 a month, and your cash on cash return would be a whopping negative 20%.

[B]

So what do you do from here?

[C]

So the easiest thing to manipulate that's not going to screw you in the end is the purchase price. So that's not increasing rents, it's not decreasing your expenses. It is decreasing the purchase price. So that would be the next thing. I just play with the calculator until I get a number that works.

[B]

All right, should we see. There's this little slider that I can drag. Should we see how low we can go?

[C]

Yeah, let's see what it takes to break even with that number.

[B]

Okay. 250. I don't think 250 is going to do it. No, 250 doesn't even get us close. All right, 225. What do we got? 225 gets us to negative 660. Oh, man, we're gonna have to.

[C]

We got a long way to go.

[B]

50. Yeah. Okay. 206 doesn't even get us close. All right, I need to actually go back and edit this. We have a little slider, but it doesn't go as low as we need to go. What do you think? Should I just put in like, 150?

[C]

Yeah, put in 150. That would probably give us a little cash flow.

[B]

All right, let's see. 150. And then we need to change our ARV, right, to like 160. Okay, let's see what we got. Still not. Wow. Okay, so that's still not working. That's minus 150. If we go to 125, I bet that will get us close. So 125 gets us to $13 a month, so. Wow. Okay, so that means you need to.

[A]

Offer less than half of what they're.

[B]

Asking for to get this to break even. Does that Discourage you?

[C]

No, this is where I'm definitely looking at the seller financing option. Like this is where I would go in and manipulate. Okay, Maybe I'm only putting 10% down. Maybe it's only a 3% interest rate. The last seller financing I did was a year ago and I did that for 30 year fixed at 3%. So I mean that's where I would start is going with the seller financing option and then I would keep this option. I mean he's a savvy investor. So honestly I think I might give the calculator report.

[A]

Right.

[B]

Because like why would you buy that at 2:75? It makes you buy that to buy lose $1,000 a month. It makes no sense. Should we analyze the seller financing?

[C]

Sure, yeah. Okay, let's do 225.

[B]

Okay, 225. Closing costs pretty low. Right. On a financing we should just keep.

[C]

The 3,000 attorney fees.

[B]

So we'll change. We'll update the ARV to 225. Repair costs are going to stay the same. So you think maybe you'll go in 10%. Now we're talking about financing yet. So you probably put 10% down on this 3% interest rate.

[C]

Let's see that.

[B]

Okay. Do you think it would be 20 year term?

[C]

No, let's do 30.

[B]

30 year term and then keeping rents the same. All of our expenses are the same. Do you think this is going to work?

[C]

I don't know. And when I think about this is to not only will it work for me, the next thing I look at is what does that monthly payment actually come out to be for the seller? Because if it like that turns out to be like $300 a month, that's like, I don't see why they want to do that. You know, like.

[B]

All right, update the analysis. All right. That's basically. Wow, you got it to almost exactly break even. We got the other one to positive $13. We got this one to negative $6. Basically break even. I mean, so okay, not bad, right? And so would you buy a deal break even or is this. I mean I assume you would need to see something change A. Or are you basically thinking, hey, this is break even. But back of my head that's worst case scenario because I know I could probably boost rents over the next couple of years and that would get us.

[C]

We already know we could do 250 in a rent increase and then what were the. The variable costs like the repairs and maintenance, the vacancy, things like that.

[B]

You put 8% for everything and you had a 10% management fee in there.

[C]

Right. So what does that amount come out to?

[B]

So variable expenses was 782amonth. And so the payment to the seller would be 854amonth.

[A]

That's not bad.

[B]

I mean I don't know in this market at that price. I feel like that's a pretty solid payment.

[C]

Yeah. Passive box money.

[B]

Okay. So that's pretty good. So I'm just curious, I want to see if you go about let's say 230 here in rent. So if you do 2330, what we're looking at here is a cash on cash return of 5%. So once you stabilize it and brought it up that would get you to 5%. And again what we're talking about now is a seller financing deal at 225 with 3% interest. Seller was originally asking for 275. So is this like the kind of.

[A]

Offer you would make or are you.

[B]

Making any other changes here?

[C]

I think first I'm going to make a lower offer. I think the seller finance option. I mean I might as well do the bank financing include the calculator report for it to show I think where sellers will give a lot of pushback are the variable expenses. As in. Because you know the expenses he sent me were just the fixed expenses and not taking that into a, you know, into an account. So.

[B]

Yeah, but an experienced landlord should know better. I'm not saying they wouldn't negotiate it. I would probably do the same thing. But I think you'll have an interesting debate over that.

[C]

Yeah.

[B]

Yeah. Because it comes out to 184 for vacancy a month. I think 8% is a pretty good number. I like using 8% for vacancy because it's basically one month of vacancy per year. And to me that's just like a good way to be safe.

[C]

Yeah.

[B]

Maintenance at 184Capex at 184Old House. That seems reasonable to me. Like I would, I would hold back that much.

[C]

And I think too is one thing we don't know is the actual Capex needed. As in like if I got an inspection I would want to know what needs to be replaced in the first year.

[B]

True.

[C]

Next two years over five years. So we may have to even increase that based on what will, you know, do we need a roof in five years too?

[B]

Yeah. Right.

[C]

What was the management fee? Because that will go back in my pocket. But I always like to.

[B]

Yeah, 230amonth. So that could really, if you don't manage it would really help you especially in the first few years while you're getting things stabilized, that would really help. But I just, I, I was just curious because you said you might go lower on the seller finance if you drop that to 200. That would get you at current rents a 3.25 cash on cash return or 90 bucks a month. And once you stabilize it, you could probably get up to. Yeah, that's pretty good. So if you offer 200 at stabilization, when you get the rents up to what you think you can get them to, you're talking 300 bucks a month in cash flow. It's like an 11% cash on cash return. That's, that's looking, I don't know what you, your criteria, but to me that looks like starting to look like a good deal.

[C]

Yeah, I used to like 12 to 16%, but that's getting harder.

[B]

Yeah, exactly. Me too. But to me, you know, if you can get even at 7,8% cash on cash return on a deal like this, you're still doing better than you can get in other asset classes.

[C]

Yeah, and this is a somewhat passive investment for me. I would say as to like, I've spent a lot of time building my systems, my processes for property management, that to add another unit to my portfolio at this point in time is not very labor intensive or time consuming on my portion.

[B]

Okay, so you're going to make two offers, right. Or you can make one offer, two options. Right. You're going to do the, or you're just going to send over the calculator report and be like, this is what I need to break even. Which was crazy. It was 125, so that's 150 off. So less than half.

[C]

I mean maybe I shouldn't even. Because that's like going to, I feel like very insulting to, to do.

[B]

But yeah, would you just say like, hey, I'm gonna make you an offer for seller financing because the bank financing just is too low. I don't, yeah. You know, I wouldn't want to insult you for building rapport. And then what do you, would you offer at this, like 200 or you think 220?

[C]

I think I would start out at the 200 and just let them know, like I'm open to negotiate. But also too, I, I think one thing I'm also going to do is there's that duplex he wants to sell right away too. So in presenting this as a package deal, like okay, I will buy both of them for you know, 350 and not even say how Much is allocated to each one. So like maybe the duplex is a little bit better perform forming so I can lump those two together and then he can decide when he closes. And this is what I had done with that other investor I bought the portfolio from. I said I will buy all of these for X amount. And we figured out some had a bank loan, some had seller financing. But what we did was he decided how to break them each out. He, he owns some properties with his sister. And so he's like, these ones you're buying for $20,000. This one I own myself. You're buying for 50,000 dol.

[B]

Oh my God, that's hilarious.

[C]

But I think that's what I would do to, I would have to go and analyze that duplex and that would be my first step is to just make one offer for both of them and let him decide how he wants to break it off. Yeah, I don't think I can offer more than the 225 for this.

[B]

All right, well, I mean, I'm so invested in this deal right now. Ashley, you're going to have to come back and tell us what happens here because I am so curious what's going to happen. I also want to know. For everyone listening, let us know in the comments. If you're watching on YouTube or listening on Spotify, let us know in the comments. We want to know what you would offer. What, what is your best offer for this exact deal? I want to see if how well it compares to what Ashley does and if it gets accepted. But this is a lot of fun.

[A]

Ashley, thank you so much for coming.

[B]

And sharing this with us.

[A]

For waiting, having the discipline to wait.

[B]

Not analyze this without us. We really appreciate it.

[C]

I know. I used to get so mad at my one business partner because he'd send me stuff at like 11 o' clock at night and I'd be like, stop doing that because then I don't sleep at night because I. But I just looked in just for reference, the, the investor that's selling it bought this property in 2011 for $110,000.

[B]

So he's not, he's not taking 125. Yeah, I think that's going to be. That would be a hard pill.

[C]

Yes.

[B]

For him to swallow with, with all that. But 200, maybe that's, that's a lot of appreciation.

[C]

Yeah.

[B]

All right, well, thanks so much, Ashley. We'll.

[A]

We'll have you back soon and hear.

[B]

What happens next with this deal.

[A]

It was great having you.

[C]

Yeah, thank you so much and thank.

[A]

You all so much for listening to this episode of the BiggerPockets podcast. I'm Deb.

[B]

We'll see you next time.

[A]

Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday and I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calico, content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com.

[D]

The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.