Cash Flow Zone!

[BlairClarke]

hey everyone! ive got a question to ask about the Cash Flow Zone that I have read about in "Real Estate Investing in Canada". ok.........im looking at a 2 storey house that I plane to live in as well as rent it out to 3 students. Now......using the Cash Flow Zone Formula.....

(Gross Annual Rent/ Purchase Price) x 100 =Cash Flow Zone %

Im only getting a percentage of 6.5 percent. According to the book, i should be aiming for properties that are at least 10 percent. Im not sure if that formula works for people who plan to live in the property that they are investing in.
If i decided after 3-4 years that I want to move out and rent the top floor as well as the basement level of this house then my percentage would be over 12 percent......which according to the book, is great!!!!!

Whats your take in this predicament.......does this make sense or is it that im way off.

T6hanks to all who relpy

 

[greghead]

QUOTE (HydroHead @ Nov 7 2009, 10:18 AM) hey everyone! ive got a question to ask about the Cash Flow Zone that I have read about in "Real Estate Investing in Canada". ok.........im looking at a 2 storey house that I plane to live in as well as rent it out to 3 students. Now......using the Cash Flow Zone Formula.....

(Gross Annual Rent/ Purchase Price) x 100 =Cash Flow Zone %

Im only getting a percentage of 6.5 percent. According to the book, i should be aiming for properties that are at least 10 percent. Im not sure if that formula works for people who plan to live in the property that they are investing in.
If i decided after 3-4 years that I want to move out and rent the top floor as well as the basement level of this house then my percentage would be over 12 percent......which according to the book, is great!!!!!

Whats your take in this predicament.......does this make sense or is it that im way off.

T6hanks to all who relpy

Great question, personally I would look at the property as if I were to rent all units out and not factor in that I would be living there. Simply because you want to view the asset as an investment property on its own merit when calculating your cash flow zone. Keep in mind that the cash flow zone calculation is just an initial filter. Beyond that I would factor in that we are in a real estate cycle slump in most markets in Canada and therefore do some stress testing on your calculations and don`t just base them on where things are at today. For example, have you factored in an interest rate hike. Are you in a market that is likely to witness further downward pressures on rents? i.e Red Deer, Grande Prairie, etc? Are you buying the property at below today`s market value? These are a couple things to consider as you move through your due diligence and by following the REIN system you will be able to remove the emotion and see the bottom line numbers in order to make a decision on this property.

All the best,

Greg.

 

[smiller]

HydroHead,

Hope this finds you well. It seems we are both in the same city and "same boat". I live in Orillia and have recently discovered REIN. My cousin owns nine properties (GTA), and after a brainstorm I shared with her, she referred me to REIN. I`m halfway through Don`s first book and stoked to meet a like minded local; build a team. I will invest in my first property in Orillia this winter or spring.

Get connected,
Scott

[email protected]
705 331 7560