BiggerPockets Real Estate Podcast - How to Calculate Cash Flow on a Rental Property

Episode Date: December 12, 2025

Before you buy your first (or next) real estate deal, you need to know one thing—how to calculate cash flow on a rental property.  The problem? 99% of investors do this wrong and get burned as a result. That’s why after buying dozens of rental properties, we’ve come up with arguably the most accurate way to calculate real estate cash flow, and today, we’re showing you how to do it, too. Joining us is Ashley Kehr from the Real Estate Rookie podcast, who’s been buying rentals routinely for over ten years now. We’ll use the BiggerPockets Rental Property Calculator (which you can try for free!) to run numbers on a real rental property Dave is looking to buy right now. You’ll learn exactly how to estimate both fixed and variable expenses, how much emergency reserves to set aside, how to account for property management fees, vacancy, repairs, and more, plus what to do to instantly boost your potential cash flow before you buy! In This Episode We Cover How to calculate cash flow on any rental property before you submit an offer The easiest way to increase your cash flow if it’s not hitting the mark What a good deal looks like to Ashley and Dave (when they’d submit an offer) How to estimate your expenses (accurately) so you get the most cash flow possible  How much cash flow should you be making in 2026?  And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.biggerpockets.com/blog/real-estate-1212 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Are you calculating cash flow the right way? Because this is the key metric that will tell you if a property is the right deal to buy and how your investments are actually performing. But it only works if you're including all the necessary inputs when you do the math. If you're only subtracting your mortgage payment from your rental income, that is not cash flow. This is how you calculate cash flow the right way. Hey, everyone. I'm Dave Meyer. I am a data analyst. I'm the head of real estate investing here at Bigger Pockets. And with me today on the show is Ashley Care, co-host of the Bigger Pockets Real Estate Rookie podcast. Ashley, thanks for being here.

Dave, thank you so much for having me today. I'm excited to talk about cash flow. Yeah, it's a super crucial thing. And I think some people over simplify it, but it doesn't need to be hard. You just need to make sure that you follow the right steps. I don't know if you ever see this, Ashley, but I see this. people on the internet all the time claim that they have this incredible, sort of almost unbelievable cash flow on real estate deals. And then you sort of dig into it and you realize they're clearly just leaving out some of the expenses or just not doing the math. So today, what we're going to do is show the audience how to do the real math. And I'm actually going to use a real on-market deal that I have recently been analyzing. I'm going to show you all every single number you need to include in your cash flow analysis. Explain why your vacancy. maintenance and CAPEX expenses should be consistent every month, whether you spend that cash

or not. And then we're going to talk about how much cash flow you actually need right now and what constitutes a good deal. Because once you know that and how to calculate it correctly, then you can actually go out and pull the trigger on some great deals. Ashley, you ready? Yeah. I think we should start off with explaining what cash flow is to get started. Okay. Well, it sounds simple, but how do you do? define it. Yeah, so cash flow is that the amount of cash or revenue each a month on the property or it could be for the year. So that's after you get your rent income and then all of the expenses that are paid. So basically you're taking your total expenses fixed and variable for the property

and spreading them out over time so that it's calculated monthly. I'm so glad you broke it down by fixed and variable expenses because I think that's sort of the division where people get confused. Because it's sort of easy to do the fixed expenses. You know your principal and interest, your mortgage payment's going to be the same every month. You know what your taxes, your insurance are going to be. If you have a property manager, you know how to pencil that in. But then there's this entire other expense category for real estate investors, which Ashley called accurately variable expenses because it varies every single month. For example, your report, repairs and maintenance. You don't know how much you're going to have to come out of pocket in any

given month for repairs and maintenance. Same thing with capital expenditures. If you're not familiar with that, capital expenditures or CAPEX is basically just bigger improvements that you make to a property. These are things like adding a new roof or doing an expansion, doing a renovation. Those can all be qualified as capital expenditures. Those are also variable expenses, just like turnover costs and vacancy costs as well. And so there's this whole bucket of unknown expenses that come into your underwriting when you're figuring out cash flow. And understandably, this is where a lot of people get confused and hung up. So Ashley, how do you build this unknown quantities into your underwriting? So a big measure of how much I'm accounting for with those variable expenses is the

age of the property and also the market. So when I've invested in C class areas, even, you know, some D class neighborhoods, the turnover and the vacancy was way more consistent. And I needed to increase the amount that I was adding in for those properties. Repairs and maintenance and capital improvements, I needed to account for more for older properties that weren't getting a full renovation. So age of the property and also the neighborhood, the market that the property is in, I think can really help you factor those things in. Yeah, if you're buying an A-class brand-new construction, your expenses, your repairs, your capex are going to be pretty low, probably for five or ten years at least. But I think what you called out is probably the most missed part

of cash flow calculations, vacancy and turnover. It's pretty normal to have one month of vacancy every other year or maybe even every year, depending on the market. And this is something you absolutely need to factor in. It doesn't sound like a lot. But if you have one month of vacancy, that's 12% of your revenue for the entire year. Like that is the difference between a good deal and a bad deal. Now, actually, presuming that you could come up with a number, right? You know it's going to be $1,200 a year for vacancy or turnover or whatever. How do you factor that in? Because you don't know when those things are going to actually come up. So how do you put that into your deal analysis to make sure that you're covered for that? Yeah. So like in your example, Dave, you just gave if, you know,

you're thinking one month a year, every other year, you know, you could account for one month's rent. But I think if you don't know that or understand the market in your area yet, is using a percentage. So I think 5% should be the bare minimum. If you don't have any vacancy, great. That's just a bonus that you're getting more rental income back in your. your pocket. But I think 5% should be the bare minimum, and then you can kind of increase it to there. So depending on the property, like sometimes I'll go as high as 10% to save per a line item. So that's 10% for vacancy. That's 10% for CAPEX, 10% for repairs and maintenance. So it really depends on the property type and where it is. But I think a percentage is a great place to start.

And once you look at those expenses, sometimes it can be like, wow, I thought this was going to cash flow really, really great, just thinking, here's my rental income, here's my mortgage payment. But once you start to add in those percentages, it really does add up and sometimes can kill the deal. But you have to be so diligent that you're not saying to yourself, oh, well, this might happen. I might have a vacancy. So this could be cash flow. So, yeah, if that doesn't happen, I could be cash-willing $500 per month. month. And I think that's where a lot of investors get in trouble. Is there thinking of that variable expenses as maybe will happen. That's a worst case scenario when they should be thinking,

this is going to happen. This is money I'm putting towards the property. I think that's just an important mindset for people to have that it's not cash flow just because one month you had positive number in your bank account. What you need to do is average it out over time. Like, you have to spread those costs, the CAPEX, the vacancy, over every month and just say, on average, this is what, you know, if I think all these things, these variable expenses are going to amount to 10 grand in a given year. I don't know what month they are going to hit, but I have to take 10 grand, divide it by 12 months to $800-something, and I'm going to put that $800-something into my deal underwriting and just putting that aside and making sure I know

that, Dave, that is not your money, that is the business's money, that is this property's money. So that's sort of the mindset that I think people need to take and not to just look at that best case month that you may have and count that as your cash flow because you're just going to be disappointed down the line. All right. Well, I want to actually go through this and walk step by step how to do this the correct way. So everyone who's listening to this knows how to do this analysis, right? But we've got to take a quick break. We'll be right back. This week's bigger news is brought to you by the Fundrise Flagship Fund. Invest in private market real estate with the Fundrise flagship fund.

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without making real estate your second job? That's exactly what rent-to-retirement does. They're a full-service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of our down payment back at closing, plus interest rates as low as 3.75%. They've partnered with BiggerPockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more. Welcome back to the Bigger Pockets podcast. I'm here with rookie co-host Ashley Care, talking about cash flow, how to calculate it the right way. And we sort of talked about the mindset that you need to have, the way to start thinking about this. But I actually want to go through and just run a deal analysis to show you that this doesn't need

to be hard if you're following the right steps. And so I'm going to pull this up. If you're watching on YouTube, you can see this. I'm just going to pull up the bigger pockets calculator. But if you're listening, I will do my best to explain everything that I'm doing. It's a real deal that I'm looking at in Western Michigan. This is a duplex. It's a 3-1 on each side.

It is very old. It was built in 1890. It's listed on the market for 350 grand. It's been on the market for like 75 days, so I think I could realistically get it for cheaper. But let's just start here and we'll see how it goes. I will pay probably 5 grand for closing costs, so underwriting that. And then I would do a modest rehab.

If you listen to the show, you've heard me called the Slow Bur. This is this thing that I like to do, which is renovated property, but I don't try and do it super quickly. I wait until the tenants move out, opportunistically renovate the property, make the units nicer, and add value, drive up the rents a little bit. But I think I could probably get this thing

to maybe be $380,000, and I would only need to spend probably, let's say, 18 grand. So not adding a huge amount of equity in terms of ARV at the current price, so I'd probably want to buy it for lower, but also just want to reiterate that the reason I would spend that $18,000,

is not only for equity. It's because it would probably bring my rents from about $16,700 a month, probably closer to $2,000 a month. And to me, that's why I would do this, but I'll go into that in just a minute. Then we will be doing our financing details. This part should be easy for everyone. I would buy this property putting at least 25% down. And I got quoted 6.8-ish. Then I actually know exactly what the rents are going to be for this one, which is really nice. is two Section 8 tenants. Been there for a long time, so I like that. Properties in good condition for being really old.

So I should just describe now that the floors need work. They're pretty old. The kitchen is dated. The bathroom is dated. The systems are okay. The plumbing and the electrical have been updated. It's not like knob and tube. It's not galvanized pipe.

And there's about 15 years left on the roof. Now, there are some additional fixed expenses that we know to. This should be pretty easy to get. So the taxes on this property are actually about $2,100 right now. But property taxes everywhere are going up. So I'm going to put it in $2,400 just because I think it makes sense to just make sure. Now, I own a similar kind of duplex in the same market. So I'm going to say $1,300 for insurance.

That's about what I pay there. Now, this is where we get to repairs and maintenance. So, Ashley, help me out here. a 135-year-old house in Michigan, cold weather climate, similar to Buffalo. What do you put for repairs and maintenance here when you're first underwriting a deal? I think I'm going to do 8%. 8%. So one thing I often think about.

I'm curious how you handle this is if I wasn't going to invest that $18,000 I mentioned earlier, I'd probably bump this up to like 15%. If I was just going to buy this and hold on to it and not. make any improvements. I would, but I'm comfortable keeping this 8, 10% because my intention is to go in and probably replace the floor soon, to redo the bathroom and probably upgrade at least part of the kitchens. Those are a lot of the big ticket items. And I'm not talking about KAPX yet. This is just repairs and maintenance. So I am essentially going to proactively, hopefully, offset a lot of repairs and maintenance because I'm going to pay for that up front. Do you do anything similar to that?

Yeah, especially if we're going in and rehabbing the property. I think one thing that's different with yours, though, is that you're waiting until the tenant moves out. So, like, you're running the numbers now that someone's in there, but we should increase your vacancy more because you do know that it definitely is going to be vacant during that period of time when you're going to be holding the property. Exactly. Yeah. So that's definitely something to do. I'm doing this with another duplex right now. And it's going to take three months to do the renovation. And so three months of vacancies a lot. You know, it's a considerable expense on top of the labor and materials that I'm already going to be paying. So what would you put in vacancy there for a property like this? Because that would be a 25% vacancy, but that's not going to be it going forward. So like how would you think about putting in the right number here? What class area is this? I'd say it's like a B minus. I'd probably do 8 to 10% on this.

All right. I'm going to put it at 8% right now as well. And for me, this stabilization period, right, this first year probably, I am not really looking that much at how it performs the first year because I am essentially saying this vacancy of three months, that's an investment. That's basically similar to the money I'm spending on a rehab. It's just more money I'm putting to position this for long-term success. So I will put the vacancy at 8% because I think that's a good going forward. And maybe what I'll do is I will just put in my repair costs instead of $18,000, which is my estimate for materials and labor. What I'll do is add three months of vacancy costs here, which is another nine grand. So I'm going to put this at $27,000 in repair costs,

just so that when this calculation is done, it's the stabilized performance of the property, and I don't get hung up on what happens in year one. While we're doing things at 8%, I'm going to put my management fee at 8% because that is what I pay. See, I usually bump it up depending on what the 8% is. So like right now I self-manage, like the deals I partners with, I pay myself a property management fee. But I think it's really important if you're going to self-manage, you still bake into that management fee that you still put it in there in case someday you do want to transition to a manager. It doesn't kill your cash flow. But also too, like when I did have a property management company, there was a lot of additional fees that aren't included. So I always like to bump it up a little bit. Like you see, had the leasing fee. They would do like, you know, if there was an after hours, there would be like a $25 fee or something, you know, like there was additional things added on to it. Okay.

I like that. Then let's do 10%. All right. Then capital expenditures. This one is tough. How do you think about this one? The same with the age of the property and what needs to be done. So like when you have your inspection, you know, one thing I always like to do is ask the

inspector, okay, what needs to be replaced today? what needs to be replaced within the next two years. What needs to be replaced in the next five? What needs to be replaced in the next 10? And that's kind of going to give me more and an idea of how much I need to go into it. But I'm thinking on this as an older property, I'm probably just going to do 8% on it too, knowing you're going to go in and put that 18 grand into it.

I think that's great advice, getting that information from the inspector. The other thing I think people really need to look at, especially when you're doing small multifamily like this, is how many of each system are there? Because I've had triplexes or four units that have one boiler, and that reduces your total expense, because you have one thing to service. And those things are enormous.

They last like 30 years. Whereas if you have a bunch of newer forced air furnaces, one in each unit, that's going to be a lot more expensive. Those things break a little bit more frequently, and you're going to have to think about that. So the same thing goes for example, for appliances. Appliances famously don't last that long. If you have four units, make sure that you're considering the fact that every seven to ten years,

you're probably going to have to replace that dishwasher, but you have to do at times four, unlike at a single family home. So make sure you're sort of thinking through all of that. The benefit, of course, to small multifamily is that you spread the cost of the big things, like a roof or siding across four different units. So there are some cost efficiencies. but just make sure you think each of these things through. I think that's a great point as to thinking about what type of mechanics you have in the property or appliances.

Like a lot of properties around here have electric baseboard heat. It is super cheap to replace one of the baseboard heaters and not a big deal at all. But like I said, like to do a whole HVAC system, a furnace, a boiler, those things, like very expensive. So looking at what type of mechanics are important to. I have this little spreadsheet that I use sometimes. It just says like, what's the average lifespan of the item, the mechanic, whatever you're looking at? What do I think it's going to cost to replace that? And then you basically divide those things and you can figure out what it is annually.

So like if I think the roof has 15 years on this and its replacement value or cost is going to be $20,000, then I know $1,300 bucks roughly per year I need to set aside for this roof eventually or, you know, a hot water heater is going to be four grand installed or whatever lasts for 10 years, that's 400 bucks that you need to set aside. So you can actually just do this kind of back in the napkin. You don't need to get overly scientific with it,

but just spend the time to think it through. That's it. In the bigger pocket calculator, if you're watching this on YouTube, you could see that there are other fees like HOA fees, electricity, gas, but because this is metered separately, the tenants will pay this. I do pay garbage. It's like less than 50 bucks a month. I'm just going to round up 50 bucks a month. That's all the input that we need to do. Hopefully you can see that this is not

so difficult. Like, you just need to think through each of these steps. We're going to take a quick break, but when we come back, I will share with you if this property is going to cash flow and by how much, stay with us. The Cashflow Road Show is back. Bigger Pockets is coming to Texas January 13th to 17th, 2026. Me, Henry Washington, and Garrett Brown will be hosting real estate investor meetups in Houston, in Austin, and Dallas, along with a couple other special guests. And we're also going to have a live, small group workshop to answer your exact investing questions and help you plan your 2026 roadmap. Me, Henry and Garrett, are going to be there, giving you input directly on your strategy for 2026. It's going to be great. Get all the details and reserve your

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Head to Costsegregationguise.com slash BP to get a free proposal and see your potential tax savings. Welcome back to the Bigger Pockets podcast. I'm here with Ashley Care talking about their right way to calculate cash flow. Before the break, Ashley and I talk through how to do cash flow calculations properly using the Bigger Pockets calculators. Now, let's see if this deal cash flows. So actually, it's not bad. It comes out at $38. I'm monthly cash flow, which amounts to I'm rounding up a little bit, but basically a 4% cash on cash return.

Is that a good enough deal for you? No. Me neither. I've talked about this on the show. I would take a deal with the 4% cash on cash return using this kind of disciplined underwriting. If this was an A neighborhood or an A plus neighborhood, this just isn't. It's a B minus neighborhood. I do think it's in a good location for future growth.

But that growth might be five years from now. You know, it might be eight years from now. And so I would need to see a higher cash on cash return than this. But just given the spirit of this episode, what we're talking about, I do believe this property cash flows and I would feel comfortable that I would get this 4% return. And on top of that, you would also get, you know, amortization and all these other benefits. The Bigger Pockets Calculator tells us it's about an 8% annualized return, which for me is too low. When I look at deals generally, I say I need at least a $1,000.

12% annualized return. That's handily beating the average for the stock market. And I want to at least beat the stock market by a few percentage points. So this deal doesn't work for me. But while we're here, actually, should we just see what it would take to make this work? Because as we've talked about it before, this was buying at rental at full price. And it's assuming that I stay with the current rental model and don't get increased rents because of improving the property. So let's see what happens. This is my favorite part of it is, you know, decreasing the purchase price and seeing what I can offer. Exactly. And I know people get confused about this and they're like, you can't just lower the purchase price. No, you can't, but you can offer whatever you want. That is entirely up to you. And this property's been sitting on for at least 70 days, maybe more.

And so the negotiating leverage is there. What would you bring this down to? It was 350 is what they're asking right now. What would you test out? Let's test out 300. That may be too low, but let's try that. And then that can kind of give us if we can increase our offer a little or go down a little bit. But this is the easiest number to manipulate. Because like you could go and say, you know what? I think I could increase rents a little bit. Let's change that.

Or you know what? I actually think I can get the insurance cheaper on it or whatever. Like those are the numbers you don't want to mess with or manipulate. This is the one, the purchase price, what you're going to offer. So if I drag this down to 300 grand, I would get a 7% cash on cash return significantly better. So that's $630 a month. And the annualized return jump from 8% to 16%.

That is significantly better. Because if you think about this, yes, you're coming out of pocket for less money. So your cash on cash return is going to get better. And you're taking out a lower mortgage. And so you're going to have less interest to pay, especially over the lifetime of your loan. So I actually, to me, this is getting to a deal I would buy. A 7% cash on cash return to 16% annualized return. What do you think of this one? How much are the fixed expenses a month? The total expenses are 3,094. And of that, the variable expenses are 1,266. So that's 1,266 of unknown. That's actually like quite a bit of money that you're accounting for those other things, too. So yeah, if you look at it, when I'm taking vacancy maintenance capex, that's $900 a month,

essentially, that I'm setting aside. Just gut check. I feel pretty good about that. That feels right. And to me, this is starting to feel like I feel confident if I could get this at $300,000, I would get that 7% cash on cash return. And to me, that's now an attractive cash on cash return. I don't know if you have a rule of thumb you look for.

Is yours higher or lower and the same? Actually, I would take a little less than this. this would be a good deal for me. I would take this. All right. The one thing that I would think about going back and changing, like after we've gone through all of this is like instead of using the percentage of repairs and maintenance, I would add in since this is in Western Michigan snowplow removal. As like a fixed thing because that was a mistake I made on my very first deal in Buffalo,

New York, not accounting for snow plowing. And it can be so expensive. So expensive. It's ridiculous. And that, like, killed my cash flow. I think they ended up cash flowing, like, $100 on the first deal because I didn't account for the snow plowing and how much that would be. So that's like something else to watch out for. Like, what are those maintenance expenses you do know will happen that you need to maintain the property? Even like landscaping, too. Like maybe it's a big lot and you're not going to ask both of your tenants to share the lawn mowing responsibilities. So. Yeah. Another one too is like common areas. If there's common areas, like I have a five unit building and I have to pay a cleaner to go in and clean the common area. So I think like once you get the basis of this, then that's when you go and you start to like nitpick the deal and like break it down even more and see like how accurate you can get it. But this gives you such a good basis. I can't even tell you how many calculator reports I've saved in my portfolio. Like I think I

became a member in 2017, I probably have a million of deal analysis. Yeah, 10,000 deal analysis. But it's so interesting to go back and to see like those very first deals, how I've changed analyzing and like gotten better at fine tuning than like those first like basically back of napkin math once I did. Yes. I think, yeah, my, I have gone from seeing everything with rose tinted glasses and being like, this is all going to work out to being completely the opposite. Like, everything's going to be terrible. And if it's still, like, good on paper like this, then I'll do it. That's basically my criteria. So that's helpful. I went back in and added another hundred bucks a month in just like general expenses for probably

plowing, something like that. Still at six and a half percent ROI, which I like. And if you listen to the show, you know, I've been talking a lot about this framework for upside era investing that I am a big fan of. And to me, it's like, how do you underwrite super conservatively and then hopefully get better returns than even you're analyzing? Because to me, the whole trick is like, okay, I feel confident I get at least a 6.5% cash on cash return. That's good. A 15.6% annualized return. That's good. That is assuming no rent growth from this renovation, right? And so I would still underwrite this. But then what I would normally do is like say, okay, what if I went up to 3,900? Like, what if I could grow rent?

Maybe not. But if I did, okay, then that gets me to an 8% cash on cash return and a 16.4% annualized return. I underwrote this deal with just 2% appreciation. This happens to be a B9th neighborhood, but in a very good growing market. And so maybe I get three or four percent appreciation. What happens then? I probably get, you know, a 20% average. annualized return. And so this is sort of the phase where I start to think about this is like,

what is the minimum cash flow that I'm going to get? And then am I comfortable with the minimum? And then everything else on top of that is just a benefit that I hope I get, but I'm not counting on it mentally. So I'm not disappointed if this things don't happen. I'm just delighted and happy if they do wind up coming about. One thing that I had another realization as an investor over the years is that, you know, watching not only the cash flow increase over time, because my expenses didn't increase as much as the rental income did, like one property I bought in 2017, I was cash flowing $300 a month when I bought it. And now I cash flow $1,000 per a month on it. And it also has $150,000 in it. And I think I put my down payment was maybe like $35,000.

Oh my God. So like I like now that I like look back, I realize like though that's the true value holding these rentals over long term, getting them in a good area where they're going to appreciate and you'll be able to increase the rental income. So that makes me more excited than cash flow today. But especially as a new investor getting started like that little bit of cash flow is going to be so helpful with you and changing your life. But when you are analyzing deals, you need to understand why you're investing and what you're

investing for. Like maybe cash flow isn't really that important to you. And you're okay with a really small amount. You just want something that in 15 years has appreciated in so much and you're just going to cash out and retire. Or maybe you want to quit your job now. So you want more cash flow than appreciation. Maybe you have a ton of time and you want those headache properties and class C areas like I did. I bought those $20,000 duplexes.

great cash flow, but man, lots of turnover, lots of repairs, lots of headaches. But so really think about that, too, as you're figuring out what cash flow is good for you. I couldn't agree more. People always ask for a rule of thumb for cash flow. I always say to me, it's like they got to break even. I don't personally buy properties that don't break even. I know some people do. I don't think that makes a lot of sense, particularly in the kind of market we're in where appreciation might not happen for the next year or two. Like, we might be. in a flat market, you need to have some cash flow to be prepared and to cover any expenses that you have and to be able to hold on. But once I've reached that threshold, you got to look

at it holistically. You can't just say I need 10% on every cash on cash return because the reality is ones where you get 10% are, as I actually said, either big headache properties or in areas that are less likely to appreciate. And so it really comes down to what your goal. are as an individual. And personally, like I said before, I would buy a 3 or 4% cash on cash return deal if it's in an A or A plus neighborhood because I'm going to get other benefits. If I'm in this beep minus neighborhood, 6, 7, 8 is probably the minimum that I would take on that kind of deal. And if I was in an area that I didn't think would appreciate at all, I'd probably want 10, 10 plus. So those are just rough rules of thumb. But unfortunately,

you can't just say there's this one hard and fast rule. You kind of have to look at the whole big picture of returns that you're going to get and think about it as just a piece of that puzzle. All right. Well, thank you, Ashley. This is a great conversation. Anything else you think the audience should know before we get out of here. Don't forget your snowplow removal and your bags of salt and your shovels. I know. Half the country's like, what are you talking about? Why would you even count snow plowing? But if you know, you know, it's so expensive. All right. Well, thank you, Ashley. We appreciate your time. Yeah. Thanks so much for having me. And thank you all so much for listening to this episode of the Bigger Pockets podcast.

We'll see you next time. Thank you all for listening to the Bigger Pockets 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 Friday. 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. 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

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