Main Content

Cashflow 101 – Why An Existing Tenant Is Good For Your Rental Home

I got a call this morning from a real estate agent out of Bastrop about one of the homes I’m marketing in Austin. I was dumbfounded by the question I was asked. Here’s a little story about postive cashflow from real estate investment.

The home in question is at 5300 Gladstone Drive – in Windsor Park Hills just north of the Mueller Development. It is owned by an investor and the tenants have recently signed a 12 month lease. My conversation went like this:

Bastrop: “I have a client who wants to take a look at 5300 Gladstone.”
Me:“OK. Just so that you know, there are tenants there who have just signed a 12 month lease.”
Bastrop: “So we can’t buy it? Why is it in the MLS then?”
Me:“You absolutely can buy it. As an investment property.”
Bastrop:“Well that’s no use. Thanks.”

I was flabberghasted that it wouldn’t even occur to a real estate agent that investors like homes that have stable tenants and already have a lease in place. That’s exactly what I look for as an investor. The vacancy cost, or tenant replacement cost is one large cost which causes many investors to struggle with their cashflow.

Let’s take a look at some numbers, using 5300 Gladstone as an example:

Purchase price: $110,000 + $3,000 in closing costs
Down payment: 25%
Investment loan: 75% = $84,750
Investment loan monthly payment PITI: $746
(6% interest rate, 30 year amortization, 2.18% property tax, $40 per month insurance)

Monthly rental income: $950
Property management fee: $76
Repairs and maintenance: $50

So ignoring for now the likely increase in rent over time, home appreciation, the tax benefits of real estate investing and other smaller costs, a stable tenant already renting in this home would give the following benefit:

Monthly positive cashflow to the investor: $78

$950 (rental income) – $76 (property management) – $50 (repairs) – $746 (debt service, property tax and insurance)= $78 per month.

As soon as you factor in costs of getting a new tenant (vacancy rate and marketing costs might amount to one or two months of rent), it’s easy to go from positive cashflow to negative cashflow.

In my mind, the best rental homes are sold with the marketing costs already paid by the previous landlord, and the MLS is a great place to advertize rental homes in Austin who have incumbent tenants. Especially when they are already cashflow positive.

Garreth Wilcock is an Austin Real Estate Investor who helps other investors find homes in Austin, and also sell them.

Get In


We’d love to hear from you.
Fill out the form and we’ll get in touch with you as soon as possible.

    Skip to content