Analysis and Key Metrics

3 Replies

I have several questions as I try to finalize my analysis procedures.

1. When analyzing a deal do you look at cash flow per unit after debt or cash on cash return? I ask because I've seen people saying they like $100-$200 per door but if that equates to 3% COC return that's no good. And if you are making a good COC return but the dollars per door are tiny that's no good. Seems like you need a combination of $X per door AND a COC return of Y%.

2.  Cash on cash returns are typically after debt.  But what if there is no debt?  Do you have a cap rate or a before debt cashflow that you like to see?  Similar to question #1 but looking for metrics to use before debt.

3. How do you account for turnover costs? painting, repairs, commissions, etc. I don't think I've ever seen such costs in an analysis.

Thanks

Cliff

Hi @Cp

There are lots of tools out there that can help answer these questions in a relatively automatic fashion. My personal favorite is here.

You can make a copy of this sheet and then craft it to your needs.

- Steven

P.S. 3% COC is not inherently "bad" it just depends on the investor's goals. In markets like Indianapolis you'll get great COC but your property will be worth $40,000 forever. That could be fine. In markets where you're going to get 5 or 6% appreciation per year, your COC might be 1% after expenses. That can be fine too.

@Cp Rahaim

1. When analyzing a deal do you look at cash flow per unit after debt or cash on cash return? I ask because I've seen people saying they like $100-$200 per door but if that equates to 3% COCreturn that's no good. And if you are making a good COC return but the dollars per door are tiny that's no good. Seems like you need a combination of $X per door AND a COC return of Y%.

This is personal preference and is something you have to decide based on your own goals.  If I have no money in the property at all, but I'm still maybe making $100/month, maybe that's okay.  Or maybe I don't want to manage properties for less than $200/doors.  Completely subjective.  

2. Cash on cash returns are typically after debt. But what if there is no debt? Do you have a cap rate or a before debt cashflow that you like to see? Similar to question #1 but looking for metrics to use before debt.

The cap rate is the return on your money without debt.  If your NOI (net operating income) is $10,000 and you bought for $100,000 then you're buying on a 10 cap and your return is 10%.  That could also be a 10% cash on cash return, right?  

Again, this is personal preference.  There are people that are okay with a 5% return on their money, and I have friends who won't get out of bed for less than a 25% return.  I want to make at least 12% on my money.  

3. How do you account for turnover costs? painting, repairs, commissions, etc. I don't think I've ever seen such costs in an analysis.

Turnover costs are generally a part of repairs and maintenance.  I use a 15% repairs and maintenance number, which some might argue is high, but I like to be conservative!  

PM me if you have more questions!  

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