Is Cash flow per door a good indicator of a good deal?

5 Replies

Is Cash flow per door (after all expenses, mortgage, cap ex, etc.--i.e. everything) a good indicator of a good deal? Can you analyze whether a deal is good or bad based solely on cash flow per door? If so, what is the amount of cash flow per door you need? Will looking at cash flow per door always translate into a good cash on cash return, cap rate, IRR, etc?

Any examples of when cash flow per door (after all expenses, etc.) doesn't work? 

How does $100/month positive cashflow for a $1M property sound?  Does $100/month cashflow on a $20K property sound better?  This is a simplified, exaggerated example, but I think shows why cashflow can't be the only thing you look at.

Originally posted by @Eric James :

How does $100/month positive cashflow for a $1M property sound?  Does $100/month cashflow on a $20K property sound better?  This is a simplified, exaggerated example, but I think shows why cashflow can't be the only thing you look at.

It is if you are looking for cash flow. Take it a step further though...CoC Return is a better gauge with a minimum cash flow.

@Bryan Tasumi No. I’ve seen more than my share of great “cash-flow per door” deals that need a new roof, have issues with flooring that isn’t quite level, etc. All things that don’t show up in any listing photos 🙃

Getting $200/door instead of $100/door doesn’t matter if I’m dropping $50K on a new roof for my $200/door apartment building. That cash-flow? Poof! Gone! See ya in maybe 5-10 years!

Originally posted by @Andrew Johnson :

Bryan Tasumi No. I’ve seen more than my share of great “cash-flow per door” deals that need a new roof, have issues with flooring that isn’t quite level, etc. All things that don’t show up in any listing photos 🙃

Getting $200/door instead of $100/door doesn’t matter if I’m dropping $50K on a new roof for my $200/door apartment building. That cash-flow? Poof! Gone! See ya in maybe 5-10 years!

Obviously. This is where CoC Return comes in. If you have to, as you say, "drop $50k on a new roof", then a 100 doors at $100 per only pays for 20% of it, and you are at least $40k negative...right out of the gate.

This is where the argument for appreciation would come in...and with me, be escorted right out the back door.  I'm not sitting on a known $40k loss, waiting for my appreciation to save me from a bad deal.  What if the property doesn't appreciate as expected?

What if it does?  What have you lost exponentially from your $40k loss (out of pocket cost) if that money were invested instead of spent?

You're correct, and it all comes into play at the very beginning, when you analyze...and don't rationalize.  You make your money when you buy, and realize it when you exit (cash flow is an exit strategy...for your money).

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