Setting criteria for buying a rental property

7 Replies

Hello all,

I’m brand new here and was wondering what your way of setting criteria for buying a rental property was. 

I’m currently trying to set my own up, however I’m kind of confused on where to start. I’m looking to buy a 3 bed, 1+ bath, single family home with around 900-1500 sq feet. 

Most of these style homes in my area (Troy, Ohio) rent in the $600-$900 range. So do I use that in the 2% rule to get the maximum purchase price? ($30,000-$40,000ish) 

Or should I be more focused on other aspects? 

Thanks!!

I use an app called Dealcheck because it's free for up to 5 properties at once. BP also has their own calculators if you're a Pro member. But it lets you see cash flow, cap rate, ROI and IRR for each. I have little interest in a single family that isn't cash flowing at least $150 a month. $150 a unit is my goal so if it's less than that I tend not to bother much with it unless the price is just that good. Through Wright Patt CU we were told no minimum purchase price and 15% down for non owner occupied. Because of this, we're trying to use leverage to our advantage...finding those $150+ a month cash flow properties that are roughly $70-$80k means your money all in can be less than $15k. So with that model, our plan is to acquire multiple single families over the next couple years. With saving at least 30% of our income every month (shout out to Set For life), buying multiple shouldn't be too difficult with so little cash invested each. With 5 properties we'd be cash flowing at least $750 a month and will have made back our down payments in 8 years and have a ton of equity built up. I don't stick so closely to the 1 or 2% rule, as it really doesn't paint a good picture of what your numbers will look like anyway.

Beyond cash flow/cap/ROI/IRR that we get from the app, we typically look for sub $100k, 2 bed 1 bath if it's over 1000 square feet (potential for 3rd bedroom) or just 3/1 and 3/2.

Also. The homes I’ve crunched numbers on in Troy for $30-$40k will take a good amount of work to be rentable (let alone upgraded or nice). You’d likely be all in for $50k-$60k at least. You’d have to ask yourself if that’s worth the mount of rent you could bring in after that. It likely won’t be $1200 to meet 2% rule on 60k invested. Maybe you’d be able to get $800 or $900 or so in rent but even then that’s only 1.5.  Another reason I practice analyzing deals with the calculators instead of looking at certain rules. That $60k metaphorical house I mentioned could still be a great deal! 

Thanks for he response Cory! That makes a lot of sense. I agree I was looking at 30-40k properties and was thinking man these are rough.

I’ll check out DealCheck. Its nice to see there is calculators out there that go a little more in depth. I’m a numbers guy so I like seeing a detailed break down.

Thanks again and I wish you the best on your investments!!

@Joshua Ferguson From what I have seen, typically your single family homes give you a little less on the cashflow front, but the trade off is you have a lot more potential buyers when it comes time to sell compared to a multi-family unit. That being said, you may have a tough time finding a SFR to cashflow at 2% but, depending on markets, a lot of people use the 1% rule, it really is sort of market dependent.

For example, in my market, single family deals usually fall in around 1% to 1.5% but it isn't very difficult to find multi-family units that are even above the 2% rule. The biggest thing is checking your numbers and making sure you are confident and comfortable with the cashflow. I usually run a couple of different scenarios for most likely, worst case, best case, etc.

I have a calculator that takes my gross rent I expect to collect, subtracts out for vacancy, tax, insurance, uilities, repairs, cap ex, and property management which gives you NOI. Then the last step is to factor in financing for your expected cash flow. There are a lot of these calculators available, including the one here on BP, but they all should work pretty similarly. Let me know if you would like a copy of my file and I can send it to you. Best of luck in your searching!

@Nicholas Paros Thank you for the info! Sorry it’s taken me awhile to get back to you, been a crazy week. I’d love it if you could send me a copy of your file. I’m a nerd so I love doing the numbers I’m just so new I want to make sure I’m doing the math correctly and not leaving out any cost. Thanks again!

Originally posted by @Charlene McNamara :

@Cory O'Dell Do you know what interest rate Wright Patt CU is offering right now for a NOO property? No minimum Purchase price and only 15% down is great!

They didn't give us a rate unfortunately, just the 15% down and no minimum for NOO. I'll let you know when we end up moving forward on a property.