$100 per door/cashflow

106 Replies

I have probably a dumb question, so bear with me!

I've seen the $100/door evaluation criteria discussed, and cashflow also discussed. I've listened to a few podcasts where people are discussing cashflow with regards to figuring out their monthly "number" if they're trying to achieve a certain financial goal.

When people are discussing cashflow, is the $100/door method typically what they are referring to? I ask because when running my own analyses, this number is vastly different compared to say, the 1% or 50% methods.

In any case, if I'm using that $100/door as my benchmark, then I need about 40 doors to achieve my own financial goal...which means I should have started this at 20, not 36. Ha ha.

I would love to hear your own thoughts about how you view your cashflow. I'm primarily looking at this through the view of a rent-and-hold investor.

@Courtney M. I like to get $300 per door but I have gotten less when I put them on a 15 year mortgage versus 30. The more cash flow the better, but there are other factors. Your cash flow per door will change depending on down payment and loan term. I think the $100 rule comes from the idea that anything less than $100 is like working for free. There are other ways to meet your financial goal. For example, lets say you paid cash for a fourplex and each unit rents for $1500 per month. Total monthly income is $6000 and hard expenses are $2000 per month, leaving $4000 cash flow. In this example, one property will meet your financial goal (but you had to pay cash for it). Alternately you could finance an apartment building with 40 units, each cash flowing $100 per month. Both examples meet your financial goals today. The difference is the apartment building is worth way more money and with mortgage pay down, will produce way more income in the future.

Cash flow is only income stream of real estate investing. Keep in mind the tax benefits, equity growth through mortgage pay down and appreciation are the other aspects.

@Courtney M. - I use the 1% rule when first analyzing a property.  If the property isn't even close (i.e., assumed monthly rents are way less than 1% of the list price, or more appropriately, to the assume value), I'll go to the next listing.  However, if the #'s are somewhat close, I'll keep looking & likely run the #'s.  Other than that, I don't really use the Rules of Thumb (ROT) too much when analyzing a deal.  I do, however, use several calculators to analyze cash flow and estimate expenses.

My goal is to generate meaningful cash flow AND respectable ROI (cash on cash). I've definitely analyzed some deals with good CoC returns that would result in relatively low cash flow, and I've usually opted to pass on those so as to not tie up capital that I could deploy elsehwere.

I'm in the middle of a BRRRR on a 13-unit apartment building (eventually 17-unit) in SoCal. I believe the BRRRR strategy offers the best returns in most zip codes today. By increasing rents AND property value, I'll be able to have good cash flow AND a high CoC return (since I'll be able to pull most of my capital back out during the Refi step). After I pull my capital back out, I'll redeploy it to another property (hopefully another BRRRR...while existing properties continue to make $$), with the eventual goal of scaling into larger properties and replacing W2 income with passive REI income.

-Tom

@Joe Splitrock , thanks for the feedback. Good to note there are a lot of methods to get to the end goal. I realized when I was thinking about it per door the number was really massive, which can feel somewhat overwhelming for a new investor.

@Tom Murray , the more I read about BRRRR the better the strategy it seems. I'm super green and just starting to identify markets; hopefully I'll be able to also start to identify properties that fit this criteria. It seems like an excellent way to fund your next investment.

$100-$200 a door is very achievable in the Pittsburgh market.  The % rules can be misleading but are good benchmarks for very quick analysis.  Getting to you goal of 40 doors won't be as daunting as it first appears once you get started.  The first 1-5 properties are the toughest because your learning and figuring things out.  The next 10 come easier and after that the next 20 come even easier.  Just get the ball rolling and it starts to pick up speed on it's own.

I self manage and look for $125-$150/door with 25% down using a 20 year commercial loan and higher commercial rates from the get-go. I'd be ok with $100/door in a property that was less than 20 years old. Since we are buying in "C" neighborhoods I expect deferred maintenance. We spend the first couple years adding value to get  expenses down and rent up so that our properties reliably earn around $200/door within a couple of years and there is money available for adequate maintenance and capex. I think we need 50-60 units to be safe on capex expenses without a large (per unit) reserve fund and around 80 units to not have to do any work our selves and pay a w-2 property manager. On the upside in the midwest we have purchased 33 units in less than 2 years. We just closed on twelve units last week. These are partially owner financed "turn-around" properties. 

New purchase fire drill is now in progress... Saturday, my husband and I took a four person tenant work crew over to a big fine house about to do a huge kitchen reno. For $600 materials + $300 labor + $75 truck + $50 pizza and soda we got 20+ really nice cabinets with pull out shelves and ball bearing drawer glides, an oven, a drop in cooktop, a granite sink with faucet, and some really great granite counter tops; (It took us 7.5 hours to salvage and store the materials). We'll use these materials along with rustoleum cabinet transformations to make big improvements to 3 or 4 apartment  kitchens really cheap.

If you are doing out of state investing and paying for management and professional repairs, I think you are looking at 50-100/door max when you figure in REALISTIC repairs and capex--- especially if you are building up slowly with single family homes.

@Jill F. , this post was spurred by an analysis I ran on a duplex listed at $89k, rents at $550. It was already at the 1% rule so I figured it was probably a good investment. Once I ran the numbers, though, adding fees for management, repairs, taxes, etc., it was NEGATIVE cashflow. Based on the analysis it only makes sense if I offer $75,000 and immediately raise rents to $650/month (which the market can bear). It definitely opened my eyes to making sure I run the numbers to ensure the property makes sense. To your point I need to account for all the additional fees of property management, repairs, etc.

Originally posted by @Courtney M. :

I have probably a dumb question, so bear with me!

I've seen the $100/door evaluation criteria discussed, and cashflow also discussed. I've listened to a few podcasts where people are discussing cashflow with regards to figuring out their monthly "number" if they're trying to achieve a certain financial goal.

When people are discussing cashflow, is the $100/door method typically what they are referring to? I ask because when running my own analyses, this number is vastly different compared to say, the 1% or 50% methods.

In any case, if I'm using that $100/door as my benchmark, then I need about 40 doors to achieve my own financial goal...which means I should have started this at 20, not 36. Ha ha.

I would love to hear your own thoughts about how you view your cashflow. I'm primarily looking at this through the view of a rent-and-hold investor.

 You're looking at this backwards.

First, $100/door is a ridiculously low number.  All you're asking for is trouble, and as you've already noticed, it would take a few lifetimes to get anywhere.

Second, you have your answer in your own observation, "...then I would need 40 doors...".  The way to find your answer is to reverse engineer it from your "financial goal"...not starting with "$100/dr method".  Your own financial goal will dictate how much per door you NEED to achieve to reach it.

If $4k/month is your financial goal, and you can (or want to) only handle 10 properties, then you need $400/door...not $100.

If you are only clearing $100/door, a water heater replacement would basically blow most of your year (unless you have already factored in reserves).

In my part of PA, we use 2% rule--an $80k house better produce $1,600/mo income or we move along.  FYI, in this area, $40k price/unit is very achievable, and $800/mo rent is too...  at least as of this writing.  

Good luck!

1% is used to target areas too look for a deal, same w/ 2 %. It's meant to help you weed out the 400k house that rents for 1800 for example.... or find the 80k house that rents for 1100.

Many schools of thought on cashflow, what's counted, what's not counted and how you get there. I'm NOT a big fan of doing flat rate %s to to budget. I look at the actual property, it's actual condition, and actual market conditions.

So for example:
Let's say town house 90k, 1100 mo rent 150 HOA.... and all said and done you're at 650 per mo (mortage, tax, insurance, HOA)


Now people like to use flat % for business costs/future costs : Vacancy (2%), Maint (10%), Capex(10%), and Prop mgmt (10%). All this off the 1100 mo is 352.

So at the end of the month you're left w/ 103 dollars that people would consider cash flow.... I'd rather take that 350 dollars and toss it back into my monthly cash flow...

Now, I'm little different as I rather look at the property itself:
Vacancy, I'll use whatever the market average is, let's say 2 months. So 2 months of expenses (645x2).

Maint, really should be low on townhouse, depending on it's condition let's say 2k should take care of it.

Capeex, most likely handled by the HOA, let's assume the HOA is in good standing.... so 0.

Prop mgmt- let's pretend a renter already in the place, and we'll self manage. But on the off chance we don't want to do it anymore, we set aside 1 mo rent (to offset the upfront fee). 1100

The just in case funds.... let's have 6 months of bills, this is for if worst case scenario happened. (645 x 6). It'll also help us with the bank if they come knocking. 3870.

So instead if flat % each month, I'd want about 8k in an account for this property. OR about 2 years of the flat 32%.... at 350 mo.

Now... the tricky part.... maybe i don't use all cash maybe it's credit card, maybe it's home equity maybe it's whatever. This comes into play when you have multiple properties not so much just for one... maybe you can lean out your numbers and find something that works better. Or maybe you have 8k for 5 different properties and you roll that all into one account and pay off a mortage and then use an home equity line who knows... point is it's tailored to you and what works.

@Joe Villeneuve , I certainly don't aspire to own 40 doors at $100/door! Thinking of it this way, though, has forced me to think about how important it is to buy at the right price with the right opportunity. It sounds much more advantageous to wait for the right deal and get that number higher.

@Marc Winter , the $100/door is after accounting for taxes, any utilities, reserves for repairs/capex, PM fees. Based on my goals it sounds like I need to be thinking along the same lines as you currently invest.

Courtney, the only time I've heard $100 a door as being acceptable is on small multifamily like duplexes and quads.

On a SFH you should be shooting for higher. Play with COC also. $200 a month at 6% COC is not as wise as $200 a month at 13% a unit. Depends on your purchase order and subsequent expenses.

Great question. If you're asking it somebodh else is thinking it. 

I agree with @Marc Winter . We are also in PA and like to have at least $100/door, but we have also factored in ALL COSTS prior to finding this number, including property management, which we currently do ourselves. We're above the 2% rule as well. It depends a lot on your market and which number best suits your area. Not all properties make sense in all areas. Nor will what I consider a good property meet all the guidelines of another investor. If you're looking to buy and hold, you may need to force some equity through renovations to increase your cash flow to increase your ROI and your ability to roll it into your next deal...more like a BRRRR.

@Marc Winter , @Joe Villeneuve I really think there is some confusion about the definition of "cashflow" in this context. At 100% down just about anything should "cashflow." 

In Akron, Ohio, the median rent is $806/month. You will not be able to "cashflow" $400-$500 per door in Akron, Ohio market unless you are a cash buyer of properties renting at or above the median rent. If you have the money to go this route, there is no doubt that it will be significantly less work than what is required for people like me that are buying "C" properties with leverage; it is a different business model. We have properties that RENT for less than $500/door. One 8-unit grosses 3.5k per month and now that is improved and stable it is netting me $1200/month after operating expenses and with monthly saving for capital expenses. I put down 50k took out a $90k 30 year loan at 4.5%. An $800 water heater install is two months worth of capital expense savings for these properties which net $150/per door. That is a TRUE NET after all PI & operating expenses and saving for capital repairs. ($800 is what my plumbing company charges, if it is not an "emergency" and my handyman does it, it will be $400). My COC return for this property is 28%. This is not for everyone, but I do find it to be rewarding and it is profitable.

@Jill F. , this is what I'm trying to clarify about cashflow. I was showing my husband an analysis last night and he was like, "...$100 a month? You could just drive for Uber!" LOL. Of course the goal is to have more than one property.

True cashflow, to me, seems to be the amount left over after accounting for everything else and having money set aside for reserves. I assume people play with this a little differently as their circumstances dictate, however. I work full-time so if I buy a property and it sits vacant for a few months, it won't kill me. I assume many people who get into real estate also having a full-time job depend on their earned income to help support their properties so they can pay down quicker, reinvest, etc. I plan to make my first purchase knowing that I can make the mortgage with my current income.

@Courtney M. LOL, Yeah, I guess he's right but you'll be putting miles on the car instead of building equity. ;) -- and I expect to have enough equity in 5 years to put up my existing properties as collateral on a million dollar property with no money out of pocket.

There are no stupid questions here.  The $100/door cashflow criteria is separate from the 1% or 50% "rule".  That criteria is fairly popular among BP members, but it doesn't have to be yours.  There are several investors who are getting $300+/door.  I will tell you, as sad as it is for me to admit because I love BP so much, that I don't even reach the $100/door criteria on the 11 properties I own lol.  However, my overall criteria is different than many of the "cashflow" proponents here.  I would rather cover my costs and "bet" on appreciation.  No criteria is wrong...it just has to work for you and your particular situation.   

Oh, and trust  me, 36 is young in this game.

Brandon Turner explains how people can develop a plan to retire in three years using real estate. For purposes of discussion, he uses $150 per month per door for his planning number.

According to General Eisenhower during World War II (as taught in business schools): Plans are useless as soon as they are made, but the act of planning is invaluable because it forces you to think through the issues.

Originally posted by @Courtney M. :

I have probably a dumb question, so bear with me!

I've seen the $100/door evaluation criteria discussed, and cashflow also discussed. I've listened to a few podcasts where people are discussing cashflow with regards to figuring out their monthly "number" if they're trying to achieve a certain financial goal.

When people are discussing cashflow, is the $100/door method typically what they are referring to? I ask because when running my own analyses, this number is vastly different compared to say, the 1% or 50% methods.

In any case, if I'm using that $100/door as my benchmark, then I need about 40 doors to achieve my own financial goal...which means I should have started this at 20, not 36. Ha ha.

I would love to hear your own thoughts about how you view your cashflow. I'm primarily looking at this through the view of a rent-and-hold investor.

 100 a door is not much at all. The way I interpreted that was more like an absolute minimum.

Also 40 doors... not sure if you interpret that as houses.

40 doors simply means "sources of income" renting out.

I have a 5 bedroom house in FL. Single family. I rent out 4 of my 5 rooms. That is 4 doors.

@Tom Murray Hi Tom. Do you mind me asking what part of southern California you're investing in? Thanks 

I look at the total return after expenses ( Cap Rate ) and cash on cash return. I also want to buy into a property below market value.  $100 a door is very low IMO and if that's all someone is cash flowing they are asking for a world of hurt if capital expenditures pop up.

Please define cashflow.

If after PITI, strong savings for capex and repairs, vacancy, and paying management, you have 100 bucks left over, I think that can be good - especially for someone starting out or in a tough market.

People use the term cashflow to mean everything from what I just said, to the money leftover after they just pay the mortgage.

I wouldn't look at your investing from any of those standpoints- $100/door, 1%, or 50%. I would run the actual numbers and throw those into the cash-on-cash equation and see what your return on your money will be. That's what matters.

For example, $100/door would be tremendous from a $30,000 property or it would be atrociously horrible on a $1M property. And everything in between. So it's all about- how much money are you getting back on the money that you put in? That's what matters.

Here's the basic equations and how to run the numbers-

https://www.biggerpockets.com/renewsblog/2013/01/1...

Hope that helps!

@Courtney M.

Not sure if you have seen my post below, but it might be worth looking at if you have not already. 

https://www.biggerpockets.com/forums/48/topics/554815-100-door-debate-sell-me-on-it

Don't buy into the $100/door BS unless you have deep pockets to help whether the changes in the economic cycle.  It is thrown around like it means something but means absolutely nothing unless your main goal is simply appreciation.  Look at it this way, is it worth investing your time and risking your money on something that gives you minimal return?  $1,200/yr is not worth peanuts to me and I'm not banking on appreciation in my market as it can go both ways. 

Originally posted by @Chris Gordon :

Please define cashflow.

If after PITI, strong savings for capex and repairs, vacancy, and paying management, you have 100 bucks left over, I think that can be good - especially for someone starting out or in a tough market.

People use the term cashflow to mean everything from what I just said, to the money leftover after they just pay the mortgage.

$100/mo ($1,200/yr) is not even worth the hassle of dealing with a property even if you assume it is managed and accounted for.  It is horrible advice for someone starting out as new investors likely have errors in their estimates and need additional cash flow if they ever want to be able to reinvest and grow their business. 

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