$100 per door/cashflow

Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes

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.

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Joe SplitrockPro Member

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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

@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.

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Tom Murray
Realtor · Coronado, CA · Member since 2013 · 43 posts · 39 votes
8y
@Andrew R. sent you a PM.
-Tom
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Ayne C.Pro Member
Rental Property Investor · Tampa, FL · Member since 2018 · 251 posts · 124 votes
8y
All of you saying that 100/door is not worth the hassle... Are you talking about cashflowing after vacancy, management, cap ex, repairs and debt service?
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Ayne C.
Yes-everything including debt service and management. Good luck weathering a change in the economic cycle making $1,200/yr on a property! When vacancy increases or rent decreases, it will not look very good.
3 Reply
Chris Gordon
Rental Property Investor · Venetia, PA · Member since 2015 · 107 posts · 47 votes
8y
@James W. I think that could be a fair criticism for certain purchases. What would you recommend instead including the holdbacks for future expenses etc?
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Mark Fries
Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
8y
100 a door....waste of time... I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
3 Reply
Chris Youssi
Rental Property Investor · Caledonia, IL · Member since 2015 · 289 posts · 213 votes
8y
Originally posted by @Joe Villeneuve:

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.
I agree with your thinking here or take the middle and 20 doors you meet your objective of 4k/ month or in my case we avg 300/door / month. It befuddles me how some investors are willing to settle for $100/door makes zero financial sense to me. Now having said that, I also am recognizing not everyone has an avg sale price of 130k and that the west coast NYC etc...higher values investors bank on appreciation. Still a very scary prospect for myself.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Originally posted by @Mark Fries:
100 a door....waste of time...
I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
Why will leveraged investors implode if/when there's a recession? Is that automatic?
1 Reply
Account Closed
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
8y
Originally posted by @Joe Villeneuve:

Originally posted by @Mark Fries:
100 a door....waste of time...
I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
Why will leveraged investors implode if/when there's a recession? Is that automatic?
We always know WHAT will happen with investing, so yes, leveraged investors will implode when there's a recession and this implosion is automatic.
What we don't know is WHEN this will happen. This month? Next year? Next century? Mr. Market gets his jollies by keeping us humans in suspense.
2 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Originally posted by @Account Closed:

Originally posted by @Joe Villeneuve:
Originally posted by @Mark Fries:
100 a door....waste of time...
I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
Why will leveraged investors implode if/when there's a recession? Is that automatic?
We always know WHAT will happen with investing, so yes, leveraged investors will implode when there's a recession and this implosion is automatic.
What we don't know is WHEN this will happen. This month? Next year? Next century? Mr. Market gets his jollies by keeping us humans in suspense.
I, and many other investors I know, have lived through more than one recession, with debt, and haven't imploded yet. It isn't the debt that makes the implosion (if at all), it's the low cash flow that offers no buffer.
3 Reply
Account Closed
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
8y
Originally posted by @Joe Villeneuve:

Originally posted by @Account Closed:
Originally posted by @Joe Villeneuve:

Originally posted by @Mark Fries:
100 a door....waste of time...
I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
Why will leveraged investors implode if/when there's a recession? Is that automatic?
We always know WHAT will happen with investing, so yes, leveraged investors will implode when there's a recession and this implosion is automatic.
What we don't know is WHEN this will happen. This month? Next year? Next century? Mr. Market gets his jollies by keeping us humans in suspense.
I, and many other investors I know, have lived through more than one recession, with debt, and haven't imploded yet. It isn't the debt that makes the implosion (if at all), it's the low cash flow that offers no buffer.
I agree that when the cashflow can support the debt payments, the state of the economy is not relevant.
When debt has to be called in by the bank (or a brokerage firm has to issue a margin call) because the prices of the assets securing the debt have declined sharply, the owners of those assets need to raise cash quickly and become motivated sellers in a buyers market. For every seller of an asset, there has to be a buyer on the other side of the transaction. Price is determined by the side of the transaction that has the greater urgency to make sure the deal gets done (Rise of the Superrich Hits a Sobering Wall).
Regardless of why a distressed asset is for sale (the owner can't make the payments or the owner has to sell quickly), someone waiting on the sideline with cash has the opportunity to scoop up a bargain.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Originally posted by @Account Closed:

Originally posted by @Joe Villeneuve:
Originally posted by @Account Closed:

Originally posted by @Joe Villeneuve:
Originally posted by @Mark Fries:
100 a door....waste of time...
I will be ready for the next recession to grab up cheap houses for cash again when all the over-leveraged investors implode...
Why will leveraged investors implode if/when there's a recession? Is that automatic?
We always know WHAT will happen with investing, so yes, leveraged investors will implode when there's a recession and this implosion is automatic.
What we don't know is WHEN this will happen. This month? Next year? Next century? Mr. Market gets his jollies by keeping us humans in suspense.
I, and many other investors I know, have lived through more than one recession, with debt, and haven't imploded yet. It isn't the debt that makes the implosion (if at all), it's the low cash flow that offers no buffer.
I agree that when the cashflow can support the debt payments, the state of the economy is not relevant.
When debt has to be called in by the bank (or a brokerage firm has to issue a margin call) because the prices of the assets securing the debt have declined sharply, the owners of those assets need to raise cash quickly and become motivated sellers in a buyers market. For every seller of an asset, there has to be a buyer on the other side of the transaction. Price is determined by the side of the transaction that has the greater urgency to make sure the deal gets done (Rise of the Superrich Hits a Sobering Wall).
Regardless of why a distressed asset is for sale (the owner can't make the payments or the owner has to sell quickly), someone waiting on the sideline with cash has the opportunity to scoop up a bargain.
Why would a bank call a note due, if the payments are being made?...and if the property is cash flow positive, the payments should be made.
1 Reply
Account Closed
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
8y
Depends on the type of note. Some notes a callable at the discretion of the bank. Other notes are not. The takeaway is to get a loan that the bank cannot call at its discretion.
1 Reply
Mark Fries
Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
8y
I just think that history, as always, is going to repeat itself soon, And some that have used leverage might be OK but the majority of people that has used leveraged will not survive and I think that will be a prime opportunity for cash buyers to come in and find a bunch of great deals again. Veteran investors that have been through this multiple times will probably be OK with their leverage, But I believe the vast majority of these entry level investors that we are seeing that are using leverage to buy everything and the deals have minimal cash flow ($100-$200 a door) will not survive.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Who would get one that was callable? Also, I've never seen a bank call a note due that was upside down, if the payments are being made.
2 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Originally posted by @Mark Fries:
I just think that history, as always, is going to repeat itself soon, And some that have used leverage might be OK but the majority of people that has used leveraged will not survive and I think that will be a prime opportunity for cash buyers to come in and find a bunch of great deals again. Veteran investors that have been through this multiple times will probably be OK with their leverage, But I believe the vast majority of these entry level investors that we are seeing that are using leverage to buy everything and the deals have minimal cash flow ($100-$200 a door) will not survive.
Before you assume "the vast majority ...will not survive...", you should make sure you know why those REI didn't survive. The debt wasn't the complete reason. There are always more than one factor/problem that causes a failure. Having debt when the property value goes down isn't a failure. If you did your analysis correctly, it shouldn't make any difference...other than your property taxes should also go down.
If you have to lower your rent, or your tenants are slow/no pays, then you might have a failure...but those problems can happen anytime and are not specific, or automatic with a recession. If you are trying to carry the property with a very low PCF (like $100/month), then you have no buffer and the "dominoes will fall".
This is another reason, like many other reasons, why NOT to ever think that a property with negative (or low) cash flow is OK.
2 Reply
James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
As Joe Villeneuve hit on, low cash flow will kill an investor in a downturn as it does not provide protection in a change in the economic cycle where rents decline and vacancy increases. Equity won’t save the investor either as they won’t be able to get access to their equity if the property won’t cash flow. Another thing to consider is that $100/door is completely different on a $1,400/mo rental than a $500/mo rental. There is more cushion in lower cash flow for cheaper properties. All of us invest in different markets so the level of cushion $100/mo equates to can be completely different. I’d recommend looking at it as a percentage of rents than a specific $$$ per door as it is never an apples to apples comparison when discussing topics like this on here.
2 Reply
James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
Chris Gordon I’d recommend a percentage of rents as a metric instead of a standard $$$ per door. It factors in differences in the economic area as $100/door is completely different for a unit renting at $500 as compared to a unit renting at $1,500. I don’t have experience to know what level of cash flow would be conservative enough to last a recession, but I look for deals to be around 30% of rent assuming good front end numbers. This can be hard to achieve at this time too though.
1 Reply
John Woodrich
Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
8y
@James W. started a big debate on this a little while ago if you want to search for it.
0 Reply
Account Closed
Investor · Portland, OR · Member since 2017 · 182 posts · 115 votes
8y
Depends if you are wanting to retire as 30 or 60. Simply put- find a market that has higher cashflow for properties if you want to live the Suite life of Zack & Cody at 30.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Courtney M. $100 per door is ridiculous and I do not recommend that anyone invest with this as a goal. It means you are over paying for the property. Appreciation is great, but there is no guarantee that it will increase. Even if it does, you can't access that equity without refinancing or selling, which is expensive. How much would you have to borrow in order to get 40 doors in your market just to make $4,000 per month? $10M? You can make $100 driving Uber a few hours per day. That is a better plan. In order to make money in real estate, you have to buy it right and manage it right. Then your cash flow will be much higher.
3 Reply
Account Closed
Member since 2018 · 70 posts · 89 votes
8y
I saw it mentioned here before that it's incorrect to write off one tactic or the other without first paying attention to the goals. For example if I was 25 and anxious to hit a million before I dinged 30 then maximizing cash-on-cash might be my main KPI. At 65, I'd likely be more focused on the sum of the cash flow or maybe just the Cap Rate in general. And in between it could be a combination of matrix with varying weights of importance.
Also for those discounting $100/door as Sub-Uber labor, I believe the goal with real estate is passive cash flow. If you're working more that 10 hours a month per door, then I agree that $100/door is way too low to mess with unless you just need a job.
1 Reply
Kraig Kujawa
Investor · Orlando · Member since 2016 · 151 posts · 72 votes
8y
From what I gather from this forum -- if you are taking $100 in cash flow a door, make sure it is AFTER Capex, Maintenance and Vacancy reserves. For me, I budget, 7% across the board for all of those things. And that's after budgeting a $3-5k slush fund to make the property better from the getgo.
If you do that IMO you can weather any storm
3 Reply
Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @Tom Murray:
@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
I don't understand all the love behind the 1% rule. So many other metrics I would use first before even using that guideline. I found a gem of a property (6 units) that had no rents raises in about 9 yrs. It fell under the so called 1% rule by about a .25%. So I saw the upside potential immediately. Six months after I purchased the property, I have almost all the rents raised to market value with laundry income as well. By the end of the year, I'll be at 1.2%.
Had I just used the 1% rule to look for a property, I would have missed out on this. Because of my new higher AGI, I've added quite a bit now to the equity.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @Anthony Dooley:

@Courtney M. $100 per door is ridiculous and I do not recommend that anyone invest with this as a goal. It means you are over paying for the property. Appreciation is great, but there is no guarantee that it will increase. Even if it does, you can't access that equity without refinancing or selling, which is expensive. How much would you have to borrow in order to get 40 doors in your market just to make $4,000 per month? $10M? You can make $100 driving Uber a few hours per day. That is a better plan. In order to make money in real estate, you have to buy it right and manage it right. Then your cash flow will be much higher.
I agree with everything you said except no guarantee on appreciation. In the long run, just about an property in an area of 100k+ will appreciate. It's not speculation when it's been the trend for over 50 yrs...
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Kraig Kujawa
How do your numbers look if gets to 40% and rents decline 30% as well? From what I gathered talking with others, rents went way down and vacancy increased quite a bit in the last crisis. It has happened before and it is possible it can happen again-especially with all of the new investors flocking to RE as a way to invest, purchasing properties that barely cash flow and assuming they will make a ton as they continue to appreciate...
@Scott R.
How well did properties appreciate from 2007-2010? In some areas, we are finally hitting the 2007 prices and it has been 12 years. There are people still underwater in parts of the country as well. If we hit the next crash sooner than later, I have a feeling just about everyone on here will see some real stress on their investments. Those with strong cash flow (better ability to whether changes in rents and vacancy) will do much better than others. Even if someone has equity in a crash, they will not be able to access it if the property does not cashflow.
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