$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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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @James W.:

@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.
Lol You're looking at literally the 3 worst years in history......and guess what? Average prices now surpassed pre recession levels in many areas. So take that in...
Biggest drop in real estate prices on record and worst recession since the great depression and prices are rebounding. As I said, appreciation will happen. May take time but saying they won't appreciate means you just need to lengthen your time frame.
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Carey Greiner
Real Estate Broker · Bend, OR · Member since 2017 · 46 posts · 20 votes
8y
Great discussion here! I have analyzed some properties in Southern Oregon that I can buy (with private money or Hard money) for $65,000, invest another $20,000 (out of my pocket or CC debt) into rehab, Rent them out for $1,000 month (1% rule = 1% of the value - right?), Refinance the property with an appraised value of $100,000, pull out $25,000 as a rental loan will allow up to 75% LTV, and cash flow after all expenses including prop mgmt. of $250/mo. Who's with me?
Besides finishing up a couple land developments, I have nothing holding me back from doing this. Even my wife is mostly 'on board'. I'd like to see the community in a better light, as there are some terrible properties with major drug and alcohol problems next door and surrounding these properties; not even sure I can see a 3% appreciation. Even so... in 3-5 years I should have enough equity, especially if I do 2-3 of these a year, I may have real equity to get going in commercial or multi-family and realize some serious cash flow.
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Scott R.
Yeah, but many people bought in right before it happened too... Real estate was at an all time high then and we are also at a new all time high now. Investors who bought before the crash have earned nothing over the last 10-12 years and are finally showing a slight gain after dumping all kinds of cash into a property that has not given them any return for over 10 years. You are fooling yourself if you think it is not possible to happen again.
While the credit terms are not the same, poor investment strategy has not changed and there is a new crop of investors willing to get into any deal they can with the hopes they will make a killing on appreciation-especially since they have seen a lot of appreciation over the last 5 years in their own homes.
The investors who weathered the last recession needed a lot of liquidity and/or strong cash flow for their deals to avoid losing their properties.
I'm not sure what your area is like, but people are buying tons of poor deals in MN just to get in and that is not helping things.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Scott R. if you look at home prices over the last 80 years, you are correct. They have appreciated at 4% annually, which is about the rate of inflation. However, most of middle America, home prices are just now recovering from the 2008 crash. In GA, outside of the ATL metro, which is hot, and high end parts of Savannah, home prices are slightly higher than the last peak in 2006. Appreciation is speculative. Cash flow is much more certain.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @James W.:

@Scott R.
Investors who bought before the crash have earned nothing over the last 10-12 years and are finally showing a slight gain after dumping all kinds of cash into a property that has not given them any return for over 10 years.
I'm sorry but this is likely the most false statement I have ever read on BP.
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Mike Dymski
For an investor purchasing at FMV in 2006-2007, how do you suppose that investor made money on their property? It surely was not in appreciation. Twelve years later, many markets have shown appreciation from those values, but it is nothing to write home about-especially if appreciation was majority of the return over the last 10-12 years.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @Anthony Dooley:
@Scott R. if you look at home prices over the last 80 years, you are correct. They have appreciated at 4% annually, which is about the rate of inflation. However, most of middle America, home prices are just now recovering from the 2008 crash. In GA, outside of the ATL metro, which is hot, and high end parts of Savannah, home prices are slightly higher than the last peak in 2006. Appreciation is speculative. Cash flow is much more certain.
We may have talking about two different points and probably agree on both. Homes will appreciate over the long term and that's not speculative. The amount they appreciate and for how long before a dip is speculation.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @James W.:

@Mike Dymski
For an investor purchasing at FMV in 2006-2007, how do you suppose that investor made money on their property? It surely was not in appreciation. Twelve years later, many markets have shown appreciation from those values, but it is nothing to write home about-especially if appreciation was majority of the return over the last 10-12 years.
I bought a foreclosure in 2007 and 2008 that I flipped so I did make money on appreciation.
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Anthony Dooley
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
@Scott R. milk, eggs, and gasoline will appreciate over the long term as well, but that doesn't make them a great investment. Beverly Hills, I'm sure has experienced huge price increases, but for small town U.S.A. cash flow is the only thing you can truly count as a return on investment.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @James W.:
@Mike Dymski
For an investor purchasing at FMV in 2006-2007, how do you suppose that investor made money on their property? It surely was not in appreciation. Twelve years later, many markets have shown appreciation from those values, but it is nothing to write home about-especially if appreciation was majority of the return over the last 10-12 years.
We invest in properties, not the entire real estate market. Many investors' portfolios barely lost any value in the last downturn and they cash flowed the whole time. How did your portfolio do during this time period?
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Bob B.
Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
8y
My paid for houses didn't know there was a recession (I didn' tell them and they can't read) and the rents kept being deposited in my checking accounts. Buy houses that people want to live in and screen your tenants. Don't over-leverage, take care of the property like its a business and treat the tenant as a human being and you will be better off than most landlords. That was hard go type after 2 Knob Creek and diet cokes. Good night BP
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Terre B.
Aurora, CO · Member since 2018 · 180 posts · 166 votes
8y
So interesting to get different perspectives. I too, was looking at the $100 per door. It came from watching Brandon Turners podcast. For a beginner, it seems like a realistic goal, and, to me, kind of a "don't be greedy". I'm not going to get rich on one building. I'm not going to achieve financial stability from one 4 plex. But as a place to start? $100 a door doesn't seem unrealistic assuming you have all the bases covered in terms of other costs.
Those of you who say it's not enough...did you make more per door on your first ones? I'm looking for a place to start, and sometimes even $100 per door seems difficult to find.
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Jason Ray Richardson
Rental Property Investor · Brookhaven, MS · Member since 2017 · 186 posts · 108 votes
8y
I use the 1% rule just to see if I want to delve deeper into a deal. But I shoot for at least 200 (on a single family home) after "reserves" capital expenditures, expenses, management, etc. In some markets that is hard to achieve, but don't let that discourage you or push you to do a deal just for the sake of doing a deal. Patience wins out because if you say yes to a bad deal you will end up having to say no to a crummy deal.
Set your standards whatever they are using advice from mentors, other investors and what works for YOU. And then once you find a deal that fits into those parameters, pounce on it. You want to have patience but you don't want to get paralysis of the analysis. Those are just my thoughts/ramblings for what they are worth.
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Courtney M.
OP
Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes
8y
@Terre B., I'm seeing the same thing in looking at some markets. It seems like a lot of the sub-$100k homes (which is what I'm looking at) are being pushed up, probably due to investors, LOL. There's lots of opportunity out there, though, so just have to keep looking!
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
8y
Originally posted by @Joe Villeneuve:

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.
Ever heard of Dave Ramsey? He had millions in debt called on his rentals when he was in his early twenties. Lost it all.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
Dave Ramsey is not an investor...he's a "spender/saver". His philosophy is based on working within the limits of an investor's funds. Although that is a big part of investing, it will restrict you in moving forward if you use that as your base.
I prefer to invest based on expanding those "limits". I still work within them, but I want those limits to grow. I want my money to work for me, not me for it.
To do this, you must keep your money moving forward, but with risk controls in place.
The only thing you lose when you lose a property, for any reason, is the cost of that property to you. The cost is what you paid for it with your own money. If I lost a $100k property that I paid $20k for (down pmt), and was cash flowing (meaning my tenant was paying the rest), I wouold have lost $20k. If I paid all cash for it and lost it, I would have lost $100k. If I would have paid $20k down, and added $5k/yr out of pocket to pay down the loan faster, and held it for 5 years, I wouold have lost $45k.
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Scott R.
Flipping=appreciation LMAO. I started with flipping homes. I bought them for 40% of their pre-recession value, fixed them up, and sold them at 75% of their pre recession value in much better shape at a profit. Would you call that "appreciation" too?
@Mike Dymski
I was in school and did not invest prior to the last crash. I got in right after it hit when prices looked good.  Maybe you made it through, but others did not. Who do you think I was buying my deals from when I got in after the last crash? It was the investors who bought high, did not get good cash flow and could not keep their properties.
@Terre B.
If your numbers are so solid that you can guarantee $100/mo (with management) and you are comfortable taking on the risk of RE and getting a very small return (without assuming appreciation), by all means, go for it. Look at your return on your investment though. I'm guessing it will be very minimal.  You have to realize many of these metrics on here have not been tested to withstand any change in the economic cycle and that $100/door is completely different when talking about different places and different average rent levels. Without appreciation, or additional rent increases, you are never going to make any real money on a property at $100/door. Just think about how many doors you would need to own to quit your day job and how you would ever get to that if you only made $1,200/yr on each door. It is not very scaleable unless you have deep pockets.
Brandon was investing in Aberdeen, WA where rents are likely $600-$700. $100/door is completely different there than it is in a bigger MSA and I don't believe he was investing pre-crash either.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @James W.:

@Scott R.
Flipping=appreciation LMAO. I started with flipping homes. I bought them for 40% of their pre-recession value, fixed them up, and sold them at 75% of their pre recession value in much better shape at a profit. Would you call that "appreciation" too?
@Mike Dymski
I was in school and did not invest prior to the last crash. I got in right after it hit when prices looked good.  Maybe you made it through, but others did not. Who do you think I was buying my deals from when I got in after the last crash? It was the investors who bought high, did not get good cash flow and could not keep their properties.
@Terre B.
If your numbers are so solid that you can guarantee $100/mo (with management) and you are comfortable taking on the risk of RE and getting a very small return (without assuming appreciation), by all means, go for it. Look at your return on your investment though. I'm guessing it will be very minimal.  You have to realize many of these metrics on here have not been tested to withstand any change in the economic cycle and that $100/door is completely different when talking about different places and different average rent levels. Without appreciation, or additional rent increases, you are never going to make any real money on a property at $100/door. Just think about how many doors you would need to own to quit your day job and how you would ever get to that if you only made $1,200/yr on each door. It is not very scaleable unless you have deep pockets.
Brandon was investing in Aberdeen, WA where rents are likely $600-$700. $100/door is completely different there than it is in a bigger MSA and I don't believe he was investing pre-crash either.
Appreciation is an increase in the value of your property over any period of time (1 month....10 yrs... whatever)....so ya. I would.
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Scott R.
This is a discussion of a buy and hold rental real estate transaction, not a purchase, improve, and resell transaction.
Appreciation in a rental can only come from an improvement in market rents (5+) or an increase in the market value (1-4). Your flip has nothing to do with the topic at hand of $100/door and does not apply.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @James W.:

@Scott R.
This is a discussion of a buy and hold rental real estate transaction, not a purchase, improve, and resell transaction.
Appreciation in a rental can only come from an improvement in market rents (5+) or an increase in the market value (1-4). Your flip has nothing to do with the topic at hand of $100/door and does not apply.
Weird response. I was answering your question so my answer does apply.
Also, appreciation for rentals (5+) isn't only an improvement in market rents. A price of a rental, as you know, is typically priced by taking the annual gross income and multiplying it by a gross rent multipler ( the nicer the area, the higher the multipler.) So even if rents stayed the same, as an area improves, then the price will increase since the GRM went up.
Additionally, you can bring in more income without raising rents (Laundry income, parking income, storage, leasing to cellular carriers). Extra income in any form will up your AGI. Doesn't all come from rents.
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James W.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@Scott R.
The value of 5+ is only based on the increase in income. Most substantial increases in income/value will come from an increase in rents. Not the small changes in the property.
The point is that 5+ is completely different in valuing than 1-4. 1-4 needs a change in the property or market value and has nothing to do with the income generated as it is valued on the sales comparison approach.
I'm done responding to your posts as they keep dragging further and further off topic... You are not teaching me anything and the discussion is not helping out the OP.
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Scott R.
Investor · Beverly Hills, CA · Member since 2017 · 95 posts · 58 votes
8y
Originally posted by @James W.:

@Scott R.
The value of 5+ is only based on the increase in income.
Wrong
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Joe Kim
Rental Property Investor · SF Bay Area, CA · Member since 2014 · 352 posts · 543 votes
8y
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.
I had three properties at nearly $800-1000/month cash flow. Then I had 3 bad evictions in all three of these properties within a span of 6 months. The entire year of cash flow wiped out and one property had 2years worth of cash flow wiped out.
So $100/month is a recipe for disaster.
Go slow in this high priced market. Gather cash, network, find a good system but get ready when prices are lower.
Read up on Airbnb and see if you can house hack or do the "rental arbitrage" route. Cash flows are 2X, 3X, and sometimes 10X what you can make in traditional long term rentals.
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Account Closed
Member since 2018 · 70 posts · 89 votes
8y
One other obvious impacts on real estate appreciation for rentals is when there's a market shift in income expectations from other forms of "safe" and "semi-safe" investments. For example when the bank CD and quality bond markets were paying 1% or less, inventors are happy to make 5% on a real estate investment (meaning paying so much for the property that their net anticipated return is only 5% of what they paid). So as the safer earning sources have their returns rise there's a little bit of an inverse relationship with the rental markets property values as investors expect a higher return which often means a lower price on the property.
Also, the double whammy of real estate investors paying more for interest on property investments puts additional downward pressure in markets like this (and upward pressure on prices if the interest rates start to recede).
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Jason S.
Investor · Walnut Creek, CA · Member since 2018 · 43 posts · 27 votes
8y
Hi Courtney,
There are NO dumb questions!! It all depends on the property location IMO. Having said that I use $100/door or 12% Cash on Cash Return, 1.3 or higher DCR, and a CAP rate near or above 8% to get my strike price. For example, if the market place is over priced I would have to come in with an strike price of 60-70% lower then the asking price. If the property has been sitting for a while or gone through a price reduction, I make the offer.
Hope this helps.
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